Why shipbuilding stocks may stay anchored despite tailwinds

Except for a few standouts, such as Garden Reach Shipbuilders & Engineers (up 28%) and Knowledge Marine & Engineering Works (up 25.5%), most names have delivered modest gains.

Mazagon Dock Shipbuilders has returned about 6%, while Cochin Shipyard and Great Eastern Shipping Company are up around 12% each. Shares of Shipping Corporation of India have performed slightly better, rising 14% year-to-date.

During the same period last year, Garden Reach, Shipping Corp, GE Shipping, Cochin Shipyard, and Mazagon Dock gained between 27% and 90%. Garware Marine surged 378%, while Knowledge Marine rose 13%.

Meanwhile, the Nifty India Defence Index rose 53% between 1 January and 6 October 2024, compared with a 23% gain over the same period in 2025.

The 200-day moving average is a key indicator of long-term market trends, providing a clearer picture of sustained momentum than shorter measures, such as the 50-day moving average or 52-week highs. Stocks trading above this level typically signal investor confidence and bullish sentiment, while those slipping below may indicate waning investor confidence.

Despite being technically strong, investor interest is confined to a few names, while the broader sector is weighed down by high valuations, execution delays, and dependence on defence orders.

The normalisation of freight rates post-covid has also dimmed enthusiasm for commercial shipbuilding, market participants said.

Some experts argue that the sector is a tactical play, rather than a long-term compounder. The defence and maritime capex story could play out over the next two to three years, but it’s unlikely to be broad-based, they said.

Do they still offer opportunities?

Vikas Gupta, CEO & chief investment strategist at OmniScience Capital, believes shipbuilding stocks still hold the potential to deliver market-beating returns, with a few select names having room left for a rally.

India’s shipbuilding industry functions more like a defence play than a commercial one, with most orders coming from the government. However, challenges such as execution delays, rich valuations, and heavy reliance on government contracts—coupled with muted market sentiment—have kept stock movements rather tepid in 2025 so far.

“Some of these shipbuilding firms are genuine long-term compounders, thanks to their niche strengths - say stealth submarines or aircraft carriers," Gupta said. “I view them as strategic, high-quality moat companies."

Order overhang

Delays in large defence contracts are hurting visibility. Mazagon Dock’s finance director, Ruchir Agrawal, flagged during the company's Q1 earnings call that revenue growth could slow to 8–10% for FY26, down from over 20% in recent years.

According to Antique Stock Broking dated 3 September, Mazagon Dock awaits orders for three Kalvari-class submarines, while it remains the only firm eligible for six submarines under the P75I programme (FY26–27 timeline). “We estimate potential order flows from these three orders to be Rs1.5 trillion, almost 5x the current order book," the brokerage said, adding that a delay in the finalization of these orders may weigh on the near-term growth outlook.

Garden Reach, meanwhile, has a ₹22,200 crore order book, expected to rise to ₹63,500 crore by FY27, per Antique’s August note. This is 2.8 times its current order book resulting in revenue visibility, which should support valuations going ahead, it added.

Cochin Shipyard’s pipeline is thinner, with the deferral of the Indigenous Aircraft Carrier-II order impacting growth prospects.

Antique Stock Broking has maintained its ‘buy’ rating on Mazagon Dock’s stock, while the brokerage in its 11 August note upgraded its rating on Garden Reach’s stock to ‘buy’ from ‘hold’ earlier.

For Cochin Shipyard, Antique has maintained its negative view on the stock and retained its ‘sell’ recommendation in the 13 August report.

All said, stability - supported by a strong order book, rising exports, green ship initiatives, and PSU fleet renewal - does not imply market-beating returns, said Sonam Srivastava, Founder and Fund Manager at Wright Research PMS. Profitability, she added, remains volatile due to long execution cycles and dependence on government contracts — unlike other defence segments such as electronics or rail manufacturing, where private participation is stronger.

“For sentiment to broaden, consistent delivery, export traction, and higher-margin diversification are essential. Until then, the theme remains narrow and policy-led," Srivastava said.

Policy push

The Union Cabinet recently announced an incentive package worth ₹69,725 crore, aimed at accelerating the sector’s growth by enhancing infrastructure to attract investments in shipbuilding, repair, and recycling, as well as promoting domestic ship ownership and strengthening port facilities.

However, the near-term rally remains sentiment-heavy, as tangible earnings impact will play out over FY27–28 once new capacities come online, said Srivastava.

“If executed well, the policy could lift sectoral ROEs (return on equity) from 12–13% today to 16–18% over three years, but delivery discipline will be the key determinant," Srivastava added.

Risks remain

Execution risk continues to loom large. Defence and commercial contracts face frequent delays, stretching working capital and squeezing margins.

Reliance on government orders, global freight cycles, commodity inflation, and capital-intensive capacity upgrades add to the challenges.

Investors should closely monitor order mix, delivery timelines, and cost overruns. In the long term, gains will require diversification toward private and foreign clients to reduce cyclicality and enhance cash generation, market participants said.

What about valuations?

Valuations are no longer cheap. Garden Reach is currently trading at a hefty 55.7 times earnings, far above its five-year average PE of 17.28. Shipping Corp., Great Eastern Shipping, and Cochin Shipyard are also trading at premiums to historical multiples, signalling sector-wide froth.

The Nifty India Defence index appears to be forming a cup and handle pattern, a classic bullish continuation formation, said KKunal Parar, VP of technical research and algo at Choice Broking.

“A decisive breakout above the neckline level of 8,320 could trigger a fresh upside move in the coming sessions," he added.

On Thursday, the Nifty India Defence index was up 0.4% at 8,018.6 points.

However, Parar cautioned that volatility persists. In recent times, the Nifty India Defence index experienced a healthy correction of nearly 40% from its highs, briefly denting investor confidence.