Shares of companies related to the defense sector are sailing northwards, with the government’s efforts to indigenize more defense equipment and boost their exports energizing investor sentiment. The ‘Fourth Positive Indigenisation List’ of 101 defense items was announced by Prime Minister Narendra Modi on Wednesday, which also means that domestic players related to the multi-billion dollars worth defense segment, will have increased business opportunities.
An analysis of the stocks of companies that have businesses related to the defense space showed that most of them have gained since Wednesday. Mazagon Dock, Bharat Dynamics, Cochin Shipyard, Mishra Dhatu Nigam, Bharat Electronics, Bharat Forge, Astra Microwave Products, and Paras Defence and Space Technologies, are among the companies that have gained as much as 5 percent in two trading days, Wednesday and Thursday.
Analysts opined that broadly defense-related stocks have been outperforming and are expected to continue to deliver good returns for investors. From the end of trade on October 18 till the close on October 20, shares of Mazagon Dock rallied 5.39 percent and BEML jumped 4.43 percent on the BSE. Similarly, Bharat Dynamics climbed 3.32 percent, Cochin Shipyard gained 2.82 percent, Mishra Dhatu Nigam Ltd advanced 2.18 percent and Bharat Electronics went higher by 1.93 percent during the period.
The stock of Bharat Forge gained 1.44 percent, Astra Microwave Products spurted 0.84 percent, and Paras Defence and Space Technologies (0.26 percent) in the last two days. Meanwhile, a few stocks remained muted. Shares of Data Patterns (India) fell 3.86 percent and Hindustan Aeronautics dipped 1.18 percent during the period under review. On Friday morning, however, most of the stocks were trading on a mixed note, while Bharat Dynamics climbed 2.76 percent and Paras Defence gained 0.35 percent higher.
The benchmark 30-share BSE Sensex was trading 266.77 points or 0.45 percent higher at 59,469.67 in the morning trade on Friday. Defense stocks have been performing very well over the past three months. These lists improved the visibility of revenues for most defense-related companies. The government has also given a lot of orders to these companies to boost indigenization, Deepak Jasani, Head of Retail Research at HDFC Securities, said.
The theme of defense can continue to perform well given the high revenue visibility over multiple years. However, some consolidation/ correction can be expected to post the sharp rise seen lately, he noted. Conglomerates Reliance, Tata, Adani, and L&T also have a presence in the defense segment.
“In the last year, defense sector-related stocks have outperformed and will continue to deliver good returns… companies like BEL, Hindustan Aeronautics, Bharat Dynamics, Mazagon Dock, and Cochin Shipyard are likely to get more orders from the defense ministry. Thereby, their earnings will also improve,” Gaurang Shah, Senior Vice President at Geojit Financial Services, said.
Ashwin Patil, the Senior Research Analyst at LKP Securities, said the dependence on developed nations is reducing day by day and is providing easy availability and margin support for the Indian defense sector. The Ministry of Defence (MoD) has taken numerous steps to achieve ‘Aatmanirbharta’ in defense and Positive Indigenisation Lists is one of the landmark initiatives towards achieving that vision.
The ‘Fourth Positive Indigenisation List’ of 101 items was announced by the Prime Minister on October 19.”All the items included in the lists will be procured from indigenous sources as per provisions given in Defence Acquisition Procedure (DAP) 2020. This list provides continuous impetus towards self-reliance in defense,” MoD said in a release on Wednesday. MoD had earlier promulgated ‘First, Second and Third Positive Indigenisation Lists’, comprising 310 items on August 21, 2020, May 31, 2021, and April 07, 2022, respectively.
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