InvestorQ : What are the risks you see to defence stocks story now?
Khushi Patel made post

What are the risks you see to defence stocks story now?

Dhwani Mehta answered.
3 years ago

While everything about buying 101 products from Indian companies in defence looks good on paper, there are some practical constraints. Actually, there are three immediate constraints one can perceive if we look at the list of 101 items in defence.

The biggest constraint to domestic orders was the urgency of requirement. In pressing situations like Kargil, Doklam and Galwan, constraints of time forced India to import many of its defence requirements. Hence Indian companies could not attain economies of scale.

Secondly, many of the products in the list are already Indo-Russian venture and that is unlikely to change too soon. This includes special assault rifles and Brahmos Cruise missiles. Also, many of the products in the list-101 are made locally and there was no scope for technological knowhow for India.

The good news is that dollar outflows can be reduced by the initiative taken up by the government. Amidst hostile neighbours like Pakistan and China, greater domestic preparedness is mandatory and to that extent it is a good move.

The onus will now be on the government and the defence establishment. Indian defence companies may have a largely sustainable business model combining scale and profits. Now it is for the defence forces to deliver the orders to the defence companies.