Defence stocks Bharat Dynamics, Cochin Shipyard, GRSE are surging on Tuesday; Here is why

Shares of India’s defence companies – Bharat Electronics Ltd. (BEL), Bharat Dynamics Ltd. (BDL), Cochin Shipyard Ltd., Mazagon Dock Shipbuilders Ltd., Garden Reach Shipbuilders Ltd., and Hindustan Aeronautics Ltd. (HAL) are trading with gains between 3% to 9% on Tuesday, March 4.The move comes after a strong rally in European defence companies overnight, on a day when most global equities sold off sharply. European defence stocks like Saab AB, Rheinmetall AG, BAE Systems Plc, Leonardo among others jumped anywhere between 15% to 20% overnight. A Goldman Sachs basket of European Defence stocks also surged 15% to a record high. These moves added $35 billion to their market capitalisation.

European defence stocks rallied after a pledge by regional leaders to boost military spending.French President Emmanuel Macron told Le Figaro newspaper after a gathering of political leaders in London over the weekend that the EU should provide €200 billion ($210 billion) to boost its defence capabilities.

The prospect of a surge in defence spending by European countries has already led to a sharp rally in the shares of companies involved in the sector. Rheinmetall, one of Europe’s biggest suppliers of material for land forces, has gained over 90% so far this year and is up over eleven-fold since the Russian invasion of Ukraine started three years ago.

Vincent Juvyns, global market strategist at JPMorgan Asset Management, said public defence spending will rise sharply in coming years, even if peace in Ukraine remains a possibility for 2025, recent diplomatic clashes between allies notwithstanding.European Commission President Ursula von der Leyen said that the group will soon present a plan for rearming Europe during a summit of leaders in London.

For BAE Systems, Europe’s largest weapons maker, defence spending has continued to strengthen over the past year, Chief Executive Officer Charles Woodburn said on a conference call last month.

Indian defence exports surged to ₹21,000 crore in financial year 2024, which was a growth of 32.5% over the past year. India currently exports defence equipment to over 100 countries, with the top three destinations being the US, France and Armenia, according to a PIB release dated October 2024.

As much as ₹6.21 lakh crore was allocated to the Defence sector during the Union Budget this year. The country is also on track to achieve a target of ₹1.75 lakh crore worth of defence production this year, with an aim to reach ₹3 lakh crore by 2029. The target is to increase defence exports to ₹50,000 crore by 2029.

Shares of Bharat Dynamics are down 43% from their recent peak. Shares of Garden Reach and Cochin Shipyard have more than halved from their peak, correcting up to 55%. Bharat Electronics, the Nifty 50 constituent is also down over 25% from its peak.

(With Inputs From Agencies.)