5 defensive actions to watch as China trains its muscles

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He used some of that money to help strengthen his army.

In March 2021, the Chinese government set a cautious economic growth target for this year, shifting its focus from recovery mode to longer-term challenges like controlling debt and reducing technological dependence on it. screws from the United States.

China has forecast defense spending of 6.8% this year ($ 209 billion), the biggest increase since 2019, amid tensions with the United States and its main neighbors.

On the other hand, India plans to spend US $ 130 billion on military modernization over the next 5 years, as self-sufficiency in defense production is a key goal for the Indian government.

India has an unstable border on the eastern and western fronts and also has a long coastline to protect its maritime interests.

In view of this and the potential for export and job creation offered by the sector, the government has proposed various measures to promote the indigenization of the defense sector.

The time has come for Indian companies that have focused on defense manufacturing to see larger orders placed.

Here is the list of top 5 defense titles in India.

1. Hindustan Aeronautics

Hindustan Aeronautics was founded in December 1940 under the name Hindustan Aircraft by industrialist Walchand Harichand in association with the government of Mysore at the time.

It was created for the purpose of manufacturing airplanes in India. In 1941, the Indian government became one of its shareholders and fully acquired the company in 1942.

The state-owned company is known to manufacture highly competitive airplanes and helicopters, including “light fighter jets”, “Chetak” and “Cheetah”.

In 2020, HAL announced an ambitious plan to develop a 10-12 ton attack helicopter by 2027, touted as India’s response to the US Apache helicopter, manufactured by Boeing.

2. Electronics Bharat

It is a defense public sector (PSU) company and it is suggested that the company is now looking to export its products to friendly countries.

Bharat Electronics is engaged in the design, development and manufacture of radars, electronic weapons as well as essential electronic EVMs or voting machines.

According to market experts, given the company’s execution track record, it should benefit from increasing government spending in the defense sector.

In addition, the recent import embargo imposed by the center will favor companies such as Bharat Electronics, as the country’s defense system will now be totally dependent on local defense equipment suppliers.

3. Dynamic Bharat

Bharat Dynamics (BDL) is one of the Indian manufacturers of munitions and missile systems. It was founded in 1970 in Hyderabad.

The company was established to be a manufacturing base for guided weapon systems.

Starting with a group of engineers from Indian munitions factories, defense research and development organizations (DRDOs) and aerospace industries, Bharat Dynamics began by producing a first generation anti-tank guided missile – the SS11B1 French.

Recently, Bharat Dynamics announced the establishment of an environmental testing facility at the Visakhapatnam unit. It will include a vibration test set-up, a thermal chamber and an operating chamber for an entire torpedo.

The environmental testing facility will be the first of its kind in the country and will contribute to the further achievement of “Atmanirbharta” in the defense sector.

The facility, once operational, will enhance BDL’s capability in the torpedo test infrastructure. and underwater weapons.

4. Astra microwave

Astra Microwave Products is a designer and manufacturer of high quality radio frequency (RF) and microwave components and subsystems.

The company was founded in 1991 and is headquartered in Hyderabad, India.

Astra develops high-end products for applications in radar, electronic warfare, missiles, telemetry, satellites, telecommunications and weather systems.

Last year, Astra Rafael Communication System (ARC), a joint venture between Hyderabad-based Astra Microwave and Rafael Advanced Defense Systems of Israel, opened its new 20,000 square foot facility at Hardware Technology Park near the airport. of Shamshabad to make communication systems for the armed forces.

Astra Microwave became the first private sector company to manufacture software-defined radios in India.

5. Forge of Bharat

Founded in 1961 by Dr Nilkantha Rao In Kalyani, Bharat Forge is one of the leading blacksmith companies in India.

The company has capabilities in the development, design, manufacture and engineering of systems and subsystems for artillery guns, armored combat vehicles, protected vehicles, ammunition, defense electronics and small arms.

The only bright spot for the Bharat Forge stock is the increase in exports and because of this the script consistently sees profits as well as price target upgrades.

For FY2022, market experts have improved Bharat Forge’s profit forecast by 15-20% given the sustained and robust growth in exports as well as the resilience of domestic non-auto segments.

In addition, according to reports, the private company is increasing its investments in order to increase its defense capabilities as few orders are pending and management expects to win them.

Speaking of the defense sector, take a look at the graph below which shows the top 5 military spending countries in the world in 2019.

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According to a report by the Stockholm International Peace Research Institute (SIPRI), India was the third largest military spending country in the world in 2019.

Here is what we wrote about it in one of the editions of Profit hunter:

If you look closely at the chart, you will realize that it will likely remain among the top spenders for years to come.

This is because of the second biggest spenders shown in the graph, China.

Faced with rising tensions between the two countries, India has a strong incentive to follow China.

It makes sense for the government to focus on this sector in the near future.

The government’s “Atmanirbhar” push will get a huge boost through local defense manufacturing. This will create profitable opportunities in defense actions for savvy investors.

Co-Head of Research at Equitymaster, Tanushree Banerjee closely monitors defense stocks. According to Tanushree, defense will be a great opportunity for wealth creation.

Should you include defense stocks in your portfolio?

Here are some reasons why Defense Pack stocks offer a good opportunity for investors:

1. The China-India stalemate is not resolved. Defense ammunition will be needed. Therefore, the demand for these companies will be strong.

2. Government “Aatmanirbhar” boost is another area that increases the opportunities for the sector, as the Indian defense system will now depend solely or heavily on local suppliers.

In the recent import ban list notified on May 31, 2021, 108 items were placed on the import ban list. This means that they must necessarily come from local suppliers.

3. Levels of operating income are gradually increasing for the above companies after the weakness of the first quarter of fiscal 2021. The order book of these companies is full.

Some of these companies like Bharat Dynamics are pure debt free companies.

Defense sector stocks are somewhat shielded from industry-related losses, as they will almost certainly have government plans at some point.

While this certainty is a good thing, defense actions should be viewed with the same caution as other actions. Sustained research should not be compromised despite the positive odds.

This article is syndicated from Equitymaster.com

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