Defence stocks gain ahead of PM Modi's visit to US
The defence pack surges ahead of PM Modi's visit to the US on June 19th as there are multiple defence deals on the radar.
The defence pack surges ahead of PM Modi's visit to the US on June 19th as there are multiple defence deals on the radar. The defence sector is a key beneficiary of the Make in India and Atmanirbhar Bharat policy as self sufficiency is a key focus for the Indian central government. To add to it, China +1 strategy works in favor of Indian defence equipment makers. Indian PSUs have been working on developing efficiencies and executions, which is reflected in the large executed order books of these players.
But not just domestic demand, exports also are a huge driver for the industry. For instance, Hindustan Aeronautics and Bharat Electronics have a large order book position. The former stock gained 105 percent in past one year, while latter is 61 percent higher.
Other defence stocks part of the rally are Mazagon Dock Shipbuilders, Garden Reach Shipbuilders, Cochin Shipyard, Astra Microwave Products, MTAR Technologies and Bharat Dynamics with returns in the range of 50 percent to 400 percent in past one year.
Dipan Mehta, Director at Elixir Equities in an interaction with CNBC-TV18 on June 19th said valuations of some of the defence stocks are are at reasonable levels. Ramping up of order books provides strong earnings visibility, which means there is still a runway for these stocks.
The government has increased its focused on preparedness in defence equipment, which includes its procurement, production as well as exports. the heightened focus is after greater tensions with India's neighbors Pakistan and China. To support the local defence industry, multiple defence indigenization lists have been released.
PM Modi's visit to US will include signing a defence industrial roadmap which shall pave the way for closer integration of industries between the two countries and supply chains. The US visit aims at integrating India into the global defence manufacturing production supply chain, which brings huge opportunity for Indian defence manufacturers in the years that follow.
In a recent development, a deal will be signed between General Electric and Hindustan Aeronautics which will entail 80 percent transfer of jet engine technology by value. CNBC-TV18 has learnt that the deal for co-production has been approved by the highest political levels in India and the US and will be formally announced during the state visit of Prime Minister Narendra Modi.
Alongside, the Defence Minister Rajnath Singh held bilateral talks with Vietnam's Minister of National Defence General Phan Van Giang, during his two-day visit to India from June 18-19. The meeting focused on enhancing cooperation between both nations' defence industries and maritime security.
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