Over the past year, Indian defense stocks have experienced a remarkable rally, drawing the attention of investors and analysts alike. The sector has seen significant gains, driven by increased government spending on defense and a focus on self-reliance through the “Atmanirbhar Bharat” initiative. This has created optimism around companies involved in defense manufacturing and technology. As geopolitical tensions rise and defense budgets expand, the outlook for this sector remains positive, leading to heightened interest from the market.
Reason for the Rally
Several factors have fueled this rally. The Indian government has prioritized domestic defense production, aiming to reduce imports and boost local manufacturers. Additionally, the emphasis on modernization and technological advancements in the armed forces has led to increased contracts for defense firms. As these companies position themselves to capitalize on this shift, investor confidence has surged.
HAL – Strong Buy Call with 29% Upside potential
CMP 4,210
Hindustan Aeronautics Limited (HAL) has been given a Buy Call with a target price of Rs 5,465 per share. The company is expected to witness a significant surge in ordering flow, especially in Q4FY25, due to the sharp rise in defense capital expenditure (Capex) planned for FY25. As the
Indian defense sector ramps up spending, HAL stands to benefit from this momentum, particularly in aircraft and aerospace projects.
Engine Supply and Future Inflows
HAL’s engine-related challenges, specifically with the supply of F-404 engines, are expected to end soon with General Electric set to supply these engines by March 2025. This development could accelerate HAL’s production capacity and revenue growth. Additionally, HAL’s inflows are
projected to increase significantly, with estimates suggesting a rise of Rs 1.2 lakh crore in FY26.
BEL – Positive Outlook with 18% Upside potential
CMP: 292
Bharat Electronics Limited (BEL) also receives a Buy Call, with a target price of Rs 345 per share. The company is poised to benefit from increased defense expenditure, as India allocates 75% of its total budgeted defense Capex for domestic companies in FY25. The rising budget allocation to the defense sector, alongside BEL’s strong position in the Indian defense manufacturing ecosystem, suggests robust revenue growth for the company.
Navy’s Budget and Market Potential
In FY25, the Navy’s budget has seen an increase of 18% YoY, which is likely to drive demand for BEL’s products in naval defense systems. With these positive tailwinds, BEL is well-positioned to see strong ordering flows and potential revenue growth in the coming quarters, making it an attractive investment option for the long term.
Written By: Dipangshu Kundu
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