Top defence stocks to watch in 2024

Indian defence stocks have had a great run last year. Deepening geopolitical conflicts globally have renewed the government’s focus on the sector, pushing modernisation of the Indian military. The government’s increased spending and emphasis on ‘Make in India’ initiative for the sector has caught the attention of the investors.

The target of becoming self-reliant, or ‘Atmanirbhar’, in terms of defence manufacturing has driven huge capital expenditure in the sector. Finance Minister Nirmala Sitharaman also enhanced the budget allocation for the Indian defence sector for 2024-25 to ₹6.22 lakh crore. In fact, markets are expecting more significant announcements in the full Budget that is to be presented later this year, after the 2024 general elections.

This has created ample room for growth for defence companies, especially for those controlled by the government. Defence PSUs (public sector units) are widely expected to see stronger order books and a significant jump in revenues in the coming few years.

Amid positive growth prospects for the sector, let’s take a look at some of the top defence stocks, both from the government and the private sectors, that investors should watch this year.

Top defence stocks to watch out for in 2024

Hindustan Aeronautics Ltd Shares of state-owned Hindustan Aeronautics Ltd (HAL) have rallied almost 130% in calendar year 2023. In January 2024, they added another 6%. The stock has been one of the biggest beneficiaries of the new defence orders in the recent past. It has a robust order book with further 5-year pipeline of more than ₹2 lakh crore. Its annual revenue rose 11.7% in FY23 to ₹28,598 crore, with net profit jumping 14.7% to ₹5,823 crore.

Moreover, capital outlay on aircraft and aero engines for defence forces for FY25 in the Interim Budget grew around 44% to nearly ₹40,800 crore. This is a big positive for HAL, which is the primary supplier of India’s military aircraft.

Mazagon Dock Shipbuilders

Shares of Mazagon Dock Shipbuilders, which is engaged in shipbuilding, ship repairs and fabrication of offshore structures, have jumped 188% in calendar year 2023. This is one of the biggest rallies seen by any defence stock.

Buying in the stock was seen after the company informed that it has recently received fresh orders worth almost more than ₹7,000 crore for Fiscal Year 2023-24. Notably, Mazagon Dock has set revenue growth guidance of 12-15% for the current financial year.

Bharat Electronics Ltd Shares of Bharat Electronics, a Navaratna enterprise with 37% market share in Indian defence electronics, rose 85% in the calendar year 2023.

The company’s order inflow in the first nine months of 2023-24 exceeded ₹27,000 crore, surpassing the management’s full-year guidance of ₹20,000 crore. The current order backlog provides strong earning visibility for Bharat Electronics for the next 3-4 years. The management has further guided the intake of ₹50,000 crore of orders for FY25 and FY26.

Bharat Dynamics Ltd The Bharat Dynamics stock gained 84% in 2023. The defence PSU is engaged in the manufacturing of surface to air missiles, anti-tank guided missiles, air-to-air missiles, underwater weapons, launchers, counter-measures and test equipment.

Experts believe that the company is poised to benefit from increasing capital outlay for indigenised defence platforms like missiles, torpedoes and countermeasure dispensing systems. The company’s order backlog estimated at around ₹20,000 crore also provides healthy growth visibility.

Cochin Shipyard Ltd Cochin Shipyard is the largest public-sector shipyard in India and derives major revenue from the Indian Navy. Its core capabilities include naval vessel construction, Coast Guard projects, commercial shipbuilding and vessel repair services. The stock had seen a rally of 155% in the year 2023. The company is sitting on a healthy order backlog of ₹21,400 crore. Recently, the stock was split from a face value of ₹10 to two shares with face value of ₹5 each.

Garden Reach Shipbuilders and Engineers Shares of Garden Reach Shipbuilders and Engineers (GRSE), a Kolkata-based shipyard and builder of commercial and naval vessels, climbed 80% in 2023. The defence PSU is anticipating reaching its peak revenue during FY25 and aims to maintain an order book of ₹24,000 crore by the end of the current year.

The company’s revenue from operations between April 2023 and December 2023 stood at ₹2,577 crore as compared to ₹1,960 crore in the year-ago period, recording growth of 31%. The management has said that it was hopeful of maintaining the upward momentum in the coming quarters, too.

To sum up

The substantial rally in defence stocks witnessed in 2023 has renewed the interest of the investors in the sector. As the defence sector promises stability and growth potential, top defence stocks in 2024 will be under the radar of analysts and investors alike. Though India is among the top five highest spenders in the defence sector globally, apart from industry prospects it’s advisable for investors to analyse the individual stocks before investing. Before betting on any defence stock analyse the company’s performance, profitability and growth outlook.