Shares of Hindustan Aeronautics (HAL) continued their slide for the fourth session in a row on Friday, August 2. The stock was trading 2.5% lower at ₹4,693.15 on the NSE in the early trade

The major reason behind the fall in stock could be attributed to the news report that General Electric (GE) has drastically reduced its engine deliveries to HAL.

Instead of the anticipated 16 engines, GE is set to deliver only two F404-IN20 engines in September. This represents a shortfall of nearly 14 engines for the year, casting a shadow over the production timeline of the TEJAS fighter.

This is expected to have a substantial impact on the company.

Ambareesh Baliga, an independent market analyst, says that over the last 18–24 months, the market has discounted the order flows because the focus of the government has been on defence (Make in India). So, the story is fine until then. "All the stocks have become multi-baggers. But nobody has been talking about execution. Everything was hunky-dory, but what about the execution risks?" the analyst says.

Execution is the key because there have been similar situations in the infrastructural and capital goods spaces too. Companies like L&T and BHEL have failed on execution at times. So, the same thing is happening to the defence sector.

Baliga continues, "The market has started taking a reality check, and at these valuations, the reality check would be quite drastic." The other issue is that if a company's order books have been full for so many years, how can it take more orders?

"Nobody is going to give you orders for delivery for the next 12–15 years. Further, it is also difficult to raise your production level so much given inadequate skills and manpower. Also, what about managing such growth? So, all these pitfalls are there that the market has not discounted; they go by the Excel sheets, unfortunately," Baliga adds.