Cochin Shipyard, LT, HAL to shipbuilders Mazagon Dock: Should you buy defense stocks after a sudden pullback?

Stocks to buy: Defensive stocks witnessed a sharp pullback during Friday trade after feeling the heat of the sell-off for nearly three months. Shares of Cochin Shipyard rose 10% and stuck in the upper circuit, and Mazagon Dock Shipbuilders’ share price soared more than 7%. Shares of ideaForge, Larsen & Turbo (LT), Bharat Dynamics, BHEL, etc., rose over 2% in this pullback rally. This rise in defense stocks has sparked a debate on whether the mojo in Indian defense stocks has returned or not.

According to stock market experts, it would take several sessions to determine whether the defense stocks’ mojo has returned. However, some defensive stocks are available at attractive valuations and one can start accumulating selected ones. They said most of the defense stocks are PSUs and they have rallied a lot in the last few years. So, firm selling in defense stocks was expected and the base building mode cannot be undone in one pullback.

Triggers for Defense Stocks in Indian Markets

Talking about the outlook for Indian defense stocks, Manish Chowdhury, head of research at StoxBox said, “While it is too early to conclude that the pain has passed for the overall defense sector, we feel that valuation in certain pockets has become reasonable. Relative to historical trends, we recommend stockpiling defense stocks on every dip, with a 12-18 month outlook. We believe these companies’ robust order book, greater focus on indigenization and growing export potential would continue to provide tailwinds to the entire sector. Order book execution would be critical for these companies to support the current valuation, and any losses in earnings or slower earnings could further hurt the overall sector.

Advising investors to remain cautious while taking any investment decision in defense stocks, Anshul Jain, head of research at Lakshmi Shree Investment and Securities Ltd said, “Post Budget 2024, we have remained bearish on PSU stocks, including defense stocks as they have rallied heavily in recent years. So, heavy selling was expected by those who have accumulated huge wealth from these stocks in the recent course. So the end of base building mode can be assumed in just one return. You should wait a few more sessions and only make investment decisions. The risk-reward ratio in defense PSU stocks is more inclined towards ‘sell to the upside’ than to the ‘buy to the downside’ strategy.

Defense stocks to buy

On stocks looking attractive on the technical chart, Sugandha Sachdeva, founder of SS WealthStreet said, “On the technical chart pattern, shares of Mazagon Dock Shipbuilders, Cochin Shipyard and Larsen & Toubro (LT) are looking good.”

Here is the complete list of defense stocks and their critical levels shared by Sugandha Sachdeva:

1) Mazagon Dock Shipbuilders: Buy at ₹4300 to ₹4350, target ₹5100 and ₹5500, stop loss ₹3700;

2) Cochin Shipyard: Buy at ₹1800, target ₹2280, stop loss ₹1500 (on closing basis); and

3) LT: Buy at ₹3700 to ₹3750, target ₹4180, stop loss ₹3300 (on closing basis).

Disclaimer: The opinions and recommendations above are those of individual analysts or brokerage firms, not of the Mint. We advise investors to consult certified experts before making any investment decisions.