Indian Defense Sector

It is always good to have contrarian views.
Views on valuation of stocks differ from individual to individual. In my view Nobody is right or wrong in stock picking. That is why for every seller, there is a buyer at any price and vice versa.

The Market which is a collection of intellectuals who finally decides the price of a stock depending upon company’s fundamentals, financial performance, earning visibility in terms of order book.
Mr Market is always right, though at times it may behave irrationally. But then it corrects in due course. I have been watching , whenever the market corrects, defence stocks remain resilient and whenever these defence stocks correct, it is bought in to by investors.

Further, we cannot compare historical P/E with current P/E of PSU’s. History remains as history. I have been closely watching PSU stocks performance for the last 3-4 years.
PSU’s never had the kind of order book currently they have which only increases day by day which ensures that there is an earning visibility for the next 5-6 years or even more.
Execution wise , PSU’s have shown remarkable improvement as reflected in recent financial performance.

So, clearly During the Modi regime , there is a structural shift in PSU functioning.The PSU’s remain in focus of the Govt. There is a heavy Capex happening and the clear beneficiaries are the PSU pack and many Pvt corporates are also getting the benefit of the heavy Capex allocation to defence , railway , infra and most PSU defence companies are unique business with a strong moat at least in Indian context.

I agree that India’s defence sector is at its nascent stage as in the past it never got a chance to grow. Now that it has started getting the attention , this can grow faster provided the Govt walks the talk – not only Atma nirbhar Bharat but as an export hub too where India has just got 1% market share in Global market.

If I look at the entire stock universe, no stocks are currently trading at a cheaper valuation than PSU stocks if we compare recent Quarterly performance and earning visibility due to order book for next 5-6 years. And apart from that these companies are debt free, minimal corporate governance issues, no Tax raids , no balance sheet manipulation issues. Regular and decent dividends from psu stocks is only an icing in cake.
My take is that as long as there is a govt policy continuance, order inflow remains strong, execution quality remains good , and it is reflected in financial performance , the defence PSU stocks may continue to remain in demand and may remain in the limelight…

I agree that some defence stocks especially in.pvt sectors have moved up very fast beyond fundamentals. And I am sure market may correct in those cases whether it is PSU or Pvt.