Party Over For Defence And Railway Stocks? Analysts Explain Why HAL, BDL, RVNL, IRCON, And Other PSU Stocks Are Seeing Corrections

Defence and Railway stocks such as Bharat Dynamics, BEML, HAl, RVNL, and IRFC were down in the red on Wednesday's session. 

What Happened: Experts attribute the correction to disappointing earnings and share price which ran above its fundamentals. Railway stocks such as RVNL, IRCON, Titagarh Rail and Texmaco Rail saw their order books fall in the June quarter. These stocks have run up on the back of the government’s focus on modernising the railways. 

Disappointing earnings also added fuel to the decline. RVNL's net profit fell 34% and IRCON's revenue fell 17% in the quarter. Antique Broking and IDBI Capital have a bearish stance on RVNL. Antique has a “sell” rating while IDBI Capital has a “hold” rating. IDBI Capital also has a “hold” rating on IRCON.

The poor results were not limited to railway stocks, defence stocks such as BDL, and BHEL also had underwhelming results. Some defence names had strong results like Mazagon Dock and HAL. Analysts also advised caution on stocks with ICICI Securities seeing a 70% downside on Garden Reach Shipbuilders.

V K Vijayakumar, chief investment strategist, Geojit Financial Services said, “In India, the pattern of FII selling on valuation concerns and DII buying supported by money flows continues. Some segments like defence-related stocks which have run far ahead of fundamentals are witnessing corrections.”

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Prashanth Tapse, Sr VP of Research Mehta Equities said, “Price correction can be attributed to two reasons. One can be due to peaked-out high valuations like the price-to-earnings multiple of many companies related to the defence and railway sectors are still trading higher when compared to the five-year average earnings multiple and the second reason comes from quarterly earnings.

In Q1FY25 despite decent growth, the topline and margin profiles were under pressure as the majority of the company reported lower than street expectations which is giving a reason to investors to book profits. We expect the gloomy trend in both the sectors to continue for one or two quarters as risks like execution delays and rising costs would continue in the short term.”

Price Action: Most of the defence and railway stocks ended up in the red. Notable exceptions were Mazagon Dock, Cochin Shipyard, Garden Reach Shipbuilders and Titagarh Rail Systems.

Shares of BEML were down 4.92% to ₹3,648.

Shares of Data Patterns India were down 2.13% to ₹2,933.

Shares of Bharat Dynamics were down 1.02% to ₹1,322.

Shares of Texmaco Rail and Engineering were down 3.77% to ₹246.50.

Shares of RVNL were down 2.63% to ₹554.50.

Shares of IRCON were down 2.11% to ₹262.55.

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