Defence stocks are the flavour this week and investors remain bullish, with stocks like Hindustan Aeronautics (HAL), Mazagon Dock and Bharat Dynamics hitting their fresh 52-week highs. Shares of HAL rose as much as 3 percent today (June 7) as General Electric (GE) will be entering into a pact with HAL to co-produce jet engines in India. The defence company’s stock settled at Rs 3,496, up 2.43 percent, in trade today.

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The Biden administration has given its approval for GE to co-produce the engines in India, ahead of Prime Minister Narendra Modi's visit to the US later in June, according to a CNBC-TV18 report.

Mazagon Dock shares, which are on a dream run, was at Rs 1,035.95 on the NSE, up 0.87 percent at close. The stock has been in an uptrend in the last five trading sessions, gaining nearly 28 percent during this time, and hit a 52-week high yesterday (June 6).

HAL shares hit a 52-week high of Rs 3,525 today. Wednesday's gains were on the back of rallies over the previous three trading sessions.

Bharat Dynamics shares also scaled a 52-week peak of Rs 1,216.55 today. The stock has rallied for six successive sessions till today, before erasing its gains and closing 2.88 percent lower.

India's defence spends, manufacturing

India's defence spends is among the top five nations globally, almost 2.5 percent of the total gross domestic product (GDP) of the country. The government is now focusing on Indian companies manufacturing defence equipment.

Speaking at the 14th edition of Asia’s biggest aero show Aero India 2023, PM Modi said India will soon be the world’s largest defence manufacturing base and that the central government aims to take India’s defence exports up to $5 billion by 2024-25.

The Prime Minister said, “Our target is to take defence exports to $5 billion by 2024-25. India will soon be the world’s largest defence manufacturing base.” He added that India is not just a market for global defence companies but also a potential defence partner and an emerging global powerhouse.

Defence stocks: Why is the Street excited?

The first mutual fund based on the defence theme has been announced. HDFC Mutual Fund has launched the HDFC Defence Fund, which will invest in stocks of defence and allied sector companies.

“Self-reliance in defence led by strong R&D focus and enhancement of manufacturing capabilities creates an opportunity for Indian companies to serve the domestic market as well as tap the large export potential,” said fund manager Abhishek Poddar. “This could offer a multi-decadal investment opportunity.”

HDFC Defence Fund will invest at least 80 percent of its net assets in stocks classified by the Association of Mutual Funds in India as defence, including aerospace & defence, explosives, shipbuilding and allied services or stocks of companies that are members of the Society of Indian Defence Manufacturers and obtain at least 10 percent of revenue from the defence segment. The fund follows the Nifty India Defence Index (Total Return Index) as its benchmark.

The Nifty India Defence Index, developed by NSE Indices, had 13 stocks, of which 10 were from the small and microcap universe. Some of these stocks will likely be part of the HDFC Defence Fund portfolio. With limited investment opportunities in the largecap space, the fund will likely manage a mid- and smallcap heavy portfolio.

First Published:Jun 7, 2023 6:08 PM IST