Why defence stocks surged in trade today? Garden Reach Shipbuilders soars 20%, Mazagon Dock up 10% | Stock Market News

Indian defence stocks rallied sharply on March 19, driven by strong global cues following Germany’s move to boost military spending. ICICI Securities remains bullish on the sector, citing robust fundamentals and recent policy tailwinds.

Defence Stocks Rally on Germany’s Spending Boost

Shares of Garden Reach Shipbuilders surged 20 percent on Wednesday, March 19, hitting an intraday high of ₹1,641.15. The stock’s sharp rise also lifted other defence players, with Mazagon Dock climbing 10.5 percent, Bharat Dynamics rising 6.36 percent, Cochin Shipyard gaining 8.7 percent, Paras Defence adding 5.4 percent, and HAL advancing 4.5 percent.

The rally came after German lawmakers passed a major spending package on Tuesday, unlocking billions of euros in debt financing for defence and infrastructure. The lawmakers also moved to exclude defence spending, which exceeds 1 percent of Germany’s GDP, from constitutional borrowing restrictions. The decision is part of a broader initiative to enhance military capabilities in response to rising geopolitical threats.

German Chancellor Friedrich Merz described the move as a “first great step” towards building a pan-European defence framework, potentially including non-EU nations like the UK and Norway. The development is part of Europe’s broader “rearm Europe” program, aimed at strengthening defences against possible Russian aggression.

EU Rearmament Plans Boost Indian Defence Prospects

The German defence spending boost follows the European Union’s (EU) announcement earlier this month of an 800 billion euro (~$850 billion) rearmament plan, which includes support for Ukraine amid reduced US military aid. According to Elara Capital, this initiative is expected to benefit Indian defence companies as EU defence OEMs increasingly source components and subsystems from public and private firms in India.

Currently, India’s top three defence export destinations are the US, France, and Armenia. Indian companies have been supplying weapons and equipment such as 155mm artillery guns, Akash air defence missiles, Pinaka multi-launch rocket systems, BrahMos missiles, Dornier-228 aircraft, radars, armored vehicles, and bulletproof vests.

India’s defence exports surged to ₹21,000 crore in FY24, marking a 32.5 percent growth over the previous year. The country now exports defence equipment to over 100 countries, according to a PIB release dated October 2024.

ICICI Securities Bullish on Defence Stocks

In a recent note, ICICI Securities highlighted that India’s defence budget’s capital outlay has increased to ₹1.8 lakh crore, up 12.9 percent from FY25RE and 4.7 percent from FY25BE. It believes the recent correction in defence stock prices offers a good entry point, as the sector’s fundamentals remain robust.

Among key developments, ICICI Securities noted that Bharat Electronics Ltd (BEL) recently inaugurated its second assembly line for electronic fuses used in artillery ammunition. Additionally, the Indian Navy finalized a ₹36,000 crore deal with Mazagon Dock Shipbuilders, with the contract expected to be signed by the end of FY25.

Furthermore, the Ministry of Defence (MoD) recently signed a ₹10,200 crore contract for PINAKA rocket systems with Solar Industries and Munition India Limited.

ICICI Securities identified Solar Industries, Azad Engineering, and PTC Industries as its top picks in the defence space, citing strong growth potential.

The brokerage maintains a ‘Buy’ rating on Solar Industries with a target price of ₹13,720, PTC Industries with a target of ₹20,070, Dynamatic Technologies with a target of ₹9,330, Azad Engineering, for which it recently revised the target to ₹2,350 following a QIP issue.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.