When investing in the stock market, it is always advisable to have a good mix of stocks from different industries. This is referred to as diversifying your portfolio. The main purpose of putting your money into a variety of sectors is to ensure sustained profits – if one industry faces some sort of deterrent, stocks in other industries could be relied upon to continue delivering returns.
If you are looking to diversify your portfolio, defense sector stocks are a favourable option. These stocks present good potential for profit because you can always count on the government to have defense projects underway. The government’s defense requirements are met by these certified suppliers. The direct result of government projects is positive earnings reports and a general positive outlook towards defense sector companies. Consequently, stocks of these companies generally perform well.
The government has allocated nearly 3.5 lakh crore as its defense budget as part of the Annual Budget. Moreover about 1.18 lakh crore has been allocated towards capital outlay which is used to fund equipment and projects. One can predict with some amount of certainty that all allocations will be spent as the armed forces have several planned acquisitions that they have in fact had to reduce because they had hoped for more funds.
Here are a few defense sector stocks to set up Google updates for in case you plan to invest in defense stocks. Watch for additional projects that these companies might receive from the Ministry of Defense (MoD). The list below will guide you on hat sort of news and government project hand-outs to look for.
- Ashok Leyland – because it is one of the top suppliers of vehicles to the Indian Army.
- Astra Microwave – because it supplies microwave-bases high value radio frequency super components.
- Bharat Forge – because it may soon be supplying artillery guns to the Indian military.
- BEML – because it supplies ground support equipment and has potential for long term growth.
- Bharat Electronics – because it supplies communications equipment such as radars and other military communications.
- Bharat Dynamics – because it is a government enterprise that supplies the MoD with missiles, torpedoes and allied defense equipment.
- Larsen & Toubro – because it represents the ministry of defense’s big guns, literally! The government calls upon L&T for various services including design, development, manufacturing and assembly of arms, armaments and even submarines.
- Reliance Naval & Engineering – because it has a warship repair agreement when the MoD.
- Rolta India – because it provides the MoD with geospatial solutions.
Walchandnagar Industries – because it supplies the government with missiles and platform-based equipment, launchers, portable bridges and gearboxes.
Hindustan Aeronautics Limited – because it has an agreement with the MoD to design, manufacture and assemble aircraft, helicopters, jet engines and spare parts.
While these are all sound recommendations, it is important to judge stocks based on actual performance and market indicators. If you are reading this article we trust that you already have a trading account. (If not you can always get an online trading and demat account on the Angel Broking website/app). Browse a few defense stocks via your trading account and determine which ones you can count on to be lucrative – use technical charts and indicators to do these. You should be able to browse these free of charge on your reading platform – on the Angel Broking app, you will have access to charts and indicators on the go. Spend time observing the highs and lows of these stocks over a few weeks (or even longer if you have the patience) before you buy in. After all, you want to buy when the stock price is low and sell when it is high.
Conclusion: Defense sector stocks are somewhat buffered from industry-related losses because they are almost certainly going to have government projects at any given time. For example even if most jet engine suppliers are seeing no demand due to recession, a defense-sector company will most likely still receive orders from the MoD. While this certainty is a good thing, one must view defense stocks with the same amount of caution as one would view other stocks. Sustained research must not be compromised despite the positive odds.