Policy measures from the government like— ‘Atmanirbharta in Defence’, which prioritizes indigenous arms manufacturing, positive indigenization lists, which mandate certain military equipment to be bought from India, and capital allocation for domestic procurement—are strengthening market sentiment for the defence sector, said Jha.

“These policy interventions, along with a rise in arms exports from India, are further alleviating market sentiment this year, explains Santosh Meena, head of equity research at stock brokerage firm Swastika Investmart.

“These factors have given the defence sector significant momentum—making the market make defence stocks leapfrog in share price, he said.

Overall, the pandemic, India’s border troubles with China and learnings from the Russia-Ukraine conflict has ensured that self-reliance in defence doesn’t remain a mere catchphrase in India, added Jha.

In contrast, reports suggest that the growth of defence share prices has been buoyant though blue chip stocks have been volatile.

“All factors that are central to a rise in share price are being witnessed. Turnover, valuations, multiples and profits have all gone up for most defence companies. This has resulted in the stocks rallying,” a trader based in New Delhi explained.

Apart from policy underpinning this rise, Meena explained that “prior to 2022, shares of defence stocks were trading far below their book value and were also under-owned. The jump in share prices this year then has also been significantly enhanced by this underlying phenomenon.”

In essence, policy, macro, and market factors have all combined to bring this share price surge.

Bharat Dynamics Limited & The Bull Market

Bharat Dynamics Limited is a public sector company that was founded in 1970 to manufacture missile systems for the armed forces.

In 2022, it has seen its share price rise by 136.8 per cent. Going from trading at Rs.391.45 a share to Rs. 927.30 between 3 January, 2022 to 18 November 2022.

Beyond manufacturing and supplying guided missiles, the company also provides underwater weapons, air-borne products and allied defence equipment for the armed forces. Further, BDL also offers support and refurbishment of old and vintage missile systems.

While its stock has surged by 136.8 per cent this year —i ts performance in the past had been significantly different.

On 23 March, 2018 it traded at Rs.389.80. On 2 January, 2019 it was trading at Rs.281.60, a fall of Rs.108.2 or 27.7 per cent in price. On 2 January, 2020 Bharat Dynamics was trading at Rs.306.25—a rise of Rs. 24.65 or 8.75 per cent rise from the January 2, 2019 price.

Consequently, on 1 January, 2021, the share price had risen to Rs.348.10 — a Rs.41.85 or 13.6 per cent increase in its price. By 3 January, 2022 it was trading at Rs.391.45, a rise of Rs. 43.35 or 12.45 per cent from its 1 January, 2021 share price.

Essentially, as the data suggests, the bull year the stock has had has been unparalleled.

Hindustan Aeronautics Limited (HAL) & The Surge Persisting

HAL is a state-owned manufacturer of transport aircraft, fighter aircraft and helicopters. It was transferred to the control of Ministry of Defence in 1951. It has produced some of the most recognized machines of India’s indigenous military manufacturing—the Chetak and Cheetah helicopters, the Light Combat Aircraft Tejas and the recent LCA Prachand.

At the beginning of 2022, on 3 January, HAL traded at Rs.1233.70. At the close of trading on 18 November, HAL was priced at Rs.2617.95 — an increase of Rs.1384.25 or 112.2 per cent.

Significantly, this run in 2022 comes contrary to past performances of HAL and other defence stocks at the NSE.

On 28 March, 2018 HAL was trading at Rs. 1,132 and by 4 January, 2019 it dropped down to Rs.814.70 — a fall of Rs.317.3 or 38.9 per cent. By 3 January, 2020 HAL’s share price fell to Rs.736.90 — a Rs.77.8 fall or 9.5 per cent decrease from the January 2020 value. It rose to trade at Rs. 856.80 on 1 January, 2021.

Essentially, like BDL, HAL has also had a phenomenal surge this year with no precedent. Saurav Jha sees this bull run for defence shares persisting—with the caveat of a few ups and downs, “especially as the government has set a target for $25 billion in defence revenue by 2025”.

Bharat Forge & Expectations From Other Private Firms

Bharat Forge, whose subsidiary Kalyani Strategic Systems Limited, is a manufacturer of artillery and armoured vehicles, has seen its share price rise from Rs.710.90 to Rs 835.50 between 3 January, 2022, to 18 November, signalling a 17.5 per cent rise.

At the NSE, on 4 January, 2019 it had closed at Rs.487.15. By 3 January, 2020, the share fell to Rs.486.55 and on 1 January, 2021 it closed at Rs.538.10. Essentially, from January 2019 to January 2021 the share only rose by 10.45 per cent. So the 17.15 per cent rise in 2022 is almost double the share price rise between January 2019 and January 2021.

Among other private defence companies, Astra Microwaves, a manufacturer of sub-systems, radar technologies, antennas, receivers and command guidance units, has seen its share price also rise this year.

At the NSE, Astra Microwaves closed on 3 January, 2022, at Rs. 233.60 and on 18 November its share price was Rs. 322.70, a Rs 89.1 rise or 38.1 per cent increase year-on-date, which is a significant change from the shares past trading trends.

On 3 January, 2019 the stock closed at Rs.79.95 and on 3 January, 2020 it closed at 83.50. Essentially, the share price marginally increased in the year from January 2019 to January 2020 — briefly touching the Rs 90 threshold in the time between.

Like Astra, investors expect other private defence players and MSMEs to continue performing well in the market. A trader from New Delhi explained that expectations were that in the next two quarters these defence MSMEs will outperform their cash flows and increase their earnings before interest, taxes, depreciation and amortization (EBITDA).

“Given that the defence industry is now being viewed favourably by a range of investors, more defence companies are likely to turn towards raising capital from equity markets, essentially going public and listing themselves on the stock exchange, especially given that interest rates have risen in the recent past,” added Jha.