The Defense sector has caught investor fancy, with stocks such as GRSE, Hindustan aeronautics and Cochin shipyard, running up in the recent months
The following factors are supposed to be the key drivers for it
- Increasing defense spend as India raises it spend as % of GDP in view of the changing geopolitical situation
- Higher spend on capital equipment to modernize the armed forces
- Focus on Import substitution to reduce reliance on foreign suppliers
- Support āMake in Indiaā initiative and raise exports of defense equipment
These factors have been in place for the last few years, but are gaining momentum now (achieving critical mass)
We initiated a position in Cochin shipyard in 2020 in the model portfolio which turned out to be early in Hindsight. The main driver was an increasing order book driven by the above factors. As it happens with anything related to the government ā You can count on delays inspite of the best intentions. As a result, we exited the position to avoid opportunity loss
This sector continues to be on my radar, though we have no position in it
I am publishing the research report from 2020, as the thesis is unchanged. You can download it from here
