Market correction opens doors for defense stock investments: Antique  

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Antique Stock Broking remains bullish on India’s defense sector, stating that the recent market correction has not dampened the sector's growth story. Instead, it said, the outlook has strengthened, supported by robust earnings visibility. Current valuations are reasonable given the earnings trajectory, and the correction offers a strategic opportunity to accumulate defense stocks, it added. The brokerage’s top picks include HAL, BEL, BDL, Mazagon Dock Shipbuilders, and PTC Industries.

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Over the past three years, the Indian defense sector has delivered several multi-bagger stocks, with gains of 3-4x to as high as 8-10x between September 2022 and July 2024, before experiencing a correction from peak levels. Antique highlighted the emerging role of private players alongside well-established Defense Public Sector Undertakings (DPSUs), suggesting that unlisted companies with unique technologies and capabilities could unlock significant investment opportunities in the future.

Despite a 20% YoY decline in defense capital spending in the first half of FY25, activity is expected to accelerate in Q4FY25, driven by large-ticket orders awaiting finalization, Antique believes. The government has retained a capital outlay of Rs 1.7 trillion (+9% YoY) in the Union Budget 2024. Recent order finalizations, such as the Rs 400 billion contracts for Sukhoi engines and SU-30 MKI upgrades, signal sustained awarding momentum, which is likely to further boost visibility for key defense companies, it said.

To enhance operational readiness, the Defence Acquisition Council (DAC) has approved Acceptance of Necessity (AoN) proposals worth Rs 4.4 trillion in 2024, a 29% YoY increase over 2023’s Rs 3.5 trillion. Notably, 94% of these approvals will benefit domestic companies, providing a strong growth outlook for PSUs like HAL, BDL, and BEL, it belives. Major projects, including light combat helicopters, Light Combat Aircraft Mk 1A, and Su-30 MKI upgrades worth Rs 2.2 trillion, have driven this growth.

India's domestic defense production is also witnessing significant expansion, reaching over Rs 1.3 trillion in FY24 and projected to rise to Rs 1.8 trillion in FY25. This reflects the sector’s growing importance and its pivotal role in driving India’s self-reliance and strategic preparedness.

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