Defense Stocks exploding – What is buzzing in this sector?

date 13  September,  2022
time 2 mins read

In the last couple of months, the Indian equity markets have been on a winning streak gaining more than 1800 points on the benchmark index in a very short time frame. Attractive valuations followed by FIIs inflows have fuelled the rally across the various sectors and broader markets as well.
This recent rally was led by Auto, Banking, FMCG, and select heavyweight stocks followed by other sectors like chemicals, energy, and metals. Among the broader markets, various sectors have gained tremendous momentum in the last few weeks and have given handsome returns to investors.
The defense has been one of the hottest sectors discussed on Dalal street for the past many months. The defense stocks have been on the radar of both institutional investors as well as retail participants. Defense is one of PM Modi’s top picks in his rigorous ‘Make in India’ push and has also witnessed spectacular improvement where the company’s profitability has increased along with the order book.
India is not just the fastest growing major economy in the world but also the home to the world’s second-largest armed force. It is to be noted that India is planning to explore and modernize its armed forces to be in line with the foreign forces along with its goal to become self-reliant in defense equipment manufacturing followed by exporting them too. China’s recent aggression towards Taiwan and United States also triggered fresh demand for being war ready in all circumstances, which has in turn pushed defense companies into the sweet spot.
Coming back to the equity markets, major defense stocks have been making fresh highs after the government approved a fresh list of 780 components that will only be taken from domestic manufacturers. The sector is also in the news on the back of strong quarterly results, good orders from the government, and technological developments in keeping up with geopolitical developments.
The Indian government has been more focussed on defense equipment manufacturing since 2014 and has pushed this theme under its flagship scheme of Aatmanirbhar Bharat as well.
Find below the statistics of a few government-owned defense stock performances: Company Name Price as of 31-12-2020 Price as on date Returns generated

BEL 120 336 180%
HAL 846 2595 207%
BDL 340 860 153%

Defense Production and Export Promotion Policy 2020 (DPEPP 2020) is likely to be a game changer for defense equipment manufacturing companies in India. By 2025, DPEPP 2020 targets production of around Rs 1.75 lakh crore and exports of Rs 35,000 crore. India, facing tough challenges from neighbors on its northern and western ends, is one of the largest importers of arms globally. The defense ministry has set a goal of a turnover of $25 billion (Rs 1.75 lakh crore) in defense manufacturing in the next five years, including an export target of $5 billion worth of military hardware.

We expect the sector will remain in the limelight in the coming months as well as the Indian economy expands its footprints on the global front. Investors should have this sector on their radar while designing their long-term equity portfolio and any correction in good quality defense stocks should be taken as an opportunity to accumulate for long-term investment.