After a blistering rally in Indian defence stocks earlier this year, market experts are beginning to question its sustainability. Nilesh Shah, Founder of Envision Capital, has echoed Ajay Srivastava’s earlier caution, suggesting that while the long-term fundamentals remain solid, the recent run-up may have left little room for near-term upside.
According to Shah, many defence stocks have surged by 50–100% from their February–March lows and are now trading at 50–100 times trailing earnings. “Yes, we are seeing inflows, but not enough to justify such sharp valuations in the very short term,” he told NDTV Profit. “One could argue that the rally, for now, is done.”
Shah remains bullish on the sector for the long term, citing the government’s firm push on indigenisation and modernisation. However, he categorises defence as a “buy on dips” story for now. He also expects defence spending to outpace railway capex in the coming years, a clear sign of the government’s strategic priorities. “Defence will take precedence over railways. Over the next couple of years, you’ll see a higher spend on defence.”
Ajay Srivastava of Dimension Corporate Finance Services had raised similar red flags earlier. He warned that most Indian defence stocks—largely public sector undertakings—are currently trading at “stupidly inflated” valuations. While he acknowledged a few outliers might deliver, he advised investors to wait for more rational pricing. He also pointed to a 30% year-to-date rise in US aerospace and defence indices.
The Nifty Defence Index reflects the rally’s momentum and recent correction. After rising over 32% year-to-date and registering monthly gains of 24.6% in March, 12.5% in April, and 23.4% in May (amid India-Pakistan tensions), the index has recently cooled. It is down 4.37% so far this week, 2.47% since June 9, and 0.17% this month.
Despite this pullback, brokerages remain optimistic on the long-term outlook. Jefferies, in its latest ‘India Defence Monthly’, highlighted robust growth, with India’s defence capital expenditure rising 25% in March and surging 122% year-on-year in April—far exceeding budgeted expectations. Jefferies expects this momentum to continue, supported by a strong order book and export ambitions.
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