NIFTY started the day at 19,598 with a small gap-down of 12 points. After an initial fall of 50 points to 19,550 levels, the index made a strong uptrend rally of nearly 200 points to 19,750 levels. Nifty closed at 19,727, up by 116 points or 0.59%.
BANK NIFTY (BNF) started the day flat at 44,418. The index moved up nearly 350 points till 44,700 zones, took rejection, and fell till the opening levels. But then, similar to Nifty, BNF also showed bullishness and rose to 44,900. BNF closed at 44,878, up by 469 points or 1.06%.
All indices except Nifty FMCG (-0.4%) and Nifty Pharma (-0.32%) closed flat-to-green. Nifty Realty (+1.48%) moved up the most.
Major Asian markets closed up to 1.3% in the red. European markets are currently trading mixed.
Today’s Moves
Coal India (+7.1%) was NIFTY50’s top gainer. The stock hit over a four-year high of ₹274.75.
Cochin Shipyard (+20%) hit a 52-week high of ₹1,146.15 on the back of a strong business outlook.
Other defence stocks like Mazagon Dock Shipbuilders (+9.5%) and Paras Defence (+4.08%) closed with strong gains today.
Tata Consumer (-2.3%) was NIFTY50’s top loser. Yesterday, the FMCG company denied reports that it was in talks to buy a stake in Indian snack food chain Haldiram’s.
GSFC (-7.3%) fell sharply today.
Brightcom Group (-5.04%) fell for the eleventh consecutive session. The stock has been in a free fall as the company battles an investigation regarding the impairment of assets worth ₹868 crore via its international subsidiaries.
Markets Ahead
We knew about the importance of 19,600 levels in Nifty and talked about how if this level was crossed, we could expect a turnaround in the markets. And we witnessed this in both Nifty and Bank Nifty today.
Now, we could consider buying during dips in Nifty. In Bank Nifty, focus on the 45,000 round level. If it holds, it’s important to watch for the resistance level to be crossed for confirmation in the banking index as well.
Nifty: The major resistance level has been broken and the index gave a breakout. Now, the important support for Nifty will be the 19,620-640 zone. A breakdown from there can give us targets of 19,560 and 19,500. The immediate resistance to watch out for will be 19,740. A breakout from this level will take the index to 19,780 and 19,840 levels.
Bank Nifty: Reversal levels and important round level resistance is at 45,000. If there’s a breakout from 45,000, we could consider a buy-on-dips strategy with a target of 45,120 and 45,370 levels. The immediate support level to watch out for is 44,550-600. A breakdown from there can give us targets of 44,200 and 44,000.
Thursdays are now dedicated to Nifty expiry. As a result, the open interest (OI) per strike has doubled. Today, there were an astonishing 10 lakh open contracts. This surge is because Bank Nifty traders have shifted their positions to Nifty after closing their positions in Bank Nifty expiry on Wednesday.
When a large number of contracts go into trouble, it can trigger a rapid short-covering rally. This is precisely what happened today. The low volatility (low Vix) market today created problems for non-directional option sellers as call premiums surged 10 to 20 times within a short period in the second half of the day. This forced all call sellers to book losses. On the other hand, it was a favourable day for directional traders who accurately predicted the upside and held their positions until the end.
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The Indian defence and aerospace sector is about to undergo a transformation that would allow it to firmly establish a position among other global industries. Our government is now favouring domestic defence equipment development over imports. Indian companies have been encouraged and assisted in designing, developing, and producing a wide range of military systems and platforms. This is thanks to the policy framework that our government has put in place over the past ten years. In this article, we provide insight into the defence sector of India and the best defence stocks to watch out for.
An Overview of India’s Defence Sector
India is on its way to becoming self-sufficient in the large-scale production of military aircraft, vehicles, missile systems, arms and ammunition, etc.
The Defence Ministry’s budgetary allotment was increased by 13% to ₹5.94 lakh crore in Budget 2023–24. This shows a very large potential for growth in the defence sector.
Our government is all set to spend nearly ₹6 lakh crore on defence equipment in Financial Year 2024. And 99% of this equipment will be sourced from Indian industries. Much to the US and Russia’s dismay, India’s defence imports are shrinking due to the emergence of the Indian defence industry.
India is also close to procuring weapons for the Indian Armed Forces worth ₹70,500 crore ($8.7bn), which will all be Made in India. India’s defence imports declined by 11% between 2013-17 and 2018-22, and this decline was linked to a complex procurement process.
India bagged an export order worth $155 million for 155-mm artillery guns and another deal for supplying Teevra 40-mm guns to the Indonesian Navy. Armenia signed a $250 million contract for India’s Pinaka missiles.
