New All-Time High for 6 Indian Defence Stocks: Should You Invest?

Following BJP's state election victory in key states, Indian defence stocks have shot up big time.

The BJP government has given priority to the growing defence sector and analysts are projecting this trend to continue. So, it's not too hard to guess the reasons why defence stocks are on a roll these days.

Apart from that, with the Ukraine-Russia war continuing and the Middle East conflict between Israel and Hamas intensifying, it doesn't look like the guns will be laid down any time soon.

A few Indian defence stocks have rallied significantly in recent days, hitting their all-time high.

Let's look at six such top defence stocks and what lies ahead for them.

#1 HAL

First on the list is Hindustan Aeronautics (HAL).

HAL is the first name that comes to mind when people talk about defence stocks in India. That's the kind of monopoly the company has created.

The company is a dominant supplier of aircraft, helicopters, engines, and avionics and the key provider of maintenance, repair, and overhaul services to the Indian Airforce, Indian Army, Indian Navy, and Indian Coast Guard, among others.

It also engages with the Indian Space Research Organisation (ISRO) to contribute to India's space programs.

HAL, on 6 December 2023, hit its all-time high peak of Rs 2,754.2. Since its listing in March 2018, the stock has zoomed over 365%.

The company has been in the limelight recently as it demonstrated its contributions toward achieving self-reliance in avionics to its stakeholders, including the Indian armed forces, during the two-day 'HAL Avionics Expo-2023' held in New Delhi from 7 December 2023.

Further, this historic rise can be attributed to India's defence ministry clearing acquisition proposals worth Rs 2.2 trillion (tn) for the armed forces, including 97 additional light combat aircraft and 156 light combat helicopters from HAL and indigenous towed artillery gun systems.

Further, the Defence Acquisition Council has approved the purchase of 97 light combat aircraft Mk 1A for the IAF from HAL. Besides, HAL will be involved in the upgrade of the Su-30 MKI Aircraft.

Going forward, the company is gearing up to create a new business division with a focus on boosting exports.

For more, check out our detailed editorial on HAL.

#2 Cochin Shipyard

Next on the list is Cochin Shipyard.

Cochin Shipyard is a government-owned company and India's largest public-sector shipyard by capacity. Even though it is registered as a commercial shipyard, it derives most of its revenues from building and repairing defence ships.

It's not just a unique player to ride the potential in India's defence manufacturing space, but the company is towering strong performance in a challenging sector.

Cochin Shipyard on 7 December 2023 hit its all-time high peak of Rs 1,312.7. Since its listing in August 2017, the stock has zoomed over 140%.

On 30 November, the company unveiled the initial three vessels in a series of eight Anti-Submarine Warfare Shallow Water Crafts, currently in production, and were launched at its Kochi Yard for the Indian Navy.

The contract for constructing these ASW SWC ships was inked between the Ministry of Defence (MoD) and Cochin Shipyard on 30 April 2019.

Additionally, on 1 December 2023, the company entered into a memorandum of understanding with the Adani Group to develop environmentally friendly tugs.

This collaboration comes after delivering the first of the two tugs ordered by Ocean Sparkle, now under the ownership of Adani Harbour Services.

As indicated by the company's management, the upcoming two years show a robust pipeline of projects.

Looking ahead, the Shiplift system is scheduled for commissioning by December 2023, with the project slated for completion by June 2024, by the current timeline.

For more, check out the Cochin Shipyard company fact sheet and quarterly results

#3 L&T

Third on the list is L&T.

The company is the most respected multinational conglomerate that operates in over 50 countries with unmatched capabilities in all its businesses, including construction, engineering, technology, and manufacturing.

L&T, over the years, forayed into multiple business verticals, including infrastructure, power, hydrocarbon, metal and minerals, defence, aerospace, information technology (IT), products, systems and equipment, finance, and real estate.

L&T, on 7 December 2023, hit its all-time high peak of Rs 3,409.

The shares climbed to its all-time high after it incorporated a new wholly-owned subsidiary, L&T Semiconductor Technologies.

Further, NT (Vrinda Nano Technologies), headquartered in Gurugram, India, a key global supplier of High-Efficiency Power systems and Green Power Solutions, proudly announced a significant contract signing with L&T on 7 December 2023.

This partnership aims to supply Wireless String Monitoring Boxes for the world's largest utility-scale hydrogen plant at Oxagon, part of Saudi Arabia's NEOM region.

Apart from this, L&T is an active part of India's defence industry.

It has partnered with DRDO and the Indian armed forces to develop defence products, systems, and platforms across land, sea and air operations, in line with its commitment to 'Make in India'.

With growing geopolitical tensions, L&T is helping India strengthen its defence equipment.

Going forward, L&T plans to expand its focus on green hydrogen projects in global markets, aiming to strengthen its presence in the sustainable energy sector.

For more, check out L&T's fact sheet and quarterly results.

#4 Bharat Dynamics

Fourth on the list is Bharat Dynamics.

The company manufactures guided missiles and allied defence equipment for the Indian armed forces. It also offers product life cycle support and refurbishment for vintage missiles.

Bharat Dynamics, on 7 December 2023, hit its all-time high peak of Rs 1,313.3. Since its listing in March 2018, the stock has zoomed over 225%.

