Defence Stocks: JPMorgan says correction has reduced froth, bets on two major names

The correction in Defence stocks, most of which have declined between 25% to 50% from their record high levels seen in 2024, has reduced the froth in valuations seen among these stocks, brokerage firm JPMorgan said in a note on Tuesday, February 25.Bharat Electronics Ltd (BEL) is JPMorgan’s preferred pick within the defence space. It has an “overweight” rating on the stock. It also has an “overweight” rating on Hindustan Aeronautics Ltd (HAL), but said that it prefers BEL over HAL.

The Nifty Defence Index has corrected 12% in the last one month and 23% over the last six months. This is in comparison to the 1.1% and 10% drop seen on the Nifty 50 index across both these timeframes respectively.

It cited three reasons for the recent correction:

• Souring sentiment after the Budget on government capex
• Domestic industrial slowdown
• Geopolitical news flows which have been interpreted to imply higher import and / or lower defence capex.

JPMorgan said these concerns are “unduly exaggerated”.It said the structural story of defence capex growth and indigenisation remains intact as healthy earnings delivery continue.

JPMorgan has a price target of ₹343 on BEL, which implies a potential upside of 33% from current levels. Its price target of ₹4,958 on HAL, which implies a potential upside of 49% from current levels.

Of the 27 analysts that track BEL, 24 have a ‘buy’ rating, one has a ‘hold’ rating and two have a ‘sell’ rating. For HAL, 15 analysts have a ‘buy’ rating while one has a ‘sell’ rating.

HAL shares were down 0.66% at ₹3,328.4 apiece at 10.35 am, while BEL shares were up 0.2% at ₹256.85 apiece.  HAL shares are down 20.15%, this year, so far, while BEL shares are down 12.62% from the beginning of this year

Also Read: Should you buy Tata Motors shares after a 43% fall from peak? Here’s what analysts suggest