Defence stocks Hindustan Aeronautics and Bharat Electronics were falling on Thursday but one global brokerage initiated coverage on the stocks with a bullish stance on the sector.

What Happened: Nomura initiated coverage on Hindustan Aeronautics and Bharat Electronics with a “buy” rating, as the international brokerage is bullish on the defence space.

Nomura foresees a $138 billion opportunity in the defence sector over FY24 to FY32. The brokerage agreed that there could be further legs in the upcycle, as the government is following through on all defence-related policies.

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Nomura stated that the country’s defence sector is in a good position to meet the future needs of the armed forces. They noted the government’s increasing procurement from local companies, which has brought more attention to the industry.

Targets: Both stocks got a “buy” call from the brokerage. The brokerage issued a target price of ₹4,750 on HAL, indicating an upside of around 23%. The brokerage highlighted HAL’s strong moat in the fighter aircraft and helicopter space.

HAL’s significant capability upgrade provides the basis for developing its indigenous engine program. Hindustan Aeronautics also has a case for further re-rating.

Nomura also initiated coverage on BEL with a buy rating with a ₹300 price target, an upside of 30% from current levels. BEL’s increased visibility on order inflows assures Nomura of margin delivery and expansion in return ratios.

Price Action: Hindustan Aeronautics’ share price was down 0.33% at ₹3,843.95 in morning trade on Thursday, while Bharat Electronics’ stock slumped 0.72% at ₹229.90.

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