Defence stocks, which were highly favored in 2024, are making a strong comeback after a sharp decline. The sector had a strong rally last year due to rising global tensions and increased exports, but faced a selloff due to high valuations, budget issues, and profit-taking. Just as investors began doubting the long-term potential, Europe’s $850 billion defence plan has turned things around, creating new opportunities for growth in the market.
Europe’s $850 billion defense plan
The EU’s decision comes after the US stopped providing military aid to Ukraine, suggesting a change in global defence priorities. To strengthen its military, the EU has asked member countries to increase their defence spending by 1.5 percent of GDP, leading to a total of EUR 650 billion ($683 billion) in defense spending over the next four years.
The EU has also introduced a joint borrowing plan of EUR 150 billion ($157 billion) to fund essential defense needs like air and missile defense, artillery, munitions, and drones. This means the total “ReArm Europe” plan could mobilize around EUR 800 billion ($850 billion).
How will this plan benefit Indian Defence stocks?
The EU’s defence spending is beneficial for domestic companies like Bharat Dynamics, Solar Industries, and Bharat Electronics. These companies have already supplied equipment and components to countries such as Armenia, and are expected to benefit further from the increased defence budget, and along with it they can benefit as follows:
- Increased Demand for Defense Products: As the EU boosts its defense spending, there could be more demand for advanced defence technologies, equipment, and systems, including those produced by Indian defence companies.
- Export Opportunities: As global defense spending increases, Indian defence companies may get more opportunities to export their products, particularly to European nations or other countries investing in defense.
- Partnerships and Collaborations: The EU’s rearmament plan could lead to collaborations or joint ventures between Indian defense firms and European companies. This would enhance technological know-how and expand the market for Indian defence products.
- Government Policies: India’s focus on self-reliance in defence manufacturing (Atmanirbhar Bharat) could align with international defence spending trends, potentially opening up government tenders and global defence contracts for Indian companies.
India’s Defence Exports
India’s defence exports have reached a record high of Rs 21,000 crore in FY24, a 33 percent increase from the previous year, thanks to the government’s push for local manufacturing through the ‘Make In India’ initiative. The government aims to raise defense exports to Rs 50,000 crore by 2029.
Elara securities mentioned that currently, the top three countries importing defense products from India are the US, France, and Armenia. Indian companies have supplied various weapons and equipment, including the 155mm artillery, Akash air defence missile, Pinaka multi-launch rocket system, the BrahMos missile, artillery guns, Dornier-228 aircraft, radars, armored vehicles, fuselage and wings for aircraft & helicopters, bulletproof vests, night vision equipment and electronics.
Zen technologies Ltd
The stock is currently priced around Rs. 1,197 in Tuesday’s trade. It has given almost 20 percent return this March, and from its 52-week high, the stock is now trading at a 52 percent discount.
Bharat Dynamics Ltd
The stock is currently priced around Rs. 1,120 in Tuesday’s trade. It has given a 16 percent return this March, and from its 52-week high, the stock is now trading at a 37 percent discount.
Data Patterns (India)
The stock is currently priced around Rs. 1,574 in Tuesday’s trade. It has given a 13 percent return this March, and from its 52-week high, the stock is now trading at a 55 percent discount.
The stock is currently priced around Rs. 275 in Tuesday’s trade. It has given a 12 percent return this March, and from its 52-week high, the stock is now trading at a 19 percent discount.
HAL Ltd
The stock is currently priced around Rs. 3,429 in Tuesday’s trade. It has given a 12 percent return this March, and from its 52-week high, the stock is now trading at a 39 percent discount.
Paras Defence Ltd
Paras Defence Ltd
The stock is currently priced around Rs. 897 in Tuesday’s trade. It has given a 10 percent return this March, and from its 52-week high, the stock is now trading at a 39 percent discount.
And other stocks like Solar Industries India Ltd, MTAR Technologies Ltd, DCX Systems Ltd, Cochin Shipyard Ltd, GRSE Ltd are also set to benefit.
