Over 20 PSU stocks have rallied between 30% and 195% since interim budget, led by defence stocks

Since the last interim budget (2024–2025), PSU stocks have shown remarkable performance, reflecting investor confidence in the government's robust fiscal policies. Driven by increased capital expenditure (capex), PSU companies have emerged as key beneficiaries of these initiatives.

As a result, their stock prices have consistently risen, fueled by the positive impact of government spending on infrastructure and development projects.

In addition to the heightened government spending, robust order acquisitions from the private sector and the limited liquidity of these stocks—due to substantial government stakeholding—have created a supply-demand imbalance, further propelling stock prices upward.

The government's capex focus on sectors such as defence, railways, and infrastructure aligns with its vision of a 'Viksit Bharat' by 2047, driving significant rallies in stocks from these sectors. The formation of the BJP-led NDA government at the center has also fueled investor optimism, bolstering stock performance due to anticipated policy continuity and political stability.

Since February 2024, 22 stocks from the BSE PSU index have surged between 30% and 193%, with Cochin Shipyard leading the charge. The company's shares have soared from ₹912 to ₹2,670, marking a remarkable gain of 195%. Other defence stocks, including Mazagon Dock Shipbuilders, Hindustan Aeronautics, Bharat Electronics, BEML, and BHEL, have also experienced substantial increases, ranging from 40% to 125% since the last interim budget.

The Indian defence sector is undergoing a transformative phase marked by increasing funding, expanding defence budgets, and rising defence exports.

India now exports to over 85 countries, thanks to collaborative efforts. In recent years, the government has given clearance for exports to Friendly Foreign Countries (FFCs), creating substantial growth opportunities for Indian defence manufacturers.

Finance Minister Nirmala Sitharaman allocated ₹6.21 lakh crore to India’s Ministry of Defence during the Interim Budget presentation in February, representing 13.04% of the Union Budget.

Despite having the world’s fifth-largest defence budget, India sources approximately 60% of its weapon systems from international markets.

To enhance security, sovereignty, and economic interests, India must address its fiscal challenges and reduce import dependence. The Indian government is working to bolster domestic defence capabilities, aiming to increase exports to ₹50,000 crore by 2030.

This presents significant opportunities for domestic players in engineering services and component sourcing. India is poised to become a leading global defence manufacturing hub in the near future, according to domestic brokerage firm Khandwala Securities.

NDA 3.0's First Full-Year Budget

The Union Budget for 2024–25 will commence today at 11:00 p.m. in the Lok Sabha, with Finance Minister Nirmala Sitharaman delivering her seventh consecutive budget speech, surpassing the previous record held by Morarji Desai, who presented six budgets.

This upcoming budget is highly significant as it represents the first full-year budget of the NDA 3.0 government and will set the stage for India’s economic, infrastructure, and social development over the next decade. Expectations are that the budget will aim to balance fiscal deficit management with increased capital expenditure (capex) for growth and social spending.

Key areas of focus are anticipated to include the continuation of existing capex priorities—such as infrastructure, railways, defence, and renewable/clean energy—a higher budget allocation to rejuvenate the rural economy, job creation.

The markets will be closely watching for any changes to the capital gains tax on equities. A lack of alterations in this area would likely be viewed positively for Indian equity markets.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.