Bears Take Hold Of Defence Stocks HAL, Mazdock, Cochin Shipyards After Cold Shoulder In Budget Speech

Shares of defence stocks like Hindustan Aeronautics, Mazagon Dock Shipbuilders, Cochin Shipyard and Bharat Electronics were all deep in the red following the budget announcement, which made little mention of the high-flying sector.

What Happened: Finance Minister Nirmala Sitharaman presented the Union Budget 2024 on Tuesday but made no major announcements that would directly impact the defence sector, dashing hopes of higher allocations towards the industry, which is dominated by large public sector firms.

Investors had anticipated a 12%-15% year-on-year growth in defence capital outlay, as the government focuses on systems modernisation and infrastructure development, given its emphasis on indigenisation and export ramp-up.

While that did not materialise in the budget speech, the overall market was battered by a slew of hikes in capital gains taxes, including a hike to 20% from 15% tax on short-term capital gains and a hike to 12.5% from 10% on long-term gains.

See Also: New Tax Slabs Announced, Standard Deductions Increased To ₹75,000

In the interim budget, the finance minister announced a budgetary allocation of ₹1.72 lakh crore towards FY25 defence capital expenditure, which was 20.33% higher than the actual expenditure of FY23 and 9.40% more than the revised allocation of FY24.

When compared to historical performance, the current price-to-earnings ratios of defence stocks appear elevated after a considerable run-up over the past year, raising concerns about whether these stocks are overpriced. While the defence sector's reliance on government contracts provides long-term revenue streams and stability, any adverse changes in government policy or budget allocations can significantly impact these stocks' performance.

In the lead-up to the Budget, defence stocks had been under pressure, with many seeing sharp corrections amid reports of profit booking and concerns over divestments.

Large and sustainable opportunities for domestic players still exist, according to experts, particularly in engineering services and component sourcing, with the goal of reaching ₹50,000 crore in exports by 2029-2030.

Price Action: Shares of defence stocks were mixed on Tuesday morning even though most had opened in positive territory.

• Cochin Shipyard Ltd has decreased by 0.94%, with a current price of ₹2,645.20.
• Bharat Dynamics Ltd is down 1.22%, now trading at ₹1,475.60.
• Astra Microwave Products Ltd has dropped 1.31%, with shares priced at ₹896.10.
• Hindustan Aeronautics Ltd is experiencing a 1.65% decline, currently at ₹4,915.00.
• Solar Industries India Ltd shares are down 1.81%, trading at ₹10,714.40.
• BEML Ltd has fallen by 1.81%, with shares currently at ₹4,632.05.
• Paras Defence and Space Technologies Ltd is down 2.18%, now trading at ₹1,349.00.
• Bharat Electronics Ltd has decreased by 2.77%, with a current price of ₹303.65.
• Garden Reach Shipbuilders & Engineers Ltd is down 3.16%, with shares at ₹2,487.20.
• Mazagon Dock Shipbuilders Ltd has fallen by 3.49%, currently trading at ₹5,139.20.
• Data Patterns (India) Ltd is experiencing a significant decline of 3.71%, with shares priced at ₹3,074.40.
• Zen Technologies Limited shares are down 0.85%, currently trading at ₹1,423.70.

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