Defense Stocks likely to surge as Government extends Customs Duty exemption

Defense stocks like Hindustan Aeronautics (HAL), Bharat Dynamics (BDL), and Bharat Electronics (BEL) are likely to surge in the days following June 28, as the government has decided to extend the customs duty exemption on certain imported parts.

Initially set to expire on July 1, this exemption has now been extended for five years, covering critical categories such as military helicopters over 3,500 kg, associated role equipment, and ground support and handling equipment. This makes this an enticing investment opportunity to follow. These stocks had surged and dipped in the build-up to the Government’s decision, and it is likely to see a significant upside in the days to come.

Government Focus on Defense Sector 

The Modi government’s emphasis on bolstering the defense sector through increased funding, expanded budgets, and boosted exports has fueled investor confidence. The prospects of policy continuity and ongoing economic reforms have led to significant investment in this sector, with defense stocks gaining considerable attention. 

Key Players in the Defense Sector 

Bharat Dynamics Limited (BDL): 

BDL, a state-owned enterprise, is a leading manufacturer of guided missile systems and underwater weapons. With a near-monopoly in areas like anti-tank guided missiles and surface-to-air missile systems, BDL plans to invest 2-4% of its sales in R&D for FY24 and allocate Rs. 100 crores for capital expenditure.  

Hindustan Aeronautics Limited (HAL): 

HAL is a key player in the aerospace sector, producing a range of aircraft, helicopters, and UAVs for the Indian military. Notable products include the Tejas fighter jet and Sukhoi-30MKI. The company anticipates a robust capital expenditure plan of 14,000 to 15,000 crores annually over the next five years. 

Bharat Electronics Limited (BEL): 

BEL specializes in defense electronics, providing various products to the Indian military and government departments. With a strong order book and a planned capital expenditure of ₹700 to ₹800 crores over the next two years, BEL is well-positioned for growth.  

Cochin Shipyard Limited (CSL): 

CSL is a major player in shipbuilding, focusing on both defense and commercial vessels. The company’s order book includes significant defense and commercial projects, such as a Hybrid SOV for the European market and ship repair contracts valued at INR 150 crores. CSL continues to explore opportunities in the commercial shipbuilder market.