The govt continues to promote joint ventures between Indian and international businesses to carry out co-development, share innovations, and manufacture goods for both domestic use and export.
India is very close to becoming a defence manufacturing hub as it supplies equipment and ammunition to the world.
Top Defence Stocks in India to Watch Out For:
Sl. No
Defence Companies
5-Year Stock Return
1
Hindustan Aeronautics Ltd.
385%
2
Bharat Electronics Ltd
270%
3
Bharat Dynamics Ltd
242%
4
Mazagon Dock Shipbuilders Ltd.
982%.
5.
Cochin Shipyard Ltd.
56%
(Returns as of July 20, 2023)
1. Hindustan Aeronautics Ltd.
Established in 1940, Hindustan Aeronautics Limited (HAL) is engaged in the design, development, manufacture, repair, and servicing of aircraft, helicopters, aero engines, and aerospace structures in India. It falls under the administrative control of the Ministry of Defence. HAL has designed and manufactured some of the most advanced Light Combat Aircraft (such as “Tejas”) and helicopters for the Indian Armed Forces. The company gets exclusive contracts from the space, defence, and civil industries around the world.
HAL has delivered good profit growth of 23.9% CAGR over the last 5 years and maintained a healthy dividend payout of 26.8%. This defence stock has given a healthy return of 385% in 5 years.
2. Bharat Electronics Ltd.
Bharat Electronics Ltd. (BEL) meets the specialised electronic equipment requirements of the Indian Armed Forces. The company designs, manufactures, supplies, and exports electronic equipment and systems for the defence and civilian markets. BEL’s defence products include communication systems, land-based radars, naval systems, electronic warfare systems, tank & armoured fighting vehicle electronic systems, and much more. The company has partnered with DRDO laboratories to design and produce customised defence systems.
BEL has been maintaining a healthy dividend payout of 40.5% The company is also nearly debt free. The stock has given a return of 270% in 5 years. However, it has seen a very slow growth in its sales, ranging only about 11% in the past five years.
The Defence Ministry has also inked two contracts worth over Rs 3,700 crore with the public sector undertaking (PSU) for radars and receivers that will enhance the operational capabilities of the Indian Air Force.
3. Bharat Dynamics Ltd.
Bharat Dynamics (BDL) is a Government of India Enterprise. It is engaged in the manufacturing of guided missiles and allied defence equipment. The company’s product portfolio includes surface-to-air missiles, anti-tank guided missiles, underwater weapons, launchers, countermeasures, and mechanised infantry weapons.
The business is expected to deliver a strong quarter and is almost debt-free. The corporation has continued to pay out a solid 41.7% in dividends. However, it has delivered a poor sales growth of -11.5% over the past five years and a low return on equity of 13.1% over the last 3 years. The stock return has been 242% over the past 5 years.
The state-owned aerospace and defence company said it entered into 10 deals with several foreign and Indian companies during Aero India, 2023.
4. Mazagon Dock Shipbuilders Ltd.
Mazagon Dock Shipbuilders Ltd is primarily engaged in building & repairing ships, submarines, and various types of vessels and related engineering products for various domestic and international clients. It began operations in 1934 as a private corporation and was taken over by the Indian government in 1960.
The company is expected to give a good quarter and has delivered good profit growth of 19.5% CAGR over the last 5 years. This defence stock has given a 5-year return of 982%. Shipbuilding accounted for around 89% of the company’s sales as of 2020, followed by the sale of base and depot supplies (8%) and ship maintenance (3%).
5. Cochin Shipyard Ltd.
Cochin Shipyard Ltd (CSL) manufactures and repairs boats for the Indian Navy, Coast Guard, and private entities. In 2013, this shipyard launched INS Vikrant, the nation’s first indigenous aircraft carrier.
The company has been maintaining a healthy dividend payout of 27.6%. It has delivered a poor sales growth of -0.21% over the past five years. CSL’s stock has gained 56% over the past 5 years.
CSL has signed a contract for building six Next Generation Missile Vessels (NGMV) for the Indian Navy for Rs 9,805 crore with the delivery of ships set to begin in 2027.
More Defence Stocks in India:
Other prominent defence stocks in India include:
Ashok Leyland – It is one of the top suppliers of trucks or armoured vehicles for the Indian army.
Larsen & Toubro – Over the years, L&T has designed, developed, and manufactured arms, military equipment, and even submarines.
Astra Microwave Products – The company supplies microwave-based high-value radio frequency super components.
Bharat Forge – As per reports, the company may start supplying artillery guns to the Indian army.
Apollo Microsystems – The company provides custom-built electronics and electro-mechanical solutions to the defence sector.
Reliance Naval & Engineering – The company has entered into a warship repair agreement with the Ministry of Defence.
