Defence stocks get reality check

The Cabinet Committee of Security's latest approval for orders worth ₹21,100 crore is seen as a boost for defence companies such as Hindustan Aeronautics Ltd (HAL), Bharat Electronics Ltd (BEL) and Larsen and Toubro Ltd (L&T).

- Abhinaba Saha

A pickup in approvals and orders, which had slowed for much of FY25, improves the medium-term revenue visibility of defence public sector undertakings (D-PSU). However, the execution of existing orders remains a major challenge for most of these firms.

A continued focus on order inflows, which leads to a sentimental uptick in stocks, might lead investors to miss the wood for the trees.

Defence capital spending fell 20% year-on-year in H1 FY25, but is expected to pick up in Q4 with multiple large orders lined up for finalization such as Sukhoi engines and SU-30 MKI, Antique Stock Broking Ltd said in a report on 27 December.

Despite a near sixfold jump in the last couple of years to its all-time high of 8,302.03 in July 2024, the Nifty India Defence index is down almost 23% since then.