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The Must Have Stocks in India's 75th Year of Independence

Aug 16, 2022

The month was October 1973. It was Yom Kippur, one of the holiest days in Judaism and a national holiday.

A coalition of Arab states led by Egypt and Syria launched a surprise attack on Israel. Naturally, Israel was caught on the back foot.

It came to be known as Yom Kippur war. A war that changed the defence landscape in Israel forever.

The Soviet-supplied missiles used by the Arab took a heavy toll on Israel. Particularly the Russian self-propelled, low-to-medium altitude, surface-to-air missiles dealt a huge blow. It is widely acknowledged that the Israelis suffered heavy losses during this war.

Legendary investor Jim Rogers was then watching the geopolitical developments closely. So, when it was reported that some of Israel's military technology was obsolete, a thought struck him.

It was the United States that had supplied most of the weapons to Israel!

That meant the American defence technology was well behind the Russian. And that the Pentagon would have to spend billions to catch up.

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Remember this was also a time when the Vietnam war was coming to an end. So, the US spending more on defence seemed like a farfetched idea. Most investors believed spending on defense would be dramatically curtailed.

Also, US defense firms were then not on solid ground back then. They were considered pariahs by the market.

Stocks of American defence giants like Lockheed Martin, Northrop Grumman etc were trading at a huge discount.

Jim Rogers, though, wasn't convinced. He believed a massive modernisation of the American defence forces was inevitable. He travelled to Washington to converse with Pentagon officials and defense contractors across America.

He also figured out that the modern battlefield was fundamentally changing. That the new arsenal would be sensors, laser-directed artillery shells and smart bombs. And all of these would need massive investments.

Rogers firmly believed it would only be a matter of time before defence spending took a dramatic upswing. His assumptions were bang on.

After all, which country would want to compromise on its border security and defence?

So, Rogers started buying US defence stocks when they were cheap. Soon enough, US President Ronald Reagan initiated a programme to revitalise US defence forces. The spending was not to be financed with tax increases but with borrowings.

As a lesson from the Yom Kippur war, the US began to develop radar stealth technology. Israel too, started investing in its own defence technologies. Rogers' investments in defence stocks turnout to be among his career's best.

Now, in her 75th year of independence, India is making its mark at a global level in almost every field. India was the first nation in the world to reach Mars in its first attempt.

India's HDFC bank is now bigger than the giants like Citigroup, HSBC, and Switzerland's UBS.

India supplied more than 244 m Covid-19 vaccines to over 101 countries.

So, can India afford to stay at the mercy of US and Russia to defend herself from hostile neighbours, China and Pakistan?

Certainly not!

So, the government has already taken a giant leap by banning a majority of the defence imports. Defence companies in India are upping them game with technology tie-ups.

Space agencies, startups and MNC defence majors are all partnering with India in the defence evolution.

Can you then afford to ignore the leading Indian defence stocks in such a crucial year?

At your own peril.

Watch this space...

Warm regards,

Tanushree Banerjee
Tanushree Banerjee
Editor, StockSelect
Equitymaster Agora Research Private Limited (Research Analyst)

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