In conclusion, the Indian defence sector offers potential investors a favourable environment. By examining the top defence stocks, we have explored companies with strong financial performance, market reputation, and growth potential. The sector is on the rise, fueled by more expenditure on defence and favourable government policies, and this presents appealing investment prospects. With careful consideration, investing in the best defence stocks in India can be a strategic move with significant potential for long-term gains.
Disclaimer: The defence stocks mentioned in the article are solely for educational purposes. Please do your own research before investing.
The defence industry is one of the most strategically important sectors of India. Our military forces are known to be one of the best in the world. But for years, our government was heavily dependent on countries like Russia, USA, and France for military equipment. This is soon about to change.
The Ministry of Defence has launched initiatives to reduce the import of military equipment or weapons from foreign countries. India is on its way to becoming self-sufficient in the large-scale production of military aircraft, vehicles, missile systems, arms and ammunition, etc. The steps taken by our government have provided a significant boost to the companies that manufacture defence equipment.
At the recent Aero India 2021, these firms entered into large contracts with our government, as well as major defence and aerospace companies around the world. Once this happens, there are many companies that will benefit from this strategic shift.
In the Aero India show, Defence Minister Rajnath Singh also said the domestic manufacturing of bigger and complex defence platforms has now become the focus of our policy under the Atmanirbhar Bharat Abhiyan. India also plans to spend $130 billion (Rs 9.46 lakh crore) on military modernisation.
Along with self-reliance, exports are also a cash minting opportunity for India’s defence companies. Let us take a look at some of the prominent firms that primarily cater to the defence sector in India.
Hindustan Aeronautics Limited
Hindustan Aeronautics Limited (HAL) is engaged in the design, development, manufacture, repair, and servicing of aircraft, helicopters, aero-engines, and aerospace structures in India. Thecompany was incorporated in 1940 and is based in Bengaluru. It falls under the administrative control of the Ministry of Defence. HAL offers materials such as castings, general and precision forgings, rubber products, and composites. The company also provides avionics, such as navigation systems, head-up displays, laser range systems, flight data recorders, communication equipment, and missile navigation systems. HAL has designed and manufactured some of the most advanced Light Combat Aircraft (such as “Tejas”) and helicopters for the Indian Armed Forces.
HAL gets exclusive contracts from the space, defence, and civil industries around the world. It has a comprehensive Design and Development capability in the field of aerospace. The company has set up 11 research centers across India to cater to the rising demand of the defence industry.
Recent Announcements/Deals
On February 3, the Central Government formally sealed a deal with HAL to procure 83 Tejas MK1A Light Combat Aircraft (LCA) for the Indian Air Force (IAF). The estimated cost of this deal is Rs 48,000 crore. It has been dubbed as the “Biggest Make-in-India” contract till date. The delivery of the Tejas aircraft to IAF will begin in March 2024. This will significantly enhance the capabilities of IAF.
Recently, HAL and Rolls Royce agreed to expand their partnership in India for collaboration in two significant areas. This includes expanding the supply chain for both Civil and Defence Aerospace and establishing an authorized maintenance centre for specific engines to support Rolls-Royce’s global customers. HAL has signed a Memorandum of Understanding (MoU) with French firm Safran Aircraft Engines for a strategic corporation on high-thrust aero-engines. Similarly, the company entered into a large number of deals with prominent global companies during Aero India 2021.
Financial Performance
As a result of bulk orders and exports, HAL has been able to consistently increase its profits and revenues. Over the last 5 years, the company’s revenue has grown at a yearly rate of 4.44%, whereas the industry average stood at 3.73%. HAL posted its highest-ever turnover of Rs 21,218 crore for the financial year ended March 31, 2020. It also recorded a 21% YoY jump in net profit to a whopping Rs 2,832 crore during the same period. The company is yet to post its financial results for the October-December quarter (Q3 FY21). It has secured a market share of 87.19%, and thus, continues to dominate the Aerospace and Defence Equipment industry.
Since April 2020, HAL’s share price has surged by more than 98% so far. The company offers very attractive dividends.
Bharat Dynamics Limited
Bharat Dynamics Limited (BDL) is engaged in the manufacture and sale of guided missiles and allied defence products in India. It is a Public Sector Undertaking (PSU) under the Ministry of Defence. The company’s product portfolio includes surface-to-air missiles, anti-tank guided missiles, underwater weapons, launchers, countermeasures, and mechanized infantry weapons. BDL has emerged as a complete solution provider for the Indian Armed Forces. The PSU has collaborated with the Defence Research & Development Organisation (DRDO) to design and develop state-of-the-art missile and torpedo systems.
