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Mint
3 days ago
- Business
- Mint
Will the bull run in defence stocks continue? Long-term growth seen, but valuations flash warning signs
Defence stocks have been on a blistering rally, with the NSE Defence Index soaring 20 percent in the last one month, vastly outperforming the Nifty 50, which rose by only about 1 percent during the same period. With India sharpening its strategic focus on indigenous defence manufacturing amid global geopolitical tensions, many investors are wondering: Will the bull run in defence stocks continue? While the long-term fundamentals remain strong, market experts warn that valuations have already priced in much of the near-term earnings growth. The bull case for defence stocks is rooted in a larger geopolitical and policy shift. According to Omniscience Capital, which manages a defence-focused smallcase, the Indian government is likely to ramp up defence spending from the current ~2 percent of GDP to 3–4 percent over the next decade. With India expected to become a $10 trillion economy by 2035, this would imply an annual defence budget exceeding USD 300 billion, or ₹ 30 lakh crore—translating to a 16–17 percent CAGR in defence expenditure over the next ten years. Omniscience Capital's report, 'Operation Sindoor: An Inflection Point for Bharat's Omni Defence Strategy', argues that the recent military and security operations have highlighted the need for a robust, future-ready defence infrastructure—not just to protect borders, but also to secure India's digital ecosystems, trade routes, and overseas strategic assets. India's domestic defence production crossed ₹ 1.4 lakh crore in FY25, with DPSUs (Defence Public Sector Undertakings) contributing around ₹ 1.1 lakh crore, or 78 percent. Of this, ₹ 90,000 crore came from 8 listed DPSUs, forming 66 percent of the total DPSU output. The government now aims to double the total defence production to ₹ 3 lakh crore by 2029. Even assuming DPSUs maintain a 60 percent share, their combined output would need to grow at 18 percent CAGR, hitting ₹ 1.8 lakh crore by 2029. Analysts project that the turnover of listed DPSUs will grow by 18 percent in FY26 and 22 percent in FY27, while 9 unlisted DPSUs are estimated to generate over ₹ 20,000 crore in FY26 alone. Private players are also expected to play a larger role, diversifying the sector's investment potential. However, while the sector's structural growth story remains intact, concerns around high valuations are surfacing. The median trailing P/E of listed DPSUs stands at 57, with forward P/E for FY26 and FY27 at 45 and 36, respectively. Valuations are even steeper for private defence companies, making investors vulnerable to corrections if expectations aren't met. Dr. Vikas Gupta, CEO of Omniscience Capital, said, 'The future of India's defence sector is undoubtedly bright. However, we urge investors to remain valuation-conscious. Much of the high growth has already been factored into stock prices, particularly in the short term.' Despite these cautionary signals, experts argue that the rally has legs over the long run. India's strategic ambitions—to become the world's third-largest economy by 2027–28 and a 7–8 percent contributor to global GDP—will require significant defence investment. The Indian Armed Forces are under pressure to modernize, especially with neighboring countries likely to boost their own defence spending in response to India's growing capabilities. Moreover, a strong fiscal position and global interest in India as a defence exporter could help sustain capex in the sector, while also creating tailwinds for listed players. Overall, the bull run in defence stocks has been driven by compelling macro themes: rising geopolitical risk, India's focus on self-reliance, and ambitious spending targets. However, with valuations running ahead of fundamentals in many cases, the question for investors is no longer whether defence is a growth story—it is how much of that growth is already in the price. Experts suggest a balanced approach: remain invested for the long-term transformation underway, but be selective and valuation-conscious in the short run. The next leg of the rally may belong not to the sector as a whole, but to the well-positioned companies with sustained earnings visibility. Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
Hans India
4 days ago
- Business
- Hans India
Defence PSUs likely to clock 18 pc growth as India beefs up armed forces
