Has the rally in defence-related stocks run its course?


In the past few years, India has been trying to reduce its dependence on defence imports through ‘Make in India’ and ‘Atmanirbhar Bharat’ initiatives.

In line with the current policy, the government recently unveiled ‘fourth positive indigenisation list’ of 101 defence items, which included products across aerospace, missiles, naval weapons, armoured vehicles and more.

With this list, around 411 defence platforms and 1,238 defence sub-systems and components will be procured locally. Analysts believe that indigenisation of these items will increase participation from private players, MSMEs and start-ups.

If we look at the primary markets, a strong response was seen in the public issue of DCX Systems, a defence system integration company.

Retail investors remained at the forefront since day one and bought over 37 times of the issue.

Grey suggest bumper listing of DCX Systems at Rs 287 per share, 40 per cent higher on the upper price band.

Meanwhile, shares of listed defence entities, too, have seen a dream rally in the current fiscal year (FY23) as majority of the counters delivered triple-digit returns.

Among the lot, shares of Mazagon Dock, Garden Reach, Data Pattern, Cochin Shipyard, Bharat Dynamics, Hindustan Aeronautics soared up to 255 per cent so far in FY23.

In comparison, frontline indices Nifty50 and the S&P BSE Sensex gained over 3 per cent each, during the same period.

Does this mean that the dream-rally has run its course or is more upside likely on cards?

Apurva Sheth, Head of Market Perspectives, Samco Securities says Budget 2022 boosted . Self-manufacturing and procurement a positive. Growing cross-border hostilities a major tailwind. a mega long-term trend for investors.

Analysts also warn about possible consolidation across defence names in the near-term as valuations skyrocket to peak levels.

Speaking to Business Standard, Khadija Mantri, AVP – Research, Sharekhan by BNP Paribas says indigenisation is boosting . Valuations at peak levels as stocks claim all-time highs. Consolidation likely after fresh guidance for FY23. Positive on HAL, BEL on large order book

As regards today, domestic will react to the US Federal Reserve’s rate action.

Besides, quarterly earnings season will continue to hog limelight as companies like HDFC, Adani Enterprises, Vodafone Idea, Bank of India, HPCL, Coromandel International, among others will report the July-September quarter results on Thursday.


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