As the BJP-led NDA fails to impress investors with its performance in the Lok Sabha Elections 2024, defence stocks also have taken a strong beating along with the broader equity market. In an almost neck-and-neck fight, the BJP-led NDA is currently leading in 298 seats, while the Congress-led I.N.D.I.A. has put up a strong fight by taking a lead on 227 seats.
Shares of defence-related companies have dipped as much as 20% after election trends showed mixed results, prompting investors to book profits following the bull run seen in the recent trading sessions. Shares of aerospace & defence company Bharat Dynamics are currently down 10% at ₹1,437 on the BSE, and its m-cap has also declined to ₹52,676.86 crore.
Aerospace & defence PSU Hindustan Aeronautics Ltd is down 11.43% at ₹4,670.70 on the BSE following a gap-down opening. The stock touched the intra-day low of ₹3,955.30, taking its m-cap down to ₹3.1 lakh crore.
Shipbuilding & allied services major Mazagon Dock Shipbuilders Ltd shares are also trading 10.16% down at ₹2,926.05 on the BSE. Its shares opened a gap down and fell 20% during the intra-day trade, taking its m-cap down to ₹58,984.24 crore.
Another ship-building company Cochin Shipyard's shares are currently down 8.10% at ₹1,849.95 on the BSE, taking its m-cap down to ₹48,564.71 crore. The stock fell 10% during the intra-day trade.
All these four stocks had hit their 52-week in the past week, riding the exit poll wave, which had predicted a mega win for Prime Minister Narendra Modi-led BJP.
Other companies like aerospace & defence player Data Patterns (India) Ltd shares are trading 9.69% down at 2,681.75, dragging its m-cap down to ₹15,013.50 crores, while Paras Defence and Space Technologies is down 7.26% at ₹861.80 on the BSE. Other defence company stocks like Taneja Aerospace and Sika Interplant Systems Ltd are also down 4.70% and 5%, respectively.
India's defence sector is witnessing significant growth driven by increasing defence budgets, modernisation efforts, and the government's emphasis on indigenous manufacturing through initiatives like "Make in India." The Modi government has actively supported the defence sector through favourable policy reforms, incentives, and initiatives to promote indigenous manufacturing and technology development. This has resulted in a huge rally for the defence industry stocks in the recent times.
Japanese brokerage major Nomura in its May 8, 2024, report had initiated "BUY" coverage on the key defence stocks like Hindustan Aeronautics (28% potential upside), and Bharat Electronics (32% potential upside), for its increased visibility on order inflows, conviction on margins delivery and expansion in returns ratios.
The brokerage said that it expected the share of defence capital outlay to increase to 37% of the total defence budget in FY30F (FY24RE: 26%), which implies a cumulative capital outlay of $186 billion over FY24F-30F.
The broader equity market, meanwhile, has taken a big hit as the results show a contrasting trend against what was predicted in the exit polls. BSE Sensex is currently down 5.28% or 4,036.90 points at 72,537.78, while Nifty is down 5.31% or 1,254.75 points at 22,009.
