HAL, BEL, other defence stocks gain after govt extends customs duty exemption on imports; should you buy?
HAL, BEL, other defence stocks gain after govt extends customs duty exemption on imports; should you buy?
Defence stocks like Hindustan Aeronautics (HAL), Bharat Dynamics (BDL), Bharat Electronics (BEL) and other edged higher on June 28 after the government granted an extension in exemption of customs duty on the imports of certain parts.
The exemption, which was to end on July 1 has now been extended for a five-year period till 2029, and it applies to categories like military helicopters with empty weight of more than 3,500 kg, associated role equipment, ground support equipment, ground handling equipment and other categories.
The Modi government has focused on the defence sector by increasing funding, expanding defence budgets, and raising defence exports. Investors, buoyed by the prospects of policy continuity and ongoing economic reforms, have been pouring money into the sector.
In the Union Budget 2019, Finance Minister Nirmala Sitharaman proposed that defence equipment not being manufactured in India be exempted from customs duty with the objective of securing borders.
Defence stocks have garnered significant attention, driven by optimism surrounding public sector undertakings (PSUs) and expectations of securing more orders in the medium to long term.
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Earlier this month, Defence Minister Rajnath Singh announced a target to increase India's defence exports to Rs 50,000 crore by 2029. The country had already achieved a record-high defence export figure of Rs 21,083 crore in FY24.
According to an Anand Rathi Shares and Stock Brokers note, India's defence and aerospace industry market is likely to grow to $11.8 billion by 2029. Private sector's share in defence production has now hit an eight-year high of 22 percent, it said.
For the Indian Army, the brokerage listed Bharat Dynamics, BEML and Mishra Dhatu Nigam (MIDHANI) as the key players, while shipbuilders like Mazagon Dock, Garden Reach and Cochin Shipyard were listed as the key players for the country's Navy.
On June 28, shares of HAL, BEL and BDL were trading over 1 percent higher in morning deals. Paras Defence and BEML stocks were also trading with gains. Shipping stocks were also trading higher with gains of up to 3 percent.
Shares of most Indian defence companies have risen 50 to 100 percent or even more over the last 12 months, outperforming bechmark Nifty 50 which rose around 27 percent during this period.
According to Antique Stock Broking, the Indian defence sector has undergone significant transformations over the past four years, driven by revolutionary steps taken by the government to establish a robust domestic defence ecosystem.
The Ministry of Defence (MoD) is focused on fostering this ecosystem through several initiatives.
In anticipation of robust growth, the brokerage revised its target prices for defence stocks: BEL's target price raised to Rs 339 from Rs 308, maintaining a ‘buy’ rating; HAL's target price increased to Rs 6,145 from Rs 5,462, also with a ‘buy’ rating.
Mazagon Dock Shipbuilders got a ‘buy’ rating with the target price adjusted to Rs 3,458 from Rs 2,833 earlier. BEML saw an upgrade to a ‘buy’ rating, with the target price raised to Rs 5,216 from Rs 3,510.
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