Major defence stocks stage a comeback; Cochin Shipyard surges by 10%

According to experts, interest in defence stocks likely went up as the correction eased valuations to an extent. The buoyant sentiment in the equity market also boosted buying in the sector

Defence stocks witnessed a turnaround on Friday after a steep fall in the past two months. Cochin Shipyard surged 10 per cent while Garden Reach Shipbuilders, Mazagon Dock Shipbuilders, and Paras Defence & Space Technologies gained 5 per cent or more.

According to experts, the interest in defence stocks likely went up as the correction eased the valuations to an extent. The buoyant sentiment in the equity market also boosted buying in the sector.

"It is a reaction to the Fed rate cut and investors speculating on potential promising opportunities. Some investors might have thought that the fall was overdone and they started buying into the theme again," said Vikas Gupta, smallcase manager and CEO at OmniScience Capital.

The rally in Cochin Shipyard was also driven by its inclusion in the FTSE All World index. The inclusion is expected to bring $30 million inflows into the defence major.

Even though these stocks saw rally on Friday, most of them were down significantly in the three-month period, going up to as much as 27 per cent. Bharat Dynamics, Paras Defence & Space Technologies, and Hindustan Aeronautics have seen the most decline during the period. Most brokerages had a sell rating on these stocks, largely due to overvaluation.

The price-to-earnings (P/E) ratios had swelled after stock prices went up multifold during the day. The rally was initially fuelled by the government's focus on defence manufacturing in India and the resultant increase in order books.

In the one-year period, many of the defence stocks are up over 100 per cent. Cochin Shipyard is the biggest gainer having gone up 246 per cent.