Defence stocks might be riskier in the short term, says Kotak Mahindra AMC MD Nilesh Shah

Nilesh Shah

Nilesh Shah, MD of Kotak Mahindra AMC, said in an interview with Moneycontrol that the defence sector might run into headwinds in the short term. He emphasized the sector's vulnerability to changes in government policies.

"The current priority given to domestic manufacturers of defence equipment has resulted in this Bull Run," he said.

After a year of stellar returns, defence stocks might be riskier in the short term as they might witness profit booking. These stocks include Bharat Dynamics (49.66 percent), Hindustan Aeronautics (95.13 percent), Astra Microwave (33.98 percent), Bharat Electronics (39.97 percent), Cochin Shipyard (100.03 percent), MTAR Technologies (64.03 percent), Zen Technologies (235.60 percent).

Defence stocks have been able to give spectacular returns on the back of solid order books, R&D investments, government preference for manufacturing locally, import embargo and technological support from DRDO. Experts have maintained that the defence sector has long-term growth potential.

He said if there is a change in this priority it might make the sector vulnerable. He also added the possibility of profit booking in the defence stocks. He added that "the long-term fundamentals of the sector will continue to look good as long as the domestic manufacturers get priority."

Shah also hinted at the possibility of some of the companies being able to supply offshore markets along with local markets. But he warned that other countries will only buy defence goods from companies that can supply to its domestic markets well.

The defence sector has improved significantly after the government’s push for local manufacturing. The domestic defence procurement surged from 38 percent to 68 percent in FY23 under the Make in India initiative.

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