UCO Bank, Punjab & Sind Bank, Central Bank Of India, Bank Of Maharashtra, Union Bank Of India and Bank Of India have rallied 100-200 per cent since last Diwali. 
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UCO Bank, Punjab & Sind Bank, Central Bank Of India, Bank Of Maharashtra, Union Bank Of India and Bank Of India have rallied 100-200 per cent since last Diwali. Defence, railways and PSU bank stocks are investor darlings since last Diwali, having rallying up to 385 per cent since October 24, 2022. Analysts largely stayed positive on the long term outlook for the three pockets in a BT Markets Online Diwali survey, even as there remain chances of the three sectors delivering muted returns in the short-run, they warned.
Nikhil Kapoor, Senior VP at JM Financial Services noted that India's defence spending is among top 5 globally and that the indigenous defence equipment purchases have increased dramatically led by strong R&D, favourable policies and development of defence vendor ecosystem aiding higher value capture within the country. Kapoor felt a large part of indigenisation benefits are yet to reflect in revenues of domestic companies, given the time lag in execution post orders.
"Hence we believe defence is a multi-decadal theme for India and valuation multiples at FY25 levels remain inexpensive. Similarly, for railways strong growth in order book, a healthy order pipeline and strong government focus on building its railway infrastructure, revenue growth is expected to remain strong and can surprise us on upside among railway companies," he said.
Data showed railway-linked stock Titagarh Rail Systems Ltd leaped 385 per cent since last Diwali. Rail Vikas Nigam Ltd soared 332 per cent, Ircon International Ltd surged 260.75 per cent while Indian Railway Finance Corporation Ltd (IRFC) jumped 245 per cent during the same period. Defence stock Zen Technologies Ltd led the defence pack, climbing 258 per cent since last Diwali.
India's improving infrastructure and projected growth in the coming year could lead to a favourable performance for PSUs, analysts said. "PSU stocks are attractive due to their consistent dividend distribution history and long-term growth potential. However concerns about the broader PSU capex theme in India, as the government's heavy spending on sectors such as roads, defence, and power is not supported by underlying tax collections. The government's policies, such as the merger of several PSU banks, have aimed to create stronger and more efficient entities, which has had a positive impact on their performance," said Anshul Arzare, Joint MD & CEO at YES Securities.
Investing in PSU stocks in India can be a strategic choice for those seeking stability, government support, and potential value opportunities, Arzare of YES Securities said.
Among PSU banks, UCO Bank, Punjab & Sind Bank, Central Bank Of India, Bank Of Maharashtra, Union Bank Of India and Bank Of India have rallied 100-200 per cent since last Diwali.
On defence stocks, Arzare said: "The maintenance and repair capabilities of Indian engineers also can make india a global MRO ( Maintenance and repair operations) hub for the world in coming times. We believe defence stocks are placed favourably because they offer the long-term execution growth visibility, backed by robust order book and a healthy pipeline, and timely execution due to localisation, integrated modular construction, and subcontracting, along with domain expertise/moat of government preference," Arzare said.
Among defence stocks, Mazagon Dock Shipbuilders is up 212 per cent, Garden Reach (78 per cent) while shares such as Hindustan Aeronautics Ltd (HAL), Astra Microwave Products Ltd, Solar Industries India Ltd and Mishra Dhatu Nigam Ltd have risen 45-68 per cent since last Diwali .
Shrey Jain, Founder & CEO, SAS Online said defence stocks and some PSU stocks have strong earnings growth visibility and that investors, at prevailing valuations, need to have a long-term view on these stocks to make money.
"Defence stocks would continue to do well. May be they wont give good returns in next 6 months as they have moved up significantly however with the horizon of 3 years they will give good returns as govt has tremendous focus on this sector," Santosh Pandey, President & Head, Nuvama Professional Clients Group said in the BT Markets Online Diwali survey.
Satish Menon, Executive Director at Geojit Financial Services said the rally in defence and PSU banks has been strong in the last 2-3 years (Atmanirbhar policy), while being especially elevated during the last year.
"This is because the outlook on government entities improved, corporate risk was reduced, and fiscal expenditure increased. At the same time, valuation was attractive compared to the broad market. We expect the performance to moderate in the coming six months due to a likely slowdown in government expenditure and pre & post-election clampdown on government spending. Now the valuation is also high compared to the broad market," he said.
Tanvi Kanchan, Head - Corporate Strategy, Anand Rathi Shares and Stock Brokers: PSU’s have seen stellar performance with the way they have rallied and run up especially in defence and railways. Selective outperformance is very much on the cards in select pockets and stocks particularly the PSUs," she said.
"I am considering reducing our exposure to the defence sector due to election-related risks. However, this is a potential opportunity post-election. Once there's clarity on the election outcome, I am inclined to increase my weightage in defence and PSU stocks. Despite the risks, these sectors hold promise, and strategic adjustments post-election could present favourable opportunities for investors," Arpit Jain, Joint Managing Director at Arihant Capital Market.
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