New Delhi: Defense players including Hindustan Aeronautics Limited (HAL) and Garden Reach Shipbuilders and Engineers (GRSE) have created at the last week’s pace to continue their impressive rally in the stock markets.
Analysis of stock prices of defense manufacturers from 23 April – The day after the Pahgam terror attack – the mandation session on Thursday shows that investors have shown significant interest in defense shares amid tension between India and Pakistan.
For example, HAL, which rose from Rs 4,307 on 23 April to the summit of Rs 4,609 on the National Stock Exchange (NSE) on Monday, gained 4.2 percent before settling at Rs 4,488 on Thursday. GRSE also posted a strong pace, which increased from Rs 1,735 to Rs 1,917 on Thursday, 10.5 percent.
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One and two DPSUS-Bharat Dynamics Limited (BDL) and Mazagon Dock Shipbuilders LTD (MDL) made a similar trajectory. While the shares of BDL rose from Rs 1,427 to Rs 1,530 (7.2 percent increase), MDL people increased from Rs 2,755 to Rs 3,058 (11 percent increase).
A major private sector company, Paras Defense and Space Technologies, has recorded the biggest growth of 26.8 per cent, with the shares of Rs 1,359 to Rs 1,359.
Also read: Amid increasing India-Pakistan tension on Pahalgam, IAF started ‘Aakraman’ practice
Trigger
The main trigger for the rally in the stock may be held responsible for the growing tension between the two neighboring countries mainly on 22 April after the Pahalgam massacre.
In addition to laying its army on high alert, Pakistan has issued notice to several naval warnings for parts of the Arabian Sea on 24 and 25 April, a no-fly zone and a notice to the Airmen/Meriners (NOTAM). No one has been allowed to be in the lines of the Line of Control (LOC) as well as cross-border firing as it continued for the seventh straight night on Wednesday.
India’s firm Response Post Pahgam attack, including suspending the Indus Water Treaty and closing the attic border, has strengthened the market spirit that the defense-related expenditure could be a spike.
According to those who monitor the market, the market is not only reacting to the immediate threat, but also for the expected ramp-up in procurement.
A major factor that runs this feeling is the growing perception and legend that the government will bow more over domestic defense manufacturing under its ‘Atamanir Bharat’ initiative, especially if the country enters the growing military preparation period, he said.
This week, India also finalized a major intercourse agreement with France to the purchase of 26 Rafale Marine fighters, worth Rs 63,000 crore. The agreement has been reported to be involved in the most expensive defense contracts in recent times and is seen as another feature in supporting the windfall for defense players.
‘Foam’ Factor and Market Mechanics
Along with the original trigger, the dynamics of the behavior market are also shaping the rally. As previously reported by Theprint, “FOMO” (fear of disappearance) was one of the factors that led to the previous rally in defense shares.
Typically, once a strong story form, especially around defense spending and national security, investors run away, fearing that they will miss quick gains. This herd behavior often intensifies stock movements in a small window before tapping.
In addition, in the case of DPSU, most of the stocks are conducted by the government. This limited availability in the open market makes prices highly sensitive to focused purchase activity. When large volumes are absorbed with minimum sales pressure, prices rise rapidly, only to face faster improvements when rally begins to fade or heavy holder positions, as was seen in the mid -week.
(Edited by Tony Rai)