Defence Stocks Gain Momentum as Investor Interest Revives on JPMorgan’s Bullish Call

Defence Stocks Gain Momentum as Investor Interest Revives on JPMorgan’s Bullish Call

Defence and shipbuilding stocks are back in the spotlight, witnessing a surge in buying interest after a recent pullback made valuations more appealing. The renewed enthusiasm comes on the heels of JPMorgan’s bullish call on select stocks, which has reignited confidence among investors.

The BSE CPSE Index climbed 0.9% in early trade on November 27, while the NSE Nifty India Defence Index outperformed with a robust gain of 2.3%, driven by all constituent stocks trading in the green. By 10:15 AM, the action was palpable, with several sector leaders posting impressive gains:

Bharat Dynamics Ltd (BDL): Up 5%

Bharat Electronics Ltd (BEL): Higher by over 2%, supported by significant volumes

Hindustan Aeronautics Ltd (HAL): Up nearly 2%

Shipbuilders (GRSE, Cochin Shipyard, Mazagon Dock): Gains ranging from 3-5%

Sector’s Resilience: Gains Amid Corrections

Over the past month, the Nifty India Defence Index has risen nearly 5%, reflecting sustained investor interest despite a sharp correction in recent months. Key players such as MTAR Technologies (+18%), DCX Systems (+10%), and Paras Defence (+11%) have delivered double-digit returns in the last 30 days.

JPMorgan’s Top Picks and Price Targets

JPMorgan’s report on November 26 identified several beaten-down defence stocks as attractive buying opportunities. Their preferred picks include:

Bharat Electronics Ltd (BEL): Target price of ₹340, suggesting a potential upside of over 16%, based on its exposure to “structural growth.”

Hindustan Aeronautics Ltd (HAL): Target price of ₹5,135, implying a near 20% upside.

This optimism aligns with market veteran Ramesh Damani’s perspective. He noted that defence stocks could rebound sharply, backed by visible order books and strong earnings.

> “In India, some of the defence shares will probably come back. Earnings have been good, and order books are strong. I believe these companies are well-positioned to perform at this stage,” Damani remarked.

Structural Drivers: Indigenisation and Budgetary Push

India’s focus on indigenisation and a steady increase in defence spending continue to bolster the sector’s growth. The Union Budget 2024-25 allocated ₹6.22 lakh crore for defence, providing a significant boost to domestic players.

GRSE (Garden Reach Shipbuilders & Engineers), for instance, expects its order book to touch ₹25,000 crore by March 2024, while major shipbuilders collectively held orders worth over ₹85,000 crore as of FY23.

Beyond Core Defence: Opportunities in Strategic Segments

Market analysts suggest exploring opportunities beyond traditional defence companies. According to Vikas Gupta of OmniScience Capital, investors could consider sectors like energy security, rare and strategic materials, defence logistics, and infrastructure supporting global operations.

This comprehensive approach underscores the broad potential within India’s defence ecosystem, making it a compelling space for long-term investments.

For more stock market insights and strategies, stay tuned to TradingThought!