Getting equipped with modern weapons has become a necessity for India's defence forces, to stave off China's border intrusions.
Over the years, it became evident that diplomatic talks with China or Pakistan cannot resolve the issue.
Until now, India relied on imports to empower defence forces. But things have started to change, and India is on course to become self-reliant in the defence field.
In the past few years, India has made extensive efforts to boost its domestic defense production and has set an ambitious target of US$5 bn of military exports by 2025.
India is also promoting private-sector collaboration in defense production. The boom in Indian defence manufacturing sector does not look very far.
The government's push for self-reliance is acting as a massive tailwind for defence sector stocks.
As military spending increases, there will be growing demand for defence equipment which may push defence sector stocks higher.
While defence sector stocks may not look as exciting and trending as tech stocks, they are strong candidates for long-term wealth creation.
As every investing comes with risks, here's what you need to keep in mind while hoping to get rich from the defense megatrend...
The defence business is lumpy, with the government acting as the key client in most cases. The receivable days are long, and orders depend on the budgetary allocations towards defense. (thankfully, India has allocated heavily towards defence).
While investing in defence stocks, look for low debt defence companies. The defence business is capital intensive so there's a change defence sector stocks have substantial debt on their books.
Other way to play this trend is by investing in defence sector stocks which are working towards defense technologies and IP (intellectual property). These would find applications not just in defense industry, but outside as well.
This will include the likes of communications, sensors, radars, imaging systems, advanced materials, drones, and so on.
It also makes sense to look for companies where the market is not limited to India but are global with scalability in the business.
Check out Equitymaster's powerful stock screener to find the top defence stocks in India.
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