What Next for Defence Stocks in 2025... 

Nathan Rothschild was famous for helping the British government finance the war against Napoleon.

He was able to exchange gold bullion and other forms of coins for the currency. This was needed by General Wellington to continue fighting. This aid led to the Battle of Waterloo and the defeat of Bonaparte.

During the Napoleonic wars financier Nathan Rothschild famously said...

• Buy on the sound of the cannon, sell on the sound of the trumpet.

Since then, Rothschild's advice was the go-to mantra for investors wanting to cash in on geopolitical risks, for a long time.

At least till a century ago.

For instance, in the six months after World War I began in 1914, the Dow Jones index fell more than 30%. Businesses shut down and liquidity dried up. It was decided to close the stock market for the rest of the year.

When stock markets reopened six months later, in 2015, the Dow Jones rose 88% in a year. From the start of the war in 1914 until the war ended in late 1918, the Dow was up more than 43%.

So, buying stocks when war begins and selling them when the war ends was a potent formula to take advantage of geopolitical risks.

The story repeated itself during World War II.

From the start of WWII in 1939 until it ended in 1945, the Dow was up a total of 50%, despite heavy losses in the interim during bombing of Pearl Harbour etc.

Much of the positive outcome post the wars can be attributed to investors coming back to a long-term belief in the human capabilities to overcome adversities.

Moreover, the war time efforts translate into a stimulus for the economies. Innovations during wars (like the internet as we know it today) go a long way in making civilian lives better.Over the last few years, the global geopolitical situation has become tense.

Israel has been bombing Gaza, Lebanon, Iran and even Syria. Russia and Ukraine have been bombing each other for three years. And there are scores of subregional conflicts underway in Africa and South America.

In 2025, we pray that the global geopolitical situation gets better. But as investors, there is enough to keep a watch on. Especially on India's preparedness with respect to defence supplies and ability to indigenously manufacture hi-tech defence armaments. For although India is currently not directly involved in cross border skirmishes, such risks are always around the corner.Few would know with certainty when and how would Xi execute his ambition of annexing Taiwan. Also, how would it hurt financial markets when it happens. It is as uncertain as the weather.Historically, India relied heavily on foreign countries for its defence needs. About 65-70% of defence equipment were imported until 2018.

However, this landscape has dramatically shifted, with around 65% of defence equipment now manufactured within India. This transformation reflects the country's commitment to self-reliance.

Moreover, the strength of India's defence industrial base, which comprises 16 Defence PSUs, several private conglomerates like the Tatas and L&T, over 430 licensed companies, and approximately 16,000 MSMEs has become robust.

In 2024, 21% of India's defence production came from the private sector and this share is set to go up.

As part of the Make in India initiative, major defence platforms such as the Dhanush Artillery Gun System, Main Battle Tank (MBT) Arjun, Light Combat Aircraft (LCA) Tejas, submarines, frigates, corvettes, and the recently commissioned INS Vikrant have been developed, reflecting the growing technological capabilities of India's defence sector.

Consequently, the annual defence production is expected to cross the target of Rs 1.75 trillion by the end of fiscal 2025. The aspiration is to achieve Rs 3 trillion worth of defence production by 2029. This would solidify India's position as a global defence manufacturing hub.

India's defence exports have reached an all-time high, surging from Rs 6.8 bn in financial year 2014 to Rs 210 bn in financial year 2024. This remarkable growth of over 30 times in export value over the past decade shows India's defence sector's resilience to volatilities in domestic defence expenditure.

India's defence export portfolio now boasts a diverse range of advanced defence equipment, including bulletproof jackets and helmets, Dornier aircraft, Chetak helicopters, fast interceptor boats, and lightweight torpedoes.

A noteworthy highlight is the inclusion of 'Made in India' boots in the Russian Army's equipment, marking a significant milestone for Indian products in the global defence market and showcasing the country's high manufacturing standards.

Currently, India exports to over 100 nations, with the top three destinations for defence exports in 2023-24 being the USA, France, and Armenia.

With strategic policies in place, a growing emphasis on indigenization, and a vibrant defence industrial base, India is poised to not only meet its own security needs but also emerge as a key player in the global arms market.

The ambitious targets set for future production and exports signify a strong resolve to reinforce the country's position as a reliable defence partner worldwide.

As India continues to innovate and collaborate across sectors, it is well on its way to solidifying its status as a formidable force in global defence manufacturing.

As India strengthens its strategic position amid evolving global security dynamics, the nation's defence sector stands at a pivotal moment in 2025.

The defence ministry recently declared that 2025 will be the 'year of reforms' for Indian defence. This means that there could be massive changes in the sector, ensuring better availability of raw materials, growth in order books, more private participation tec.

Notwithstanding the growth in budget for defence spending in the Union Budget of 2025, the focus on military modernization and indigenous defence manufacturing has never been stronger.

So, instead of waiting for the sound of the canon, in 2025, long term investors should keep a watchlist of the best defence stocks to act on them as and when the valuations get attractive.

Hope you like this video. Thanks for watching.