The time for defence stocks and power stocks has come up and unlisted space will find significant growth in 2025-26 and onwards. It might be time to get into the unlisted and MSME space into this segment which will witness significant strategic turnaround in coming years. Mutual Funds in this space will find significant growth.
Key Points and Developments: Defense
- Capital Budget:
- Modernization and Procurement: There's a focus on enhancing India's military capabilities, particularly in response to regional threats. The budget allocates funds for significant projects like the procurement of nuclear-powered attack submarines, advanced aircraft, and tanks. The push for self-reliance or 'Aatmanirbhar Bharat' in defence manufacturing is evident, with emphasis on domestic procurement.
- Research and Development: The budget has
provisions for innovation and R&D, especially through initiatives like
the Innovations for Defence Excellence (iDEX) program, though the
allocation for the Defence Research and Development Organization (DRDO)
remains relatively small at 3.84% of the total defence budget. This
indicates a potential shift towards private sector involvement in defence
R&D.
- Border Management and Infrastructure: With
ongoing issues at the Line of Actual Control (LAC), there's an increase in
funding for border infrastructure, with the Border Roads Organisation
receiving Rs 6,500 crore, a 30% increase over the previous year's
allocation.
- Sectoral Performance: The defence sector stocks have shown mixed reactions. Some companies like Bharat Electronics Limited (BEL) and Data Patterns (India) have been highlighted as top picks by analysts, expecting growth due to upcoming large-scale defence projects.
On the other hand power sector
witnessed significant allocation and will witness similar growth opportunities
- Revamped Distribution Sector Scheme: Rs
16,021 crore was allocated, highlighting the government's focus on
reducing losses, improving efficiency, and ensuring the financial health of
distribution companies (Discoms).
- Rooftop Solar Plan: There's a significant
push for rooftop solar with initiatives like the PM-KUSUM scheme, aimed at
solarizing agriculture, receiving funds like Rs 2,600 crore for FY26.
- Infrastructure Enhancements: There are plans
for expanding the power transmission network, with states being encouraged
to attract private capital for this purpose through asset monetization and
stable revenue streams.
- Renewable Energy: A target has been set to
exceed 35 GW in renewable energy capacity additions for 2025, driven by
improved solar and wind manufacturing capabilities.
- Incentives for States: The government has
proposed additional borrowing capacities for states contingent upon electricity
distribution reforms and augmentation of intra-state transmission capacity.
- Investment: There's an expectation of robust
growth in the sector with investments projected at around ₹67,286.01 crore
for eight state-owned power companies in FY 2025, a 14% increase from the
previous year, aimed at enhancing power generation capacity and infrastructure.
Future Outlook:
- Analysts predict that India's defense spending will
continue to grow, with projections of spending reaching $130 billion over
the next five years, driven by the need to modernize and reduce import
dependence. The focus on indigenous manufacturing and the integration of
advanced technologies like AI, cyber, and space capabilities is expected
to shape future defense budgets.
- Budget 2025-26: The total allocation towards
the power sector, including new and renewable energy, for the financial
year 2025-26 is Rs 48,396 crore. This is a 30% increase over the previous
year's allocation, showcasing a significant commitment to the sector's
growth and sustainability.
- Power Ministry: The Ministry of Power
received Rs 21,847 crore, with a major portion going towards the revamped
distribution sector scheme, which focuses on aspects like smart metering,
system metering, and distribution infrastructure upgrades.
- Ministry of New and Renewable Energy (MNRE):
MNRE was allocated Rs 26,549 crore, indicating a strong push towards
renewable energy sources.
Power Sector:
Tata Power (TATA POWER) and NHPC
(NHPC): Both companies are likely to benefit from the increased focus on
renewable energy, particularly with the allocation of the PM-KUSUM scheme and
other initiatives aimed at solar power. The push towards clean energy initiatives
could drive up demand for their services and products.
SJVN (SJVN): With a focus on
hydroelectric power and the government's push for clean energy, SJVN could see
benefits from new projects and expansions in this area.
Waaree Energies (WAREE): As one
of the leading players in solar energy solutions, Waaree Energies might benefit
from the increased budget for solar initiatives, including manufacturing and
installation projects.
Inox Wind (INOXWIND): The
budget's emphasis on renewable energy and the addition of wind power capacity
could provide growth opportunities for Inox Wind.
NTPC Green (NTPC-GREEN): With
NTPC aiming to become a significant player in the green energy sector, its
green energy arm could see increased projects and investments.
Defense Sector:
Hindustan Aeronautics Limited
(HAL) and Bharat Electronics Limited (BEL): These companies are expected to
benefit from the increased defence capital expenditure. HAL, with its
involvement in aircraft manufacturing, and BEL, with its electronics and systems
for defence, are poised for growth due to indigenous manufacturing pushes.
Mazagon Dock Shipbuilders
(MAZDOCK), Cochin Shipyard (COCHINSHIP), and Garden Reach Shipbuilders &
Engineers (GRSE): With the government's focus on naval modernization and
indigenization, these shipbuilders are likely to see increased orders for new ships
and submarines.
Bharat Dynamics Limited (BDL) and
Data Patterns (India) Limited (DATAPATT): Both could benefit from increased
expenditure on missiles, UAVs, and other defence equipment, especially as
there's a strategic push towards self-reliance in defence.
Paras Defence and Space
Technologies (PARAS) and Apollo Micro Systems (APOLLO): These companies,
involved in defence electronics and systems, could see growth due to the
government's emphasis on defence startups and innovative technology.
Rail Vikas Nigam Limited (RVNL) and BEML (BEML): Although primarily railway companies, they also have significant involvement in defence projects, particularly in infrastructure and equipment, which could see boosts from the budget.
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