Markets favour local sasta, sundar, mazboot, tikaao defence stocks over highfliers

It is often said that the stock market is final and ultimate valuation machine of all companies: those that will become multi-baggers and those that also ran.

Today, the Nifty hit a fresh 7-month high as investors, traders, institutions, and foreigners opened their purse strings to celebrate India's comprehensive military victory over Pakistan.

Indian defence stocks were among the major winners in this rally, fuelled by the intensely fought 4-day war between the nuclear-armed neighbours.

A sudden cease fire on Sunday evening brought both armies to a standstill but not before a fervid, high-velocity operation saw armed drones, ballistic missiles, beyond visual range weapons and high intensity Brahmos saw dynamic action. All under the watchful eyes of investors as many of the companies making defence equipment are listed on bourses.

The Indian armed forces fought mainly on computer screens and none of armies crossed the other’s border. Kinetic, long-distance, and technological excellence won the day.

WHO WON?

India's 'Aatmnirbharta' in buying locally made defence equipment paid off handsomely. Generations of Indians will now remember for decades how the anti-missile, anti-drone 'AkashTeer' scaled the skies and took out adversaries – both electronic and invisible.

India's Bharat Electronics Ltd makes AkashTeer, an air defence control system designed to automate air defences and enable real time tracking of aerial threats such as enemy aircraft, drones, and missiles. India’s robust and multi-layer air defence, spanning the entire 3,330 km western border with Pakistan, had an array of electronic sensors mated to shoulder-fired man pads, short-range missiles and larger components such as Air defence fighters and long-range missiles.

This integrated network, run by the Indian Air Force, the Indian Army, and Indian Navy, kept wave after wave of Pakistani Armed drones, unmanned vehicles, ballistic missiles, and fighter aircraft from breaching Indian borders. They brought kudos to stocks such as Bharat Dynamics Ltd, Mishra Dhatu Nigam Ltd and BEML Ltd. The Armed Forces were generous with their praise.

"Putting together and operationalising this potent air defence network over the last decade has been due to the unwavering budgetary policies and support provided by the Government of India in acquiring state of the art equipment and weapon system, Air Marshal A K Bharti, the Air Force Director of Operations, told the nation. 

Prime Minister Narendra Modi has walked the Aatmnirbharta path.

In FY 2023-24, the government saw a record high in indigenous defense production, reaching Rs 1.27 lakh crore, a 174 per cent increase from 2014-15. This growth was driven by policies and initiatives promoting local production. In the Budget Estimates for 2024-25, 75 per cent of the allocation for capital acquisition (modernization) was earmarked for domestic procurement. 

The Ministry of Defence has signed a record 193 contracts in 2024-25, with 92 per cent of them (177 contracts) being awarded to domestic industry, totaling ₹1,68,922 crore and all this has reflected in the stunning rally that stocks such as BEL, Mazagaon Docks, Cochin Shipyard and Garden Reach Shipbuilders have seen in the past 5 years.

Marketmen now expect new orders to be placed in the coming months, not only to replenish depleted inventory but also to stock up in case of any eventuality.

Drone makers were in heavy demand today with Zen Technologies surging limit up 5 per cent. Rival Idea Forge jumped 6.2 per cent on Monday after leaping 20 per cent on Friday on volumes that were the highest since its listing day.

GAME CHANGING TECHNOLOGIES

This 4-day battle has shown two major technological shifts – wars are short, intense affairs fought on computers and net centric. No major weapon platforms crossed any border. All damage was caused by unmanned weapons such as ballistic missiles and armed drones.

What mattered was technology, sourced locally and available at your own terms. And this is the change that is being latched on by analysts.

Savvy investors are now betting that India’s defence spending will focus on buying local armaments that are inexpensive compared with the imported counterparts, and more importantly come without any technology hurdles.

The best performing weapon after AkashTeer is the Brahmos missile that took apart several of the 11 Pakistani air bases that were decimated by the Indian Armed Forces. Images of a 15-feet deep and 10-meter wide crater on the runaway of Pakistan’s Nur Khan airbase is a testament to Brahmos’ might and power. While the armed forces have not named the weapon used, military analysts are unanimous in naming Brahmos as the destroyer of the airstrip. Sadly, the company makes this potent missile – Brahmos Aerospace is still unlisted.

India’s Operation Sindoor, in response to the killing of 26 tourists at Pahalgam on April 22nd, has set the pace for a fresh uptick on defence stocks, some of whom will now reclaim their earlier record highs.