The Indian Military is the 4th largest and considered one of the strongest defense forces on our planet. The government has been spending trillions of rupees to increase the defense and offense capabilities of our military.
The Indian government is promoting privatization of the defense manufacturing sector to make it more competitive and efficient. In this article, we will learn about the defense sector and the best defence penny stocks.
A brief overview of the Indian defence industry
India has historically been a net importer of defense goods, with over 65% of its needs imported. Now, the government has recognized the importance of developing a military-industrial complex and has invested billions in developing the local defense manufacturing industry in India. Due to this move, India manufactured almost 65% of its defense products in India.
Also read: Best Defence stocks in India
Due to rising geopolitical tensions, there is a need to strengthen the defense force of our country more than ever. Realizing this, the government, in the FY25 budget, allocated approximately 75 billion dollars to the Ministry of Defence (MoD), the highest among all.
The government gives defense manufacturing contracts to PSUs and private companies alike, and recently, they started divesting PSUs to make them more competitive. We have all heard industry giants like HAL, BEL, BEML, etc, raking in billions of dollars worth of defense contracts. But in this article, we will look at some penny stocks in this sector. But let us first understand a bit about penny stocks.
A penny description of penny stocks
For investors and traders, hunting penny stocks is like a game of treasure hunt, where they seek multi-fold returns with very high risk. Penny stocks are companies with very low market capitalization and a very low share price. These stocks are usually illiquid.
Investors put money in these stocks with the hope that a single piece of good news would lead these stocks to give multi-bagger returns. An interesting fact about penny stocks investment is that some investors treat it like venture capital investing where they would invest equal sums of money in 20 penny companies with the expectation that one or two of them will give a hundredfold return and the rest go to zero.
Also read: Penny Stocks
Penny stocks in Defence sector
Here are some defence penny stocks with lowest market capitalization in the sector as on November 27, 2024. Please note that the past returns do not guarantee future returns.
- Rossell India: Primarily started as a tea company, Rossell ventured into the aerospace and defense sector. It manufactures electrical wiring, interconnects systems, automatic test equipment, electrical panel assemblies, etc for big defense companies. In FY24, 59% of the company revenue was from defense business.
- Krishna Defence & Allied industries ltd: This company is involved in the business of defense, security, and dairy. Yes, dairy. This company produces critical components for the Navy warships and components for the Indian army, and it makes steel milk containers, cooling tanks, etc. This company made 86% of its sales from the Defence segment.
- Sika interplant systems ltd: Sika is an engineering company in the aerospace and defense sector. It manufactures landing gears, handling systems, etc, for big defense companies. The company also provides repair and maintenance services. The company made 58.76% of its revenue from sales of engineering products in FY24.
- Taneja aerospace & aviation ltd: The company manufactures various parts for the aviation industry and provides services related to this aerospace sector. This company provides aerospace components to major defense players like HAL, DRDO, etc.
- CFF fluid control ltd: CFF manufactures and services key components for submarines and surface ships of the Indian Navy. This company has entered agreements with various French and German naval companies to supply submarine and ship parts.
Financials for the aforementioned companies in FY24
| Fundamental metrics (In ₹ Cr) | Rossell India | Krishna Defence | Sika Interplant | Taneja Aerospace | CFF Fluid |
| Market cap as of 27 Nov, 2024 | 493 | 858 | 1080 | 1086 | 1316 |
| Sales | 367 | 106 | 106 | 30 | 107 |
| Expenses | 329 | 90 | 86 | 11 | 76 |
| Profit before tax | 15 | 13 | 25 | 16 | 24 |
| Net profit | 13 | 10 | 19 | 11 | 17 |
| 1 year Return as on 27 Nov, 2024 | -37.73% | 102.01% | 95.06% | 55.38% | 54.83% |
Key consideration before investing in penny stocks
As thrilling as it may be, always remember there is no easy money. When investing in penny stocks, never invest more than 3- 5 % of your portfolio or invest an amount that you can afford to lose entirely.
Also read: Risk management in stock market
Smart investors only invest a very small portion of their money in penny stocks that too after thorough research. Even after due diligence, investors completely understand that this investment might not work and usually have other sources of income to make up for this lost money.
Bottomline
Investing in defense penny stocks in India can be rewarding, but the probability is too narrow. So, always do thorough research before investing in penny stocks and understand the risk properly before investing.
FAQs
1: Which is the smallest defence sector penny stock ?
The smallest penny stock in India, with a market capitalization of ₹493 crores as of 27, Nov 2024, is Rossell India Ltd. This company initially was involved in the tea business and later ventured into the aerospace and defense sector. Rossell manufactures components and parts like electrical wiring for big defense sector companies.
2: Which is the biggest defence company in the world?
A company based in the US, Raytheon Technologies is the biggest defense company in the world in terms of market value as of November 27, 2024. This company manufactures radars, missiles, etc, for the US defense forces. In FY23, this company earned a net income of ₹46,284 crores.
3: How risky are penny stocks?
The answer is very risky. Penny stocks often attract investors because of their high earnings potential and often trap them by staying dormant for many years and sometimes exchanges ban trading in these stocks. Good risk management principles must be followed while investing in penny stocks.
4: Which is the biggest defence company in India ?
The biggest defense company in India is Hindustan Aeronautics Limited, with a market value of ₹2,98,070 crore as of Nov 27, 2024. This company manufactures helicopters and aircraft for the Indian defense industry. In FY24, this company earned a net profit of ₹7,595 crore.
5: What factors to consider before investing in defence space ?
Defence sector investment is a long-term investment. Since all the countries in the world keep upgrading their defense technology, they will keep spending money on defense. And the defense companies will keep receiving contracts. But investors need to keep patience and should enter this space with a “buy and hold” mentality.
