 "Defence stocks rally; Bharat Electronics hits new high")
Shares of defence equipment and manufacturers rallied up to 16%, after Prime Minister Narendra Modi said the country needs to increase its defence preparedness while inaugurating Aero India 2015.
The Prime Minister has also asked the Indian industry and armed forces to develop own capabilities in defence manufacturing and stop reliance on imports. Companies in the sector eye more orders for trucks, jeeps, aircraft carriers and other related equipment, especially after the recent “Make in India” campaign.
Stressing on the need to end India’s dependence on defence imports and the fact that the domestic defence industry is central to the “Make in India” programme, the Prime Minister said that the said the foreign players could use India as part of their global supply chain.
Stocks rally
Thus far in current calendar year 2015, defence related stocks have gained between 25 – 93% as compared to 7% rise in the benchmark indices, the S&P BSE Sensex and the CNX Nifty on hopes that the Union Budget proposals could see the sector being opened up that will result in increased participation from private players.
Among individual stocks, Bharat Electronics (BEL), a state-owned company, surged nearly 9% at Rs 3,998 on the Bombay Stock Exchange (BSE) after touching a record high of Rs 4,140 in intra-day trade. Pipavav Defence and Offshore Engineering Company moved up 13% to Rs 77.75 after it hit a 52-week high of Rs 82.80 on the back of heavy volumes. In the past two weeks, the stock has rallied 56% from Rs 50 on February 2.
But given the rally seen thus far, should one invest in this space and what does the upcoming Budget hold in store?
Analysts are of the view that the rally in these stocks has been quite steep and the valuations now appear stretched. Investors, they say, should look at exiting these counters.
G.Chokkalingam, founder and managing director, Equinomics Research and Advisory, says: “I think one should book profits in these stocks given the sharp rally and the stretched valuation in some cases. If at all the Union Budget does have proposals for this sector, it will mostly be in the form of foreign direct investment (FDI) in this sector and will take at least two – three years for any manufacturing company to deliver results. The markets are reacting as if the proposed outlays, if at all they come, will immediately be visible on the bottom-line of these companies.”
“Moreover, the defence outlays since the past few years have not gone up substantially. The government is also reeling under tremendous stress to maintain fiscal discipline, which makes spending all the more difficult,” he adds.
Deven Choksey, managing director and chief executive officer, K R Choksey Shares and Securities suggests that the companies in this sector are not seeking any concessions from the government in the upcoming Union Budget. “It is all market expectation that is driving the stock prices higher. I don’t think one should be jumping into the fire right now,” he says.
The Prime Minister has also asked the Indian industry and armed forces to develop own capabilities in defence manufacturing and stop reliance on imports. Companies in the sector eye more orders for trucks, jeeps, aircraft carriers and other related equipment, especially after the recent “Make in India” campaign.
Stressing on the need to end India’s dependence on defence imports and the fact that the domestic defence industry is central to the “Make in India” programme, the Prime Minister said that the said the foreign players could use India as part of their global supply chain.
Stocks rally
Thus far in current calendar year 2015, defence related stocks have gained between 25 – 93% as compared to 7% rise in the benchmark indices, the S&P BSE Sensex and the CNX Nifty on hopes that the Union Budget proposals could see the sector being opened up that will result in increased participation from private players.
Among individual stocks, Bharat Electronics (BEL), a state-owned company, surged nearly 9% at Rs 3,998 on the Bombay Stock Exchange (BSE) after touching a record high of Rs 4,140 in intra-day trade. Pipavav Defence and Offshore Engineering Company moved up 13% to Rs 77.75 after it hit a 52-week high of Rs 82.80 on the back of heavy volumes. In the past two weeks, the stock has rallied 56% from Rs 50 on February 2.
But given the rally seen thus far, should one invest in this space and what does the upcoming Budget hold in store?
Analysts are of the view that the rally in these stocks has been quite steep and the valuations now appear stretched. Investors, they say, should look at exiting these counters.
G.Chokkalingam, founder and managing director, Equinomics Research and Advisory, says: “I think one should book profits in these stocks given the sharp rally and the stretched valuation in some cases. If at all the Union Budget does have proposals for this sector, it will mostly be in the form of foreign direct investment (FDI) in this sector and will take at least two – three years for any manufacturing company to deliver results. The markets are reacting as if the proposed outlays, if at all they come, will immediately be visible on the bottom-line of these companies.”
“Moreover, the defence outlays since the past few years have not gone up substantially. The government is also reeling under tremendous stress to maintain fiscal discipline, which makes spending all the more difficult,” he adds.
Deven Choksey, managing director and chief executive officer, K R Choksey Shares and Securities suggests that the companies in this sector are not seeking any concessions from the government in the upcoming Union Budget. “It is all market expectation that is driving the stock prices higher. I don’t think one should be jumping into the fire right now,” he says.