Defence, Shipbuilding Stocks Gain Momentum; Gives Return of 30%

Defence and shipbuilding stocks are reporting sharp rebounds following recent market corrections. While both Nifty and Sensex have given returns of 3.5% this week, Nifty Defence has outperformed, soaring over 9% in the said period.

This week several defence companies have emerged as top gainers. While Garden Reach Shipbuilders & Engineers and ideaForge Technology rallied by 32% and 14.8% respectively, Mazagon Dock Shipbuilders gave a return of 13.7%. Meanwhile, Bharat Dynamics, Hindustan Aeronautics, Cochin Shipyard, and Paras Defence surged between 10-12%.

As per the analysts, recent corrections have created opportunities for the sector as their fundamentals remain healthy. Notably, there are two reasons for this rally. First, the Defence Acquisition Council (DAC) approved eight capital acquisition proposals, totalling over ₹54,000 crore. Second, Germany's parliament passed landmark constitutional amendments, which aims at boosting the country's military spending and infrastructure.

Kranthi Bathini, Director of Equity Strategy at WealthMills Securities, said that the surging order book and potential orders are providing a boost to the earnings visibility of defense companies. Ongoing geopolitical tensions are also proving favourable for defence stocks, following a 40%-50 correction in various stocks, which has in turn reignited investor’s interest.