HAL shares fall 4%, plunges 20% from recent peak; what’s driving the rally?

Shares of Hindustan Aeronautics Ltd. are experiencing a decline of more than 2.5 per cent on Monday, marking the fifth consecutive day of losses. At its lowest point of the day, the stock was down over 4 per cent, reflecting the general sentiment of the global markets.

Following Monday's decline, shares of Hindustan Aeronautics have fallen by 20% from their recent peak of ₹5,678, reached on July 5 of this year. 

On the charts, the stock has fallen below its 50-day moving average of over ₹5,100 and is now seeking support at its 100-day moving average, positioned at ₹4,419. HAL's shares reached an intraday low of ₹4,480 on Monday.

The Relative Strength Index (RSI) is also approaching oversold territory, currently at 33. An RSI reading below 30 signifies that the stock is in "oversold territory."

What led the fall in HAL shares?

A report in the Hindustan Times last Thursday indicated uncertainty regarding HAL's ability to meet the delivery schedule for the new Tejas Light Combat aircraft for the current financial year and beyond. According to senior Indian Air Force officials familiar with the situation, the first aircraft, which was supposed to be delivered by March 31, 2024, has not yet been delivered.

In the past five sessions, the stock has lost over ₹30,000 crore in market capitalization.

Despite the recent decline, shares of Hindustan Aeronautics are still trading above their historical valuations. Currently, the stock trades at a price-to-earnings multiple of 33.6 times for the financial year 2026.

For the financial year 2025, HAL shares trade at a price-to-earnings multiple of 41.6 times, whereas the five-year average price-to-earnings multiple of HAL is 23 times.

Hindustan Aeronautics will hold a board meeting on August 14 to review its June quarter results.

Out of the 16 analysts covering HAL, 13 still recommend buying the stock, one advises holding it, and two suggest selling.

While giving ‘accumulate’ rating, brokerage firm Elara Capital said, “We keep our earnings unchanged during FY25-26E. We revise to Accumulate from Buy with an unchanged TP of INR 5,590 based on 45x March 2025E P/E. Our TP is driven by expectations of a new stream of exports business, surge in inflows of INR 1.5tn, rising margin, and sustained double-digit earnings growth. We believe the rising share of indigenization along with unexplored exports opportunity in the aircraft & helicopter industry warrant a rerating. We expect an earnings CAGR of 17% during FY24-26E with a ROE of 24% during FY25-26E. Key risks to our call include lower spending in the defence capital budget, less domestic procurement allocation, increased competition from the private sector, and delay in execution.”