New Delhi: Share prices of defense companies listed on the National Stock Exchange of India (NSE) are on an upward trajectory in 2022. Defense companies, both private and public sector, listed on the NSE have enjoyed a bull market this year – unprecedented in scale.
Share prices of public sector giants like Bharat Dynamics Limited
(BDL) and Hindustan Aeronautics Limited (HAL) have rallied on a year-on-year basis. At the end of trading on November 18, 2022, Bharat Dynamics Limited, a missile systems maker, share price This year there has been an increase of 136.8 percent.
Significantly, in 2022, the share price growth of defense companies has outpaced the growth of the NSE 50 index, the benchmark index that represents the weighted average of the top 50 stocks on the NSE, confirming the rally in the sector.
This comes at a time when the central government in its budget for 2022-23 had raised defense spending 5.25 lakh crore from Rs. 4.78 lakh crore in the last financial year. Within this outlay, the finance minister earmarked a capital outlay of Rs 1.52 lakh crore for procurement, of which 68 per cent was reserved for domestic procurement.
private players prefer Bharat Forge And Astra Microwave also sees its share prices rising in 2022. Bharat Forge, whose subsidiary Kalyani Strategic Systems Ltd, is a maker of artillery and armored vehicles, has seen its share price rise 17.5 per cent this year.
The NSE 50, on the other hand, has seen a marginal increase of only 3.87 per cent, changing from 17,625.70 to 18,307.65 between January 3, 2022 and November 18. Essentially, defense stocks are outperforming this key market benchmark.
“There is an emerging sentiment among investors that India’s defense industry is ready for a sunrise,” Sourav Jha, director of think-tank Delhi Defense Review, told ThePrint.
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forces driving share price
Government policy measures such as ‘Aatmanirbharta in Defence’, which prioritizes indigenous manufacturing of weapons, positive indigenization list, which mandates buying certain military equipment from India, and capital allocation for domestic procurement – for the defense sector Market sentiment is strengthening, Jha said.
Santosh Meena, head of equity research at stock brokerage firm Swastika Investmart, points out, “These policy interventions, along with a rise in arms exports from India, are further weighing down market sentiment this year.”
“These factors have given significant momentum to the defense sector – forcing the market to favor defense stocks with a jump in share price,” he added.
Overall, the pandemic, India’s border troubles with China and the lessons learned from the Russia-Ukraine conflict have ensured that self-reliance in defense is not just a jumla in India, Jha said.
On the contrary, reports suggest that the increase of defense share prices Blue chip stocks have been volatile, though the swell has been.
“All factors which are central to share price growth are being observed. Turnover, valuations, multiples and profits have all gone up for most of the defense companies. This has resulted in a rally in the stocks,” said a trader based in New Delhi explained.
Apart from the policy underpinning this growth, Meena explained that “before 2022, shares of defense stocks were trading well below their book value and were also under-owned. The jump in share prices this year has also been fueled by this underlying phenomenon.
In short, policy, macro and market factors have all combined to bring growth in the price of this stock.
Bharat Dynamics Limited and the Bull Market
Bharat Dynamics Limited is a public sector company Which was established in 1970 to make missile systems for the armed forces.
2022 has seen it share price An increase of 136.8 percent. 391.45 per share trading at Rs. 927.30 between January 3, 2022 to November 18, 2022.
Apart from manufacturing and supplying guided missiles, the company also provides underwater weapons, aerial products and allied defense equipment for the armed forces. Apart from this, BDL also offers support and refurbishment of old and outdated missile systems.
Though its stock has gained 136.8 per cent this year, its performance in the past has been quite different.
On March 23, 2018 it turnover 389.80 at Rs. It was trading at Rs 281.60, down by Rs 108.2 or 27.7 per cent on January 2, 2019. On January 2, 2020 Bharat Dynamics was trading at Rs.306.25 with an increase of Rs. 24.65 or an increase of 8.75 per cent from the January 2, 2019 price.
As a result, the share price has increased to Rs 348.10 on January 1, 2021 – an increase of Rs 41.85 or 13.6 per cent in its price. As on January 3, 2022 it was trading at Rs.391.45 with an increase of Rs. 43.35 or 12.45 per cent from the share price as on January 1, 2021.
Essentially, as the data shows, the bull year for stocks has been unique.
Hindustan Aeronautics Limited (HAL) and the boom continues
HAL is a government company manufacturing transport aircraft, fighter aircraft and helicopters. it was Transfer Under the control of the Ministry of Defense in 1951. It has produced some of the most recognized machines of India’s indigenous military manufacture – the Chetak and Cheetah helicopters, the Light Combat Aircraft Tejas and most recently the LCH Prachanda.
In the beginning of 2022, on January 3, HAL traded at Rs 1233.70. At the close of trading on November 18, HAL was priced at Rs 2617.95 – a rise of Rs 1384.25 or 112.2 per cent.
Significantly, this run in 2022 is in stark contrast to the past performance of HAL and other defense stocks in NSE.
HAL was on March 28, 2018 Business On Rs. 1,132 and fell to Rs 814.70 by January 4, 2019 – a decline of Rs 317.3 or 38.9 per cent. HAL’s share price fell to Rs 736.90 as of January 3, 2020 – a decline of Rs 77.8 or 9.5 per cent from its January 2020 price. It rose to trade at Rs. 856.80 on Jan 1, 2021.
Inevitably, like BDL, HAL too has seen phenomenal growth this year, which has no precedent. Saurav Jha looks at this bull run for defense stocks – with a caveat of some volatility, “especially as the government has set a target of $25 billion in defense revenue by 2025”.
Expectations from Bharat Forge and other private firms
Bharat ForgeWhose Assistant Kalyani Strategic Systems Ltd, a maker of artillery and armored vehicles, has increased its share price from Rs 710.90 to Rs 835.50 between January 3, 2022 and November 18, indicating a growth of 17.5 per cent.
It had closed at Rs 487.15 on NSE on January 4, 2019. The stock fell to Rs 486.55 by January 3, 2020 and closed at Rs 538.10 on January 1, 2021. Essentially, the stock gained only 10.45 per cent from Jan 2019 to Jan 2021. Hence the 17.15 per cent growth in 2022 is almost double the share price growth between January 2019 and January 2021.
Among other private defense companies, Astra Microwave, a maker of sub-systems, radar technologies, antennas, receivers and command guidance units, has also seen its share price rise this year.
In NSE, Astra Microwave Jan 3, 2022 closed at Rs. 233.60 and on 18th November its share price was Rs. 322.70, a rise of Rs 89.1 or 38.1 per cent year-on-year, which is a significant change from the stock’s previous trading trends.
Stock as on Jan 3, 2019 closed 79.95 and on January 3, 2020 it closed at 83.50. Essentially, the share price rose marginally from January 2019 to January 2020 – briefly touching the Rs 90 range in the intervening time.
Like Astra, investors expect other private defense players and MSMEs to continue to outperform in the market. A New Delhi-based trader pointed out that expectations were that these defense MSMEs would outperform their cash flows and grow their earnings before interest, tax, depreciation and amortization (EBITDA) over the next two quarters.
“Given that the defense industry is now viewed favorably by a range of investors, more defense companies are likely to turn to raising capital from equity markets, essentially going public and listing themselves on the stock exchange.” is listing, especially as interest rates have increased in the recent past,” Jha said.
(Edited by VS Chandrasekhar)
(This report has been updated to correct an error)
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