BDL has four manufacturing units located across the states of Telangana and Andhra Pradesh. As a part of its expansion plan, the company is setting up a unit at Amravati in Maharashtra to cater to the growing demands of the Armed Forces. BDL has also focused extensively on research & development (R&D) activities. It has partnered with educational institutions and startups for the joint development of AI-based technologies.
Recent Announcements/Deals
At Aero India 2021, Bharat Dynamic launched two products— the Dishani and Garudastra. Garudastra is an advanced anti-submarine, self-guided, state-of-the-art homing torpedo (underwater missile). BDL has partnered with the Naval Science and Technological Laboratory (NSTL) and DRDO for the same. Dishani is an expendable, air-deployed anti-submarine warfare (ASW) sonobuoy system.
BDL entered into strategic partnerships with around 10 major domestic and international firms at the event.
The Akash Missile System- developed by DRDO and produced by Bharat Dynamics. BEL, L&T, and Tata Power were also involved in the production of the surface-to-air defence system. (Source: ANI News)
Financial Performance
Despite large orders from the Armed Forces and the international market, the company’s overall revenue and profit have been on a decline. Over the past 5 years, BDL’s revenue has grown at a yearly rate of -0.42%, whereas the industry average stood at 3.73%. It has been able to secure a market share of 12.81%. The company is yet to post its Q3 results.
BDL’s stock price has surged by 84% since April 2020. The company offers fairly attractive dividends as well.
Bharat Electronics Limited
Bharat Electronics Limited (BEL) designs, manufactures, supplies, and exports electronic equipment and systems for the defence and civilian markets in India. The company was established in 1954 and is based in Bengaluru. BEL’s defence products include communication systems, land-based radars, naval systems, electronic warfare systems, tank & armored fighting vehicle electronic systems, and much more. The company has partnered with DRDO laboratories to design and produce customised defence systems.
BEL’s non-defence products include e-governance systems, homeland security products, civil radars, integrated traffic management systems, solar power solutions, and telecom and broadcast systems. The company has a wide network of offices, production units, and service centres across India.
Recently, the Ministry of Defence signed a contract with Bharat Electronics for the procurement of Software Defined Radio Tactical (SDR-Tac). The estimated contract value is Rs 1,000 crore. SDR-Tac is a radio system primarily used in ships. BEL will deliver the product to the Indian Armed Forces within three years.
Financial Performance
Due to a large demand for its products and services, BEL’s turnover and profit have been on a constant rise. The company’s revenue has grown at a yearly rate of 11.45%, whereas the industry average stood at 8.47%. (The company comes under the Electronics Equipment industry).
BEL reported a 25% YoY increase in consolidated net profit to Rs 278.50 crore for the quarter ended December (Q3). Its revenue rose by 1.4% YoY to Rs 2,343.90 crore during the same period. The company said its performance in the current financial year (FY21) had been impacted by the Covid-19 pandemic. However, it expects to show a strong operational recovery in the months to come. BEL has been able to obtain a market share of 65.94%.
BEL’s share price has surged by 90% since April 2020.
More Companies in Focus
The other prominent listed companies that come under the category of ‘Defence Sector Stocks’ include:
Ashok Leyland – It is one of the top suppliers of trucks or armored vehicles for the Indian army.
Larsen & Toubro – Over the years, L&T has designed, developed, and manufactured arms, military equipment, and even submarines.
Astra Microwave Products – The company supplies microwave-based high-value radio frequency super components.
Bharat Forge – There are reports which state that the company may start supplying artillery guns to the Indian army.
Apollo Microsystems – The company provides custom-built electronics and electro-mechanical solutions to the defence sector.
Reliance Naval & Engineering – The company has entered into a warship repair agreement with the Ministry of Defence.
Conclusion
According to a report by India Brand Equity Foundation (IBEF), the Indian aerospace and defence market is projected to reach $70 billion (~Rs 5.10 lakh crore) by 2030. Over the years, our government has increased its military expenditure. The manufacturers of defence equipment have received a boost through strong initiatives such as Atmanirbhar Bharat. Certain reforms have also led to an increase in foreign direct investment (FDI) in the defence sector. We are now witnessing a significant rise in the production and exports of various defence products. The dominant firms in this industry, backed by DRDO, are focussing on creating new aerospace opportunities.
With ever increasing tensions from neighbouring countries, India needs to have much stronger forces. Phasing out old equipment and ushering in the new era of technology will help our forces perform duties better and with more confidence. Hoping that our defence companies will be at the forefront of this change.
All these factors prove to be highly favourable for the companies mentioned above. For the long term, these stocks have great potential for profit. Let us look forward to seeing how these firms cater to the future requirements of our Armed Forces.
