Defence PSU Stocks Fly To Moon After Op Sindoor; Are HAL, BEL, Mazagaon Dock, Cochin Shipyard Overvalued?

Indian military's Operation Sindoor has again put the spotlight on the domestic defence production, which is likely to become a Rs 3 lakh crore industry by 2029. Meanwhile, the output production of the defence public sector undertaking (Defence PSUs) companies is expected to double to Rs 1.8 lakh crore. Despite a robust outlook for the defence sector, certain defence PSU stocks with "high growth potential are significantly priced in," according to smallcase Manager Omniscience Capital.

Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL), Bharat Earth Movers Limited (BEML), Bharat Dynamics Limited (BDL), and Garden Reach Shipbuilders and Engineers Limited (GRSEL) are among the 8 defence PSU stocks which have been identified by Manager Omniscience Capital as 'overvalued' at their current price level.

Operation Sindoor Shifts Focus On Defence PSU Stocks

Amid heightened tensions between India and Pakistan post the Pahalgam terror attack in Jammu and Kashmir, which left more than 25 people dead, Indian Armed Forces launched 'Operation Sindoor'. The military operation had targeted terrorist infrastructure in Pakistan and Pakistan-Occupied Kashmir (PoK) from where terrorist attacks against India have been planned and directed.

Operation Sindoor triggered a renewed focus on defence, vigilance and strategic preparedness to attack enemies. According to the smallcase report, India's future defence spends is expected to be much higher than earlier declared plans of the Indian government and the Indian Armed Forces.

Defence PSU Stocks Rally Post Operation Sindoor

Indian Armed Forces' Operation Sindoor was followed by a massive rally among the defence sector stocks with HAL, BEL, Mazagon Dock Shipbuilders, and Cochin Shipyard's share price value soaring to as high as 25% in a month.

According to the smallcase report, most of these defence PSU stocks are likely to showcase strong growth rates for decades. However, investors need to pay attention to their valuations at current market prices.

Defence PSU Stocks Rally: Are They Too Hot To Hold?

Urging investors to pay attention to defence PSU stocks' valuations at the current price, the smallcase report noted, "median trailing price to earnings (P/E) multiple of the 8 listed DPSUs is 57. The forward median P/E for FY26 and FY27 is at 45 and 36 indicating that the high growth potential is significantly priced in."

Ticker	PE (TTM)	PE (FWD26)	PE (FWD27)	CMP
HAL	40.2	38.8	32.7	5017.45
BEL	53.3	48.1	41.8	387.5
BEML	61.6	43	29.8	4230.4
BDL	127.9	72.6	52.4	1974.55
GRSE	62.8	40.1	28.9	2966.2
MAZDOCK	52.6	48.4	40.2	3383.5
MIDHANI	50.2	39.3	29.8	415.3
COCHINSHIP	60.1	57.6	47.4	1922.7
MEDIAN	57	46	36

"For some of the private sector names the multiples are even higher and hence, investors are advised to be extremely cautious while allocating capital to specific names at current levels."

Defence Sector Stocks Rally: Should You Buy?

While defence sector stocks offer stability and longterm growth potential, investors must keep a 'conservative' approach while adding stocks in their portfolio, noted smallcase manager.

"Buy a portfolio that is at a discount to its intrinsic values. If you don't find that, don't invest. Check the PE ratio of any defence stock or portfolio, whether an index fund or an active portfolio before investing," noted the smallcase manager.

Disclaimer: The write-up is just for information purposes, and is not a recommendation to buy, sell or hold. We have not done fundamental or technical analysis and have no opinion on article mentioned. Neither, the author nor Greynium Information Technologies should be held liable for any losses. Please consult a professional advisor.