India’s defence sector is truly riding a crest and the markets are proof of this. The armed forces modernisation drives and a powered thrust for self- reliance in defence has made the sector an outstanding performer in the stock markets. The armed forces are actively participating in this build-up of the Indian defence ecosystem. The navy is building its fleet with the vast majority of its ships built in India, the air force is taking great strides to become ‘Aatmanirbhar’ and the army is on the verge of nearly ending imports of ammunition. The services are now looking to procure world-class equipment from within India, with a large potential to export. The results are now visible with rising curve of the stocks of defence sector industries at the bourses.
Observing the trend, Motilal Oswal has launched a defence index. It’s the second such index to be launched, the first was launched by HDFC bank last year, which has seen a 138% growth over the previous one year. Motilal Oswal will replicate Nifty India Defence Total Return Index. Nifty’s index has seen a compound annual growth rate (CAGR) of 177% in the one year period ending on May 31 st 2024, beating the market by quite a margin. The new index will have a set of 15 stocks.
This financial year over ₹1 lakh crore have been allocated for procurements from within the the country. This means that the lion’s share of the ₹1.72 lakh crore Capital Expenditure (CapEx) budget will go to Indian firms. The government has recently cleared two big-ticket items of HAL; the Tejas Mk-1 and an order for 156 HAL Prachand attack helicopters. The Defence Acquisition Council (DAC) cleared projects worth over ₹84,000 crore, most of these items will be acquired from within India. The inhouse defence manufacturing in the country is expected to reach ₹3 lakh crore in the next five years and defence exports are expected to cross the ₹50,000 crore mark in the same timeframe.
Another big boost for defence manufacturers in the country are the positive indigenisation lists released by the government. A total of 4,666 items and sub-assemblies will be procured from within the country in a phased time-bound manner. It will result in the local industry developing an ecosystem within the country and hence adding more value by strengthening India’s manufacturing base.
Besides having a dependable and growing market in India, defence manufacturers in India are also looking to export their world-class goods abroad. India exported defence equipment worth ₹21,000 crore in the last financial year, a nearly one-third growth over the previous fiscal. The government expects this figure will reach ₹50,000 crore mark by 2029. The government is aggressively marketing Make in India weapons to the world. In this year’s defence budget, a special allocation has also been made for R&D in the form of a ₹1lakh crore corpus for deep technologies. This will help the industry blossom and open new avenues for growth.
The top-performing stocks have seen phenomenal growth in the last one year. Cochin Shipyard has grown 627% in the last one-year, Mazagaon Dock saw a 209% growth, Bharat Dynamics and HAL stocks grew 179% each and GRSE investors found themselves richer by 178%. Most listed defence firms, including PSUs, have seen their stock prices shoot up. The defence index has outpaced the market by nearly four times, based on a three-year rolling average.
The Indian defence sector is upping its game. The country has come a long way from importing the most basic equipment to now designing and manufacturing some of the most advanced weapons in the world. India is truly at the cutting edge of defence technology and comes with a price advantage.
India is paving its own path to be a sizeable player in the global defence market. The industry also has a massive market at home. The growth of the sector is mirrored by its performance at the stock market. The sector has outperformed nearly every other in the stock market. This, at a time when the industry is just beginning its rise. The potential of the Indian defence eco-system is still unrealised, just like its potential in the markets.
