Why are analysts now bullish on the defense sector after banking?


The Indian government is asking defense companies to conduct road shows abroad.
Defense sector companies are not as expensive as other government companies
Analysts and brokerage houses are now calling the defense sector a earning pot.

New Delhi. Until a few decades ago, the defense sector was called a white elephant and excluded from the category of investment, but in the recent past this sector has been considered as a ‘blue-eyed boy’. Analysts and brokerage houses are now describing the defense sector as earning sons under the theme of self-reliant India and New India.

Two major companies already operating in this sector, Bharat Dynamics and Hindustan Aeronautical Limited, have already given returns of 115 per cent to investors. The Indian government is asking defense companies to conduct road shows abroad. This means that the government is ready to reduce its stake as well. From this it is believed that the Government of India is doing big reforms in the defense sector. At present, road shows of many defense companies are being held in UAE.

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Talking about valuation, companies in the defense sector are not as expensive as other government companies. Defense companies have got the maximum benefit from the self-reliant policy of the Government of India. In the year 2021, India’s defense export has also increased from Rs 1,940 crore to Rs 13 thousand crore. The Government of India has a target of taking defense exports to Rs 35,000 crore by 2025. The government hopes that this goal will be easily accomplished by the export of missiles and Tejas alone.

Will come out of foreign orders

It is believed that in the next three years itself, defense companies can get orders worth about five lakh crore rupees. Mazagon Dock Shipbuilders alone can get orders worth about Rs 1.59 lakh crore. You can guess the reform and investment in the defense sector from the fact that in the last four years, about 2.5 lakh patents have been applied by defense companies. American companies are also sending Indian companies for their ship repairs.

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Changed environment with private sector participation

In the recent past, some private sector companies like Data Patterns, MTAR Technologies, Paras Defense, Astra Microwave, Dynamatic Technologies, Taneja Aerospace have also come into this space. MTAR and PARAS in the last bull run IPO It also got good response from investors. Recently the Philippines had approved the purchase of BrahMos missile. Earlier Malaysia has shown interest in buying Tejas aircraft. Now Indian defense companies have come in a position to compete with foreign companies at the global level. In 2022, many fund houses are also increasing their exposure to defense companies. The stake of many fund house companies in these companies has gone up to 5 percent of the portfolio. In such a situation, brokerage houses are also continuously increasing the coverage of defense companies.

Ukraine will benefit from war

After the war between Ukraine and Russia, there has been a competition to sell arms among defense companies all over the world. After the Taiwan dispute, Japan, Philippines, Malaysia, Australia are surprisingly modernizing their military. In such a situation, Indian companies will get an opportunity to spread their feet at the international level. The purpose of roadshows of Indian defense companies in West Asian countries is also to present a sample of India’s military might. Whether Indian companies get orders or not, but this will definitely give a glimpse of India’s growing defense sector.

HAL is the sector leader

The kind of boom that is happening in the defense sector can be gauged from the stock of the veteran defense company HAL. This company had brought an IPO of about 4 thousand crores in 2018. At that time this stock was listed at a price of about Rs 1, 215 per share, but since 2018 till now this stock has doubled. The company has benefited the most from the policy of Make in India and self-reliant India and it is expected that this company will remain the leader of the sector in the coming times as well. According to the report of ICICI Securities, the outlook of the company is positive and the order book of the company is also excellent.

The matter is not of HAL alone, other companies in the defense sector are also performing well.

(These are the personal views of the author, not a buy or sell advice, consult your financial advisor before risking investment)


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