Pak gets Chinese Submarine. India flexes it’s muscle with 2,00,000 Crore plan to counter Dragon in Indian Ocean.
India is forced to augment it’s Navy fleet. While this may Augur well for defence stocks for next one decade, if Modi Govt’s Strategy of Atma nirbhar Bharat and increased defence budget continues.
In my view , even if there is change in Govt at center , i don’t think anyone will ignore our nation’s defence capability and cut defence spends.
However , the stocks have run up quite a lot during last one year when the stocks were available @10-12 P/E. Currently all the 3 shipping stocks are trading at near to all time high @ 40 P/E discounting future earnings and market would like to watch next few quarters to re-rate.
Key risks:
(1) Though the Q1 performance was very good. we should not expect the same performance Sequentially though annual growth could be expected due to long gestation period of ships.
Any degrowth could lead to drop in price could be a buying opportunity or any sharp correction in mid cap sector could lead to price drop.
(2) The plan to augment the fleet need to get converted in to order from Navy and the order needs to be executed and execution should result in to profit for which market would like to see.
(3) PSU’s normally slow in execution, but these 3 companies have capability to execute and urgent defence requirement could force them to execue.
discl: invested at low level and still holding, no transaction since last 2 months. not a buy sell recommendation. Pl do your own assessment before buying & selling
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