Defence Stocks: Expensive Now or a Buy-on-Dip Opportunity?
| Company Name | Price Return Since 1st April | Maximum PE re-rating from 1st April | Correction | |||
| Peak Return from 1 April | Peak Return From April low | 1 April PE | Highest Since April | Current PE | Correction from recent peak | |
| HAL | 17% | 35% | 32.5 | 41 | 38.3 | -7.3% |
| BEL | 36% | 70% | 42.8 | 58 | 55.5 | -7.3% |
| BDL | 115% | 131% | 80.7 | 134 | 116 | -16.9% |
| Mazagon Dock | 76% | 80% | 37.8 | 58 | 51 | -19.3% |
| Paras Defence | 103% | 137% | 76.5 | 122 | 106 | -17.0% |
| Data Patterns | 127% | 142% | 53.1 | 90 | 73 | -11.4% |
| Cochin shipyards | 81% | 108% | 44.6 | 74 | 59.7 | -24.9% |
| Average | 79% | 100% | 52.5 | 82.4 | 71.3 | -15% |
According to ICRA’s report dated June 18, 2025, India’s defence sector is projected to grow at a healthy rate of 15–17% in FY26, while maintaining strong operating margins of 25–27%. The sector’s Order Book to Operating Income (OB/OI) ratio, standing at 4.4x as of the end of FY25, indicates a robust pipeline of future revenues, providing clear visibility for the coming years.
However, the critical question for investors is whether this projected growth is already factored into the current stock prices. Defence stocks have rallied sharply in recent months, delivering average returns of 80–100% between April and July 2025. This rapid price appreciation has pushed the average sector P/E multiple to around 70, compared to the earlier average of 51. At the peak, valuations touched P/E multiples of 81, making these stocks appear considerably expensive from a traditional valuation perspective.
While the long-term growth story remains intact, supported by strong government focus on defense indigenization and export orders, current valuations raise concerns. A portion of investors—estimated at around 15–17% of invested capital—have already booked profits near recent highs, suggesting some valuation caution in the market.
Conclusion
Defense stocks are no longer in the undervalued zone. Fresh investments at current levels may carry lower margin of safety , unless backed by a longer investment horizon. For prudent investors, a buy-on-dip and selective strategy could be more appropriate, allowing participation in the sector’s growth without exposing themselves to stretched valuations. Monitoring order inflows, execution timelines, and profitability metrics will be crucial in assessing future entry points.
References- Annual reports of the mentioned companies: ( Tap to See )
This article is written by –Vaibhav Yadav / Research Analyst SIHO Research.
Disclaimer: This is article is solely written for educational purpose and should not be taken as investment advice