Prime Stock recommendation: Two Pillars of India’s Defence transformation
Defence sector at an inflection point - here is how to play it!
Vidya Bala
Vidya Bala is a co-founder of PrimeInvestor. Vidya helped build one of the country’s earliest robo-advisory solutions in the country in her earlier role at FundsIndia. A Chartered Accountant by qualification, she has more than 18 years of experience, of which over 15 were spent analyzing the markets. LinkedIn | Twitter
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7 thoughts on “Prime Stock recommendation: Two Pillars of India’s Defence transformation”
The article could have shared historical returns [10 years or longer] of BEL and HAL? India fought multiple wars with both neighbours and also we had recent border dispute with China… none of that seemed like inflection point, so what is so different with current conflict that make you so optimistic about defense companies?
The current conflict also indicated that future wars are more about drones (unmaned) rather than conventional missles or jets etc [recent Ukrain attack is another example]… from your article it does not seem BEL or HAL is involved in manufacturing drones [except some anti-drone systems for BEL as contract manufacturing] Is there any Indian company that is involved in drone manufacturing, which could have been better pick?
The biggest negative as an investor is that these are govt owned enterprises which means risk of govt changing and regulations can change things overnight… we have seen this with so many govt enterprises in airlines, banks, telecom, power sector, energy sector, oil etc etc…. we should not forget how govt of india squeezed Coal India’s cash reserves or forced LIC to invest in companies to meet disinvestment targets etc etc… The biggest risk is govt itself for the stock investor….
Ketan,
Will take your questions one by one:
1. It is pointless to take historical returns for a sector whose landscape is changing. Atmanirbhar has committed to 75% localisation and going back in time of Rafael and simplistic electronic items by Bharat Electronics is of no use. We should know when to look at history and when to look at what the future holds.
2. I most definitely did not say the current conflict is the reason for this call. Please read it all over again. Recent Government data has now revealed to us the changes happening in this sector and this current conflict definitely hastens things. That Tejas is set for delivery in June is evidence to the fastrack: https://www.businesstoday.in/india/story/days-after-iaf-chief-flags-timeline-delays-hal-set-to-deliver-first-tejas-mk-1a-aircraft-from-nashik-facility-by-june-end-478765-2025-06-03
There is no need to look at earlier wars because there was no Atmanirbhar then.
3. On Drones vs manned fighter crafts: Yes HAL does UAVs. HAL is developing its own UAV ecosystem:
• CATS Warrior: Loyal wingman UAV to accompany Tejas/AMCA (500 km range, AI-enabled).
• RUAV-200: Naval reconnaissance UAV for joint operations with manned aircraft.
The increasing deployment of armed UAVs (unmanned aerial vehicles) does not eliminate the need for combat aircraft like those produced by HAL, but rather creates a complementary ecosystem in modern warfare. Here’s a detailed analysis based on India’s defense strategy and HAL’s positioning:
Mission Profile
Manned Combat Aircraft (HAL’s domain) L Air superiority, deep strikes, high-risk combat zones :
Armed UAVs: Surveillance, targeted strikes, asymmetric warfare
Payload Capacity
Manned Combat Aircraft: 5–8 tons (e.g., Tejas MK1A: 3.5-ton payload)
Armed UAVs:Typically <500 kg (e.g., Tapas UAV: 350 kg payload)
Survivability
Manned Combat Aircraft: Higher (evasive maneuvers, countermeasures
Armed UAVs:Lower (limited speed/altitude)
Situational Awareness
Manned Combat Aircraft: Superior (human pilots + advanced avionics)
Armed UAVs: Dependent on sensors/data links
The rest of your points do not apply here as these company’s are about national interest. The govt. cannot just ;squeeze’ other than to get divdends, which is perfectly fine.. So I do not have a view on this. Every PSU has govt. risk. The question is whether the business growth dispels those risk.
Thanks
Vidya
Thank you for your response… I re-read the article (including the businesstoday link) and the challenges and risks you have outlined do make sense……. so do you think its a good idea to load up on BEL-HAL now or can be done slowly over next several months? Any listed private player that is on your watchlist?
We don’t give buy on stocks that one can buy later 🙂 Stock market corrections and accumulations is something you would need to do anyway. You can look at the Nifty Defence index for private players like Data Patterns or Solar Industries. They are not in our radar as the idea is to only go with market leaders at this juncture (to mitigate the risk) even if growth prospects are higher with other players.
Vidya
To be honest these this call feels a tad bit *too late*; or at the least *quite late*. I am sure PI had its reasons for it, due diligence and what not. But still, the feeling nonetheless remains the same 🙂
😃We exactly anticipated such comments and hence started the report with what you said. 😊😊😊 We could not have given the sector callw ithout being convinced. You have every right to your opinion on the timing 😀 thanks, Vidya
No-no, it was not a critique. Apologies if it sounded harsh. I just meant that it “felt” like it.
This is great and actually timely and thank you. Cheers.
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