At least seven defence stocks namely Mazagon Dock Shipbuilders Ltd, Cochin Shipyard Ltd, Garden Reach Shipbuilders & Engineers Ltd (GRSE), Solar Industries India Ltd, Zen Technologies Ltd, BEML Ltd and Data Patterns (India) Ltd surged 10-26 per cent in July so far. Mishra Dhatu Nigam Ltd, MTAR Technologies Ltd, Bharat Electronics Ltd (BEL) and Bharat Heavy Electricals Ltd (BHEL) also gained, but others such as Hindustan Aeronautics Ltd (HAL), Bharat Dynamics Ltd (BDL), Bharat Forge Ltd and Paras Defence And Space Technologies Ltd remained flattish. Net-net, 14 defence-related stocks out of a sample of 19 shares beat Sensex's return of 1.8 per cent in July so far, ahead of Union Budget 2024.
Mazagon Dock Shipbuilders Ltd at Rs 5,405.45 apiece on Wednesday traded 26 per cent higher over June 28's closing of Rs 4,282.90. Cochin Shipyard shares surged to Rs 2,741.40 level from Rs 2,212.60 level at June end, up 23.89 per cent. Garden Reach Shipbuilders & Engineers soared 21.94 per cent to Rs 2,560.25 from Rs 2,099.55. Solar Industries, which manufactures bulk and cartridge explosives, detonators, detonating cords and components, climbed 17.55 per cent to Rs 11,775.50 level in July. Zen Technologies Ltd added 14.81 per cent to Rs 1,352.25. This company designs, develops and manufactures combat training solutions for the training of defence & security forces.
"More indigenisation is likely with a greater focus on import substitution", said Deepak Shenoy, Founder and CEO, Capitalmind said in his Budget expectations note.
Shrey Jain Founder and CEO SAS Online said defence is a key segment in manufacturing and is expected to beat last year’s export numbers by wide margin over next couple of years. There is an expectation that the government may offer some incentives to the private players focused on defence exports this Budget, Jain said.
BEML Ltd, Data Patterns (India), MIDHANI, MTAR Technologies Ltd, BEL and BHEL advanced 6-12 per cent this month. HAL, BDL, Bharat Forge Ltd and Paras Defence And Space Technologies Ltd remained flattish. JM Financial sees higher allocation towards defence capital expenditure in the coming Budget. It said Bharat Electronics and Hindustan Aeronautics Ltd could be likely beneficiaries of Budget. Fisdom Research sees higher allocation for defence targeting modernisation of armed forces, acquisition of advanced technologies and a push towards indigenisation efforts. BEL, HAL and BDL three stocks it believes investors should keep an eye on.
PL anticipated 5-7 per cent rise in capital outlay. A further increase of percentage of indigenous components, focus on emerging defence technologies like drones, UAVs and electronic warfare systems can also be on the FM's radar, PL said.
"The Budget is set to prioritise capital expenditure in key sectors, such as railways, power, housing, and defense. Markets are likely to respond favorably to targeted spending that drives growth in these critical sectors. While we continue to like aerospace & defense and capital goods, significant froth and high valuation suggest limited upside in these sectors," Elara Securities said.