Mumbai: India will gradually increase its defence budget as a percentage of GDP from around 2 per cent at present to 3 per cent or even 4 per cent over the next decade, according to a report released by Omniscience Capital on Monday. With a $10 trillion GDP, the defence budget is expected to grow to more than $300 bn or around Rs 30 lakh crore. This implies a 16-17 per cent annualised growth till 2035, the report observes. The total output of the defence PSUs is expected to double to Rs 1.8 lakh crore by 2029, indicating a growth of 18 per cent over the next four years, according to the report. The report further states that Operation Sindoor has triggered a renewed focus on defence, vigilance, and strategic preparedness to attack enemies and safeguard not only our borders and citizens but also the critical resources, economic and trade infrastructure, and the digital ecosystem. As per the report, the mid-term target for domestic defence production is set at Rs 3 lakh crore by 2029. In FY25, domestic defence production crossed Rs 1.4 lakh crore, of which 78 per cent was contributed by the defence PSUs at around Rs 1.1 lakh crore. The listed defence PSUs accounted for more than Rs 90,000 crore of this, accounting for 66 per cent of the total defence PSUs' share. This growth outlook gets revalidated if one looks at the analyst estimates for the next couple of years. The total turnover of 8 listed defence PSUs is expected to grow at 18 per cent and 22 per cent for FY26 and FY27, respectively. Nine unlisted defence PSUs combined are expected to report a total turnover in excess of Rs 20,000 crore in FY26, according to the report. According to the report, in the long term, the defence pensions, which account for around 25 per cent of the total defence budget, currently, and the largest part of the expense under the salary head (currently around Rs 2 lakh crore), are expected to grow at a slower pace. The expected annualised growth of the capital budget and supplies would be even higher, potentially at levels above 20 per cent. The cumulative capex over the next 10 years could range from Rs 50 lakh crore (at 2.4 per cent in 2035) to Rs 64 lakh crore (at 3 per cent in 2035). It also expects the Rs 3 lakh crore domestic defence production target for 2029 announced earlier might be revised upward and exceeded. The report notes that while the growth potential of the defence sector is unmistakably robust, the TAM (total addressable market) is large, and the growth rates are likely to remain high for decades. However, the investors need to pay attention to the valuations. The median trailing price to earnings (P/E) multiple of the 8 listed DPSUs is 57. The forward median P/E for FY26 and FY27 is at 45 and 36, indicating that the high growth potential is significantly priced in. For some of the private sector names, the multiples are even higher, and hence, investors are advised to be extremely cautious while allocating capital to specific names at current levels.
Hans India
14-05-2025
- Business
- Hans India
Indian industry to churn $3-trn biz potential by 2035
New Delhi: India's industry sector is expected to outpace agriculture to take a larger share in the GDP (30-32%) by 2035 and opening a $3 trillion opportunity, driven majorly by manufacturing, a report showed on Tuesday. Manufacturing is expected to emerge as the growth leader taking two-third share of industrials and more than 20 per cent share of the GDP by 2035. Higher domestic consumption with increasing per capita income and a target of $1 trillion merchandise exports are expected to drive this growth, according to the report by Omniscience Capital. The manufacturing sector is pivotal to India's economic growth, significantly contributing to the nation's GDP. Currently, it stands as one of India's key growth sectors, catering to both domestic and international markets. Government initiatives such as the Production-Linked Incentive (PLI) scheme, 'Make in India' campaign, liberalised Foreign Direct Investment (FDI) policy, public-private partnership (PPP) models for various public undertakings, and infrastructure development are fuelling this growth. To achieve India's ambitious $1 trillion merchandise export target by 2030, the merchandise exports should increase from the current $450 billion to $1 trillion, requiring a year-on-year growth rate of 12 per cent, the report mentioned. India's share in global merchandise exports has doubled from 0.9 per cent share in 2005 to 1.8 per cent in 2023. India's merchandise exports have grown at a 3-year CAGR of 18.8 per cent from FY21 to FY24 and a 5-year CAGR of 9.4 per cent from FY19 to FY24. 'India is poised to continue emerging as a preferred destination for manufacturing investments due to the availability of raw materials, low labour costs, a favourable corporate tax rate for manufacturing, and proactive government support through incentives,' said Ashwini Shami, EVP and Portfolio Manager at OmniScience Capital. The government is developing 11 industrial corridor projects under the National Industrial Corridor Development Programme (NICDP) across the country in four phases.