The surge in Bharat Dynamics is due to its involvement in manufacturing the Nirbhay class of missiles, which are poised to receive heightened attention as all three branches of the armed forces will incorporate these projectiles capable of striking targets over 1,000 kilometres away.

Approximately two years ago, the government approved the missile's induction into the inventory of the first two services, and there are now plans to extend its deployment to the third service as well.

Bharat Dynamics has actively undertaken various initiatives towards improving operational efficiency, encompassing strategies such as lean manufacturing and enhanced supply chain management.

Furthermore, the company has benefited significantly from government policies that promote the domestic production of defence equipment, contributing to its positive performance.

Looking ahead, Bharat Dynamics is eager to expand its product portfolio to attract more orders and further strengthen its position in the defence equipment market.

For more details, see the Bharat Dynamics company fact sheet and quarterly results.

#5 Astra Microwave

Next on the list is Astra Microwave.

Astra Microwave Products is one of the leading designers and manufacturers of high-quality RF and microwave modules and sub-systems in India.

The company is engaged in cutting-edge solutions in developing sub-systems for radio frequency and microwave systems used in defence, space, meteorology, and telecommunication.

Astra Microwave, on 4 December 2023, hit its all-time high peak of Rs 623.8. Since its listing in April 2003, the stock has zoomed over 2,068%.

The current upswing is attributed to its execution of a license-cum-transfer of technology (ToT) agreement.

This agreement was facilitated between NewSpace India (NSIL) in Bengaluru and the Indian National Space Promotion and Authorization Centre (IN-SPACe), Department of Space (DOS) in Ahmedabad.

The stock was also in the news amid a clarification by the company on seeking approval for giving a guarantee or providing security under Section 185 of the Companies Act, 2013, to Astra Rafael Comsys Private Limited, a Joint Venture Company.

Going forward, the company plans to expand its product portfolio to include new and innovative products like high-power amplifiers, solid-state power amplifiers (SSPAs), and advanced radar systems.

For more details, see the Astra Micro company fact sheet and quarterly results.

#6 Bharat Forge

Last on the list is Bharat Forge.

Bharat Forge is a global provider of high-performance, innovative, safety & critical components and solutions to various industrial sectors, including automotive, railways, power, defence, construction & mining, aerospace, marine, and oil & gas.

The company has been diversifying from its core operations, building a robust defence portfolio. It has consistently invested in cutting-edge facilities that house world-class products, capabilities and facilities.

Bharat Forge, on 5 December 2023, hit its all-time high peak of Rs 1,185.9.

The recent remarkable surge in growth can be linked to the increase in Class 8 truck orders in North America, reaching their highest level in 13 months.

This increase, in comparison to the previous year, indicates the industry's effort to maintain historically high performance standards, according to FTR.

FTR regularly monitors and reports on preliminary order numbers for class 8 trucks in the transportation sector.

On 11 August 2023, Bharat Forge's Chairman and Managing Director, Baba Kalyani, articulated the company's ambition to transform into a global powerhouse in the artillery domain.

The company is actively working towards establishing a robust global presence in the artillery sector, emphasising the development of proprietary intellectual property and products to secure a prominent position on the global stage.

Notably, a substantial portion of Bharat Forge's business, approximately 80%, is driven by exports.

The company has set an ambitious target of achieving a 5-6% market share in the e-mobility market segments, including two-wheelers, three-wheelers, and commercial vehicles (buses and trucks), by 2025.

For more details, see the Bharat Forge company fact sheet and quarterly results.

Government Support Towards Defence Sector

In the financial year 2022-23, the defence ministry's budget allocation witnessed a notable increase, reaching US$ 70.6 bn (approx. Rs 5,884.9 bn).

This surge can be attributed to various factors, prominently the geopolitical tensions arising from the Ladakh standoff with China and observations of Russian equipment facing performance issues in Ukraine.

The situation in Ukraine has taught India some important lessons.

Firstly, depending on foreign equipment can cause problems when supplies are needed most urgently.

Additionally, Russia's difficulties in replacing precision weapons due to their reliance on parts made in other countries have become clear.

Moreover, the difference in performance between Russian and Western weapon systems has become evident, with Western systems being of high quality but sometimes expensive and not easily mass-produced.

In response to these challenges, the Indian government has been steadfastly promoting 'Make in India' in defence production.

The Defence Ministry released the fifth positive indigenisation list in October 2023, comprising 98 items, aimed at reducing defence imports.

Both public and private Indian companies are increasingly investing in defence technologies, such as drones, armoured vehicles, and rockets, signalling a concerted effort to enhance domestic capabilities in defence production.

With this growing support Indian defence companies are sure to garner both domestic government and export orders.

Conclusion

With India's defence spending ranking among the top five globally, representing a significant portion of the country's GDP, the government's focus on promoting domestic defence equipment manufacturing offers a favourable environment for defence stocks to thrive.

The Indian military is undergoing modernization, driving demand for defence products and services. This increased demand can provide growth opportunities for defence companies in India.

All being said, the stock market is a tricky place. Defence sector stocks, like other sectors, are influenced by economic conditions and market fluctuations.

You need to look out for a fundamentally strong defence company to make the most of the current opportunity.

Get started by using Equitymaster's stock screener to filter the best defence stocks in India.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...