Defense and rail stocks such as Bharat Dynamics, BEML, HAl, RVNLAnd IRFC were in the red at the meeting on Wednesday.
What happened: Experts attribute the correction to disappointing earnings and a share price that was above fundamentals. Railway stocks such as RVNL, IRCON, Titagarh Rail and Texmaco Rail saw their order books fall in the June quarter. These stocks have risen on the back of the government’s efforts to modernize the railways.
Disappointing earnings further fueled the decline. RVNL’s net profit fell 34% and IRCON’s revenue fell 17% in the quarter. Antique Broking and IDBI Capital are bearish 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 posted disappointing results. Some defence companies such as Mazagon Dock and HAL posted strong results. Analysts also advised caution on equities, with ICICI Securities seeing a 70% fall in Garden Reach Shipbuilders.
VK Vijayakumar, chief investment strategist at Geojit Financial Services, said, “In India, the pattern of FII selling on valuation concerns and DII being supported by inflows continues. Some segments like defence stocks, which were way ahead on fundamentals, are now seeing corrections.”
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Prashanth Tapse, Senior Vice President of Research Mehta Equities, said, “The price correction can be due to two reasons. One of them can be due to exceeding of the peak valuations like the price-earnings ratio of many companies in the defence and railways sector which is still trading higher compared to the average earnings ratio of the last five years and the second reason is the quarterly earnings.
In the first quarter of fiscal 2025, despite decent growth, revenue and margins were under pressure as the majority of companies performed below expectations, giving investors reason to book profits. We expect the gloomy trend in both sectors to continue for another quarter or two as risks such as execution delays and rising costs will persist in the near term.”
Price promotion: Most defense and railway stocks ended in red. Notable exceptions were Mazagon Dock, Cochin Shipyard, Garden Reach Shipbuilders and Titagarh Rail Systems.
BEML shares fell 4.92% to ₹3,648.
Shares of Data Patterns India fell 2.13% to ₹2,933.
Shares of Bharat Dynamics fell 1.02% to ₹1,322.
Shares of Texmaco Rail and Engineering fell 3.77% to ₹246.50.
RVNL shares fell 2.63% to ₹554.50.
IRCON shares fell 2.11% to ₹262.55.
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