Published: 23rd Aug 2024
By: Value Research
Defence stocks have been on a decline lately. After scaling new highs in July, stocks like Mazagon Dock, Garden Reach Shipbuilders and Paras Defence corrected by around 20-30%. Additionally, the HDFC Defence Fund, India’s first defence-only fund, halted new investments owing to worries about inflated valuations.
The slump can be largely attributed to the slowdown in government’s defence expenditure, which has driven most part of the sector’s gains. In the recently-announced budget, defence sector allocation increased by a mere 4.7%, compared to a 13% rise in 2023.
Despite the recent underperformance, it’s too early to write off the defence sector. With domestic government spending seeing a lull, the next growth opportunity rests with exports. The next few slides explain how.
Geopolitical conflicts are driving countries to boost their military capacities, creating opportunities for India's defence sector to increase exports. Some Indian companies are already exporting defence equipment to Armenia, which is locked in a dispute with Azerbaijan. In fact, India accounted for 10% of Armenia's total defence imports in 2022-23.
Major players like Hindustan Aeronautics and Bharat Electronics are quickly turning focus to exports, prioritising fulfilling domestic orders to clear the way for more export opportunities.