The landscape of defence stocks in India has evolved into a major investment avenue, propelled by the government’s unwavering focus on modernization, increased spending, and the impactful “Make in India” initiative. Notably, defence exports have surged to approximately ₹160 billion in FY23, marking a remarkable tenfold increase since 2016-17.
In the past three years, India’s defence sector has undergone unprecedented changes, spurred by the government’s ambitious agenda to achieve self-reliance, especially in the aftermath of the Ukraine-Russia war. This transformative journey has not only led to a surge in order books for companies catering to the sector but has also translated into significant gains in their share prices.
Leading the pack is Mazagon Dock Shipbuilders, emerging as a consistent multibagger performer with a remarkable 177% rise in FY23 and an astonishing 233% surge in FY24. Cochin Shipyard, another PSU stock, recorded a substantial 154% return in FY24, building on a 62% gain in FY23.
The government’s commitment to a capital outlay of Rs 8.3 lakh crore over the next few years, earmarked for equipment procurement from domestic defence players, is a key driver of the sector’s euphoria. Recently, the Defence Acquisition Council approved proposals worth Rs 7,800 crore, signaling substantial orders from the Indian Army, Indian Air Force, and the Indian Navy.
Anirudh Garg, Partner and Fund Manager at Invasset, says that the defense sector’s order books currently exceed 4-10 times the company’s revenue, indicating robust macroeconomic fundamentals and high demand. Moreover, companies anticipate substantial profits from opportunities valued at $110 billion over the next six to eight years, surpassing the combined revenue of $8 billion in FY23. The emphasis on indigenization and the Make in India initiative further augments the growth potential of these stocks.
Adding to the positive sentiment was the success of Chandrayaan-3, which propelled stocks in the aerospace and defence sectors to new heights. Noteworthy stocks that hit lifetime highs include Astra Microwave, BEML, Bharat Electronics, Cochin Shipyard, Data Patterns, Garden Reach Shipbuilders, Hindustan Aeronautics, Mazagon Dock, and Paras Defence.
As the year draws to a close, defence stocks continue to be positioned as top plays for investors. The sector’s resilience, supported by government initiatives and successful missions like Chandrayaan-3, suggests that the upward trajectory may continue into 2024. Analysts recommend investors consider a well-thought-out strategy, taking into account the sustained government spending, potential order inflows, and the historical performance of key players in the defence industry.
The transformation and growth witnessed in 2023 position defence stocks as a compelling sector to watch, offering both stability and growth potential for investors navigating the dynamic landscape of the Indian stock market.
“We hold a bullish outlook on defense stocks for various reasons. The substantial surge in this sector can be attributed to the strategic implementation of the Defense Production and Export Promotion Policy 2020. This policy sets ambitious targets, aiming for a domestic defense production value of Rs 1,75,000 crore and $5 billion in defense exports by 2025,” said Anirudh Garg, Partner and Fund Manager at Invasset.
