Defence stocks mixed as FM makes no big announcements in budget

Ahead of the budget most experts that Moneycontrol spoke to expected an increase in budgetary allocation, with the government’s self-reliance push and aim to make India an export hub in the long term.

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Defence stocks has a mixed response on February 1 after Finance Minister Nirmala Sitharaman made no major announcements for the sector in her Interim Budget for 2024-25.

Shares of major defence players such as HAL and BEL fell 0.48 percent and 2.04 percent while Bharat Dynamics fell 0.82 percent. Shares of Data Patterns were already trading in the green post its Q3 announcement on January 31. At noon, the stocks were trading 1.94 percent higher.

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In the FY23–24 budget, the defence segment received an allocation of Rs 5.94 lakh crore, a 13 percent increase over the previous years. Of this, the outlay for “modernisation and infrastructure development” was increased to Rs 1.62 lakh crore, 6 percent more than FY23.

Also read: Budget 2024: Defence stock valuations are stretched but may rally if budget allocation is stepped up

Ahead of the budget most experts that Moneycontrol spoke to expected an increase in budgetary allocation, with the government’s self-reliance push and aim to make India an export hub in the long term.

In their pre-budget expectation report, analysts at Nuvama estimated an 5–8 percent increase from the previous budget, with higher allocation towards R&D, UAV/drones, anti-drone systems and so on.

The industry expected defence capital outlay  to grow 12–15 percent YoY on the back of systems modernisation and the increasing focus on indigenisation and exports.

Industry experts told Moneycontrol that the share of foreign procurement to the total has been decreasing while that of domestic procurement has been increasing, which is good news for local players. According to Dipen Vakil, Analyst, Aerospace & Defence, InCred Equities, by the end of the year, domestic procurement could increase to over 70 percent (from 62 percent), benefiting both defence manufacturing and allied industries.

In a recent interview, the defence secretary also spoke about how, going forward, nearly 45 percent of procurement will be from the private sector. This, Vakil believes, could be another positive for the segment.

Over the last year, major defence stocks have gained nearly 2x.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.