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Smallcap Unimech Aerospace & Manufacturing tops the valuation charts in the 18-stock Nifty India Defence Index, trading at a trailing 12-month (TTM) P/E of 291 — nearly six times the industry average. It is followed by midcap PSU Bharat Dynamics (BDL) and largecap Solar Industries, with P/E multiples 2.1x and 2.8x their industry benchmarks, respectively. The premium story doesn’t end there — as many as 12 other stocks in the index also trade above industry multiples, raising a red flag on whether such lofty valuations are truly justified.While there are different metrics to value a stock, one is the price-to-earnings multiple (P/E). Higher the P/E, pricier the stock. The P/E ratio tells you how much investors are willing to pay for each rupee of a company’s earnings.Nitin Jain Senior Research Analyst at Bonanza does not appear surprised with high valuation being commanded by Unimech, Solar and BDL, arguing that there is a good reason why these three stocks have risen sharply viz. better order books, more policy support, rising exports, and strategic tailwinds. Over the next 6-12 months, defence stocks will remain buoyant, especially those withstrong order pipelines, good execution track record, and exposure to exports or indigenisation tailwinds, said Jain, adding that investors may continue to favor them as strategic plays in India’s defence self-reliance narrative.That pretty much explains why defence stocks continue to be the darlings of D-Street, with investors willing to pay a premium on every positive trigger, often sidelining valuation concerns. Others including Paras Defence And Space Technologies, MTAR Technologies, Dynamatic Technologies, Data Patterns (India), DCX Systems, Astra Microwave Products, Zen Technologies, Mishra Dhatu Nigam, BEML, Cochin Shipyard, Mazagon Dock Shipbuilders and Bharat Electronics (BEL) also fall on the wrong side of valuation metrics. Only Garden Reach Shipbuilders (GRSE), Cyient DLM and Hindustan Aeronautics (HAL) trade below their industry P/Es. <iframe title="Defence stocks" aria-label="Table" id="datawrapper-chart-qoqMc" src="https://et-infographics.indiatimes.com/graphs/qoqMc/1/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="838" data-external="1"></iframe><script type="text/javascript">!function(){"use strict";window.addEventListener("message",function(a){if(void 0!==a.data["datawrapper-height"]){var e=document.querySelectorAll("iframe");for(var t in a.data["datawrapper-height"])for(var r,i=0;r=e[i];i++)if(r.contentWindow===a.source){var d=a.data["datawrapper-height"][t]+"px";r.style.height=d}}})}();</script>Echoing the sentiment, Anuj Gupta, Director at Ya Wealth Global Research, said investors remain convinced by the government’s push for the sector and the self-reliance narrative, which in turn is driving demand for defence equipment. He expects the bullish momentum to sustain, especially in sectors like aerospace, nuclear energy and semiconductor.While these stocks hail from the same sector, their line of businesses remain different so a common P/E multiple is not there. Instead, ETMarkets has considered industry P/E to give a more accurate picture. For e.g. comparing GRSE and HAL will not be a like-to-like comparison. Likewise, Paras Defence and MTAR have different P/E multiples. Returns snapshotThe average returns for FY26 are at 32% with double-digit returns from 16 stocks. Unimech's FY26 returns are at 13% while those of Solar Industries and BDL at 30% and 26%, respectively. The stock performance As for other richly valued names like Data Patterns, Astra Microwave, Paras Defence and MTAR, FY26 returns stand at 68%, 61%, 55% and 38%, respectively.State-run GRSE, whose TTM P/E multiple is 53.69, is lower from 57.56 for the industry. Its FY26 returns are 56%. Cient's P/E multiple is 49.09, lower from industry P/E multiple of 113.22. Its returns in the said period are at 5% while Hindustan Aeronautics' (HAL) 16% returns are backed by a P/E multiple of 39.34 times versus industry's 49.58.– Unimech Aerospace share price outlook Unimech's is a smallcap stock with a market capitalisation of Rs 5,360 crore on the NSE. The company is into high-precision engineering solutions. It serves industries such as aerospace, energy, and semiconductors.Jain sees it as a volatile stock with current technical indicators suggesting momentum albeit with risks. On the fundamental side, the company faces execution risk.– Solar Industries share price outlookThe company manufactures UAS and drones, ammunition and high energy material. The company also has business interests in mining and space applications. Jian highlights "very strong growth projections" of 26-31%, calling Solar Industries as one of the more aggressive private players. Yet, he warns investors of unwanted exuberance because of higher risks if margins or order execution slip.Solar Industries is in a positive trend though it has slipped 20% from its 52-week high of Rs 17,820 hit in June this year. Gupta expects the stock to rise from here based on the current technical trends and places a strong support at Rs 12,000 while resistance at Rs 16,000.– BDL share price outlookJain finds PSU stock Bharat Dynamics trading at a significant premium and rules out any big upside unless the company manages to consistently deliver earnings "beyond expectations". Large orders and strong visibility has kept the investor appetite high for this stock, he said. BDL builds guided missile systems and allied equipment for the Indian Armed Forces.Technically, the stock appears in a positive trend, rising by over 11% so far in this month and trading at Rs 1,595, Gupta of Ya Wealth said. He sees a strong support at Rs 1,330 while resistance at Rs 1,700 and expects the stock to continue its uptrend.(Data inputs from Ritesh Presswala)(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

India is considering an increase in the foreign investment limit in public sector banks (PSBs) from the current 20%, as it looks to strengthen them into institutions that can raise capital easily, people privy to the development said.This is among several proposals policymakers are discussing as part of a broader slate of reforms planned to boost the economy amid geopolitical concerns.The government will not reduce its stake below 51%, while allowing higher foreign stakes, ensuring the public character of these banks, said a senior government official. A final call will be taken at the highest level of government, said the official.Financial services secretary M Nagaraju earlier this month said PSBs have moved beyond the phase of survival and stability, and are now positioned to play a larger role. 124077571Growth OpportunityThey must be champions of growth, innovation and leadership in the journey toward Viksit Bharat 2047. He highlighted the need for PSBs to aspire to global competitiveness, strengthen governance and operational resilience, and expand their role as sectoral champions across both traditional and emerging industries. He was speaking after the third PSB Manthan conclave.Currently, the foreign direct investment limit in public sector banks is capped at 20%, with voting rights set even lower — at a maximum of 10%. In the case of private sector banks, the limit is 74%. The government is examining how this shareholding and voting structure can be relaxed without compromising the essential character of these banks and the decision-making ability of their boards.There is a view within the government that the stellar performance of PSBs in the past few years and the growth opportunity given India’s potentially high growth and large investment in infrastructure, make investment in state-run banks very attractive. “Today, the biggest constraint is capital, and if we are looking to be among the top global banks, we need a balance sheet to support that ambition. Allowing foreign investment in PSBs can be a game changer if proper guardrails are in place,” said a senior executive at a state-run lender.He added that the government can also explore the golden share mechanism, under which control remains with the government, irrespective of the holding. The country’s largest bank by assets, State Bank of India, has about 10% foreign holding. PSBs have substantially improved their financial health.Combined gross non-performing assets dropped to 2.58% of gross advances at the end of March, from 9.11% in March 2021. Net profit increased to Rs 1.78 lakh crore from Rs 1.04 lakh crore, and dividend payouts grew to Rs 34,990 crore from Rs 20,964 crore. According to a CareEdge Ratings report, India’s bank credit-to-GDP ratio remains relatively low, underscoring the significant headroom for long-term credit deepening.