Recent growth of the defence sector in India
In Budget 2022-23, the allocation to the defence ministry was raised by 9.8% to $70.6 billion. There are several reasons why this increase in defence expenditure took place – the geopolitical reasons being the standoff against China in Ladakh and the spectacle of Russian equipment failing to perform well in Ukraine. The latter situation showed India three things –
- Availability and production of foreign equipment can be restricted at times when they are needed the most. The Russians are failing to replace their used precision weapons as some of the parts are made in other countries, who are now refusing or unable to supply them.
- Russian equipment, which comprises a major portion of the Indian Armed Forces, seems to fail to perform against Western weapon systems.
- Western equipment, although of high quality, is extremely costly and hard to produce quickly en masse – supplies to Ukraine have been slow as western countries are reluctant to supply costly equipment that are also hard to replace in the short run.
Therefore, it is no surprise that the Indian government has been emphasising on ‘Make in India’ in defence production. The sixth positive indigenisation list (composed of 780 items) was recently released by the defence ministry which will curtail defence imports. Indian companies (both public and private) are also increasingly investing in defence technologies (such as drones, armoured vehicles, rockets) to slowly expand their capability in defence production.
Defence stocks can be a well-rewarding investment in this scenario. War or no war, as the Indian economy grows, defence expenditure and orders for defence equipment and consultancy is sure to grow in India and beyond in the coming years. With growing defence expenditure and geopolitical tensions (e.g. in Armenia), Indian defence companies are sure to garner both domestic government orders as well as exports. In fact, as we will soon see, the top defence stocks have performed incredibly well since the war in Ukraine started.
List of best defence stocks
The following are some of the top defence stocks that investors may take interest in:
|Name of the company||Share price change in last 1 year|
|Hindustan Aeronautics Ltd||89.57%|
|Bharat Electronics Ltd||62.17%|
|Bharat Dynamics Ltd||127.92%|
|Mazagon Dock Shipbuilders||156.84%|
|Cochin Shipyard Ltd||65.15%|
Hindustan Aeronautics Ltd. (HAL)
It is one of the most prestigious defence companies in India, responsible for building several successful combat aircrafts and aircraft parts over the years, the latest being the LCA Tejas and the LCH Prachand. It is a public sector company whose profits and stock price have taken off as fast as its fighter jets in the last year.
Market capitalization: ₹85,107 cr
P/E (TTM): 15.46
EPS (TTM): 164.64
Profit in 2022: ₹5080 cr
Bharat Electronics Ltd.
It supplies electronic equipment to defence and non-defence clients. Radars, electronic warfare systems, avionics, cybersecurity systems, batteries and basic electronic systems of aircraft and armoured vehicles are some of the key futuristic technologies produced by this well-known PSU.
Market capitalization: ₹80,371
P/E (TTM): 29.29
EPS (TTM): 3.75
Profit in 2022: ₹2399 cr
Bharat Dynamics Ltd.
It is a backbone of the Indian missile arsenal (which is one of the strongest competitive advantages of the Indian Armed Forces). It produces various missiles for the Army, Navy and Air Force, such as Surface-to-Air missiles (SAM), Anti-Tank Guided Missiles (ATGM), Countermeasures Dispensing Systems (CMDS), Torpedo Advanced Lightweight (TAL) etc.
Market capitalization: ₹17,886 cr
P/E (TTM): 31.89
EPS (TTM): 30.60
Profit in 2022: ₹500 cr
Mazagon Dock Shipbuilders
The company is engaged in both defence and non-defence production. Its defence products include destroyers, frigates, corvettes, submarines etc while non-defence products include passenger and cargo vessels.
Market capitalization: ₹15,207
P/E (TTM): 20.72
EPS (TTM): 36.39
Profit in 2022: ₹611 cr
Cochin Shipyard Ltd.
This company builds and repairs vessels, including civilian vessels as well as vessels of the Indian Navy and Coast Guard. India’s first indigenous aircraft carrier, INS Vikrant, was launched by this shipyard in 2013. Later, in 2022 it was asked to install long-range SAMs and other electronic equipment on the INS Vikrant. In the past, it has also performed overhauls of other aircraft carriers such as INS Vikramaditya and INS Viraat.
Market capitalization: ₹7,763 cr
P/E (TTM): 13.45
EPS (TTM): 43.89
Profit in 2022: ₹564 cr
As we have seen, the above 5 defence stocks have seen an average increase in price of 100%. If you too want to take advantage of owning these stocks but do not have a demat account, try opening one today, in a matter of minutes!
Disclaimer: This blog is exclusively for educational purposes. The securities quoted are exemplary and are not recommendatory.