Half of Nifty defence index stocks turn multibaggers in FY24, 5 of them PSUs

Government-owned Cochin Shipyard was the top index performer, gaining more than 280 percent in the year.

The Nifty India defence index is one of the top performing sectoral indices of the financial year 2023-24, gaining an impressive 119 percent from the previous year, as the government's push for self reliance brightened the prospectus of the sector.

More than half of the 15 index constituents turned multibaggers and five of them were public sector units (PSU) stocks.

Government-owned Cochin Shipyard was the top index performer, gaining more than 280 percent in the year. Zen Technologies was a distant second with 191 percent gains.

PSUs Mazagon Dock Shipbuilders, Hindustan Aeronautics, Bharat Electronics and Mishra Dhatu Nigam and Solar Industries and Astra Microwave jumped up to 189 percent during the year.

PSU Defence stocks turn multibaggers in FY24

Only two of 15 index constituents underperformed the Nifty. Mtar Technologies with 8 percent and ideaForge Technologies with negative returns of 46 percent disappointed investors.

Even microcap stocks gained. NIBE, with a  with market capitalisation of Rs 1,691 crore, rose 270 percent in FY24, reflecting the huge growth opportunities offer by the defence sector  In the SME space, Meson Valves skyrocketed 229 percent after it listed in September 2023.

Boom to continue?

According to a McKinsey report, five factors will determine the demand for defence equipment in India. They are:

1 Changing geopolitical scenario along India’s border

2 New procurement required to replace obsolete equipment

3 Internal security requirement will drive demand for homeland security equipment

4 Strong economic growth likely to facilitate increased government spending

5 New entrants in the industry creating competition and pushing growth for the sector

For FY25, India’s defence budget stands at more than Rs 6.21 lakh crore, a 4.72 percent jump from the previous year 24.

“India’s defence industrialisation process is in full swing. From an investment point of view, investors taking a bet on defence stocks should look at these companies beyond their quarterly performances,” Purvesh Shelatkar, head of institutional broking at Monarch Networth Capital, said.

A strict long-term investment horizon should be maintained while investing in defence companies. Looking only at order books may not be a smart way of identifying opportunities. “Efficiency, execution capabilities and ability to innovate will be crucial for defence companies to thrive in coming years,” he said.

In the past five years, the Nifty India defence index has grown at a 44 percent CAGR. During the same period, the Nifty has delivered a CAGR return of over 15 percent. The Nifty SME emerge is the only index to have outperformed the defence index, with 49 percent annual returns during the period.

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