How To Ride The Rally In Defence Stocks

Given the geopolitical flare-ups in the Indian neighbourhood, it's time to accord the defence sector the same importance given to banking, IT and FMCG.

- Abhishek Mukherjee

To paraphrase the ancient Greek statesman and general Pericles, just because you do not take an interest in geopolitics, doesn't mean geopolitics will not take an interest in you. Or your stocks portfolio. If the events of the last few weeks have shown us anything, it is that the real estate guys were right—it really boils down to location, location, location. India may be blessed with numerous natural advantages, but in one aspect, at least, it has been dealt with a particularly harsh hand—its neighbourhood. India's neighbours comprise, in no particular order, a military dictatorship masquerading as a functioning country; the world's largest one-party dictatorship itching to take over the entire globe; an aspiring Islamic theocracy; and a perpetually unstable parliamentary republic which cannot let go of its monarchical past. Bang in the middle sits India, the world's biggest democracy and the fastest-growing major economy.

In such a situation, few things are amply clear. Firstly, in a neighbourhood like India, geopolitical flare-ups should be considered the norm, not the exception. And second, shoring up India's defence capabilities is non-negotiable, and will take massive investments spanning years, if not decades.

Which brings us to the point of view of investing. For India's growing multitude of retail investors, has the time come to accord the defence sector the same importance given traditionally to banking, information technology (IT), and fast-moving consumer goods (FMCG)?

CYCLICAL TO STRATEGIC

Defence stocks roared back to life in the aftermath of India's Operation Sindoor, which was launched on 7 May, targeting terror camps in Pakistan and Pakistan-occupied Jammu and Kashmir. The operation was to avenge the Pahalgam terror attack on 22 April, which left 26 people dead.