India got a big advantage from Russia-Ukraine war, the slogan of self-reliance was raised, defense stock started roaring

Defense shares roared from war

The government has taken another big step in this year’s budget. To become self-reliant in the defense sector, 68 percent of the capital procurement has been kept for the domestic industry.

of Russia and Ukraine in February this year (Russia-Ukraine WarWhen the war broke out, the defense sector of India also got restless. expensive oil ,Crude Oil) And apart from other things, there was another reason for the sweat on the forehead of the government and the army. Actually, India has relations with both Russia and Ukraine in defense. Both countries supply defense equipment and arms to India. In such a situation, when the two countries clashed, questions arose on the supply and repair of tanks, helicopters and submarines for India from the S400 air defense system.

This crisis further confirmed India’s pledge to become self-reliant in the defense sector. Now when India decided to cut imports in defense and to make weapons and technology in the country itself, the faces of those who put money in the market also shone. The reason is that companies working in this sector are going to get direct benefit from the campaign to become self-reliant in defense.

This thing is also visible in the form of a rise in the shares of these companies. But, before coming to the stocks, let’s understand the story of the country’s defense sector and the government’s campaign to become self-reliant in this sector. Because ultimately from here it will be decided whether you should bet on this sector or not, first of all let’s look at India’s dependence on Russia and Ukraine in view of the current situation.

What do SIPRI data say?

Statistics from the Stockholm International Peace Research Institute (SIPRI) show that between 2016 and 2020, 49.4% of India’s arms imports come from Russia and 0.5% from Ukraine. In terms of defense imports from around the world, India’s defense imports during 2015-19 are about 10 percent of the world.

The top 5 importers in the world between 2017-21 were India, Saudi Arabia, Egypt, Australia and China. However, between 2011-15 and 2016-20, arms imports in the country declined by 33 per cent.

Now relying on other countries on defense is not beneficial for both the exchequer and the security of the country. In such a situation, the government has taken many big decisions. For example, in May 2020, the limit of FDI in the defense sector has been increased from 49 per cent to 74 per cent. Now let’s talk about the budget.

For 2021-22, 58 per cent of the total capital acquisition budget was earmarked for domestic capital procurement. Defense capital outlay was also increased by 18.75 per cent in the budget for 2021-22.

Defense budget kept above Rs 4 lakh five thousand crore

Now let’s talk about this year’s budget i.e. 2022-23. India’s defense budget for the current fiscal has been kept above four lakh five thousand crore rupees. Defense pension money is not included in this.

This money has been largely earmarked for the modernization of the Armed Forces. The capital outlay of 2022-23 has been increased by 12.82 percent and a budget of more than one lakh fifty two thousand crore has been fixed for this.

The capital outlay is largely used in the modernization of the Armed Forces. The government has taken another big step in this year’s budget. To become self-reliant in the defense sector, 68 percent of the capital procurement has been kept for the domestic industry.

The biggest thing is that 25 percent of the R&D budget has been earmarked for industry, startups and experts. Going out of the budget, the government is taking the equipment and weapons out of the purview of import.

Defense Minister Rajnath Singh has released the third positive identification list of 101 equipment and platforms on 7 April. These are to be procured only from the indigenous industry. The list includes utility helicopters, light tanks, small unmanned aerial vehicles and anti-ship missiles of the Navy. With this, the needs of Indian armies can be fulfilled.

The list of 101 items was released in August 2020 and the second list of 108 items was released in May 2021 i.e. companies are going to directly benefit from the government’s emphasis on domestic manufacturing of arms and equipment. Many of these companies are also listed and in such a situation their investors can also take strong advantage in the coming days.

The order book of these companies will be better and the working capital of the companies of this sector will be strong. Experts are also bullish on this. Abhijit Mitra, Research Analyst, ICICI Securities said that in the next five years, only for items included in the third list, indigenous defense companies can get orders worth more than Rs 21 thousand crore.

After the notification of the first and second lists, the armies have signed contracts for 31 projects worth about Rs 53,900 crore.

Not only this, acceptance of Necessity (AoN) contracts have been signed for 83 projects worth about Rs 1,77,300 crore. Apart from this, more contracts worth Rs 2,93,700 crore can be approved in the next 5 to 7 years. The advantage of this whole exercise is that the shares of companies related to the defense sector have started roaring. Between April 6 and April 27, there has been a tremendous increase of up to 32 percent in these stocks.

Bharat Electronics at the forefront

If we talk about orders, then Bharat Electronics is at the forefront in this matter. It has 24 possible orders on it. This is followed by L&T with 11, Solar Industries with 10 and Bharat Dynamics with 9 potential orders.

The Defense Minister has also said that in the next six years, indigenization opportunities of Rs 6.1 lakh crore will be available for domestic companies. To capitalize on this opportunity, all small and big companies will have to invest heavily.

Global brokerage firm CLSA believes that due to the ban on import of 101 types of defense goods, capable domestic companies like HAL, L&T, BEL and Bharat Dynamics will get business opportunities of about Rs 2.14 lakh crore in the long term. CLSA says that orders will start receiving from FY 2024 and the biggest opportunity is in front of HAL which can get orders for Naval Utility Helicopters worth about Rs 21,500 crore.

Bharat Electronics, Hindustan Aeronautics and Bharat Dynamics are among the preferred stocks of most brokerage houses. These companies hold an effective position in the defense sector.

Harsh Chauhan, Money9

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Money9’s advice- Money9’s advice is that there is a lot of enthusiasm in defense stocks, which have gained a lot in recent times. Now it can be difficult for you to get down to their high level and it will not be wise either. Therefore, you should take the opinion of a financial advisor and when you see a decline in stocks, then invest in them by making a long-term investment strategy.