Drone stocks jump 50% after 'Operation Sindoor'—Should you invest?
What's the story
The stocks of drone manufacturers and defense-related companies have seen a major surge after the launch of 'Operation Sindoor,' India's military response to the Pahalgam terrorist attack.
Since May 7, shares of top defense and aerospace firms including IdeaForge Technology, Hindustan Aeronautics (HAL), Bharat Electronics (BEL), Paras Defence, DCM Shriram Industries, and Zen Technologies have gained 8-50%.
The rally is mainly fueled by hopes of increased government spending on defense tech.
Market analysis
Experts weigh in on defense stocks rally
Vinit Sambre, Head of Equities at DSP Mutual Fund, credits the rise in defense stocks to robust orderbook anticipation and fresh order announcements.
He warns that corporate commentary is still subdued amid an uncertain macroeconomic environment and the usually long execution cycles in defense.
Manoranjan Sharma, Chief Economist at Infomerics Valuation and Ratings, says India's top defense companies will do well, but stock appreciation will depend on various factors.
Technological advancement
India's defense ecosystem matures with drone technology
India's defense ecosystem has matured significantly, with indigenous high-tech systems seamlessly integrated across platforms and domains.
This includes drone warfare, layered air defense, and electronic warfare.
The operational readiness and technological sophistication displayed during recent border hostilities with Pakistan have been widely acknowledged at home and abroad.
Future outlook
Analysts predict continued growth for India's defense stocks
Analysts now believe India's defense stocks look reasonably valued after the recent surge.
The established capability and proven effectiveness of indigenous defense products indicate these companies are poised for continued growth under the 'new normal' of the defense calculus.
Ambareesh Baliga, a Mumbai-based independent analyst, expects momentum in drone-related stocks to continue with potential gains of another 15-20% in the short term.
Market growth
India's military drone market projected to grow significantly
'Operation Sindoor' highlighted the growing use of drones for surveillance and combat, which will likely lead to a continued push for drone procurement by the Indian military.
India's military drone market, worth $1.53 billion in 2024, is expected to grow to $4 billion by 2030, at a CAGR of 17.9%, according to Grand View Research.
Despite robust growth prospects for defense stocks, analysts and fund managers are advising investors to stay cautious due to stretched valuations and high P/E multiples.