Defence has become a hot theme for investors. As recent IPOs from the sector were enthusiastically subscribed by retail investors, companies, too, seem to be trying to capitalise on the boom.
The recent one to taste success was DCX Systems, which is into manufacturing of electronic sub-systems and cable harnesses. The ₹500-crore initial public offering of DCX Systems was subscribed nearly 70 times with the retail investors quota getting subscribed about 62 times. The company has been a preferred Indian Offset Partner for foreign original equipment manufacturers to execute aerospace and defence manufacturing projects.
Next week, Kaynes Technology — an integrated electronics manufacturing company that provides support for major players in the automotive, industrial, aerospace and defence, outer-space and nuclear field among the other sectors — will hit the primary market.
Companies such as Data Patterns, Dreamfolks, Krishna Defence & Allied Industries and Paras Defence that came out with IPOs in recent times saw an overwhelming response In fact, Paras Defence IPO received bids for 304 times overall, with the quota reserved for retail investors getting a whopping 113 times subscription.
The performance of most of these defence companies, post IPO, are praiseworthy, giving solid returns on the listing day and thereafter.
While companies want to speed through IPOs to capitalise on investors’ frenzy, mutual funds, too, have launched defence-themed schemes.
To achieve the target of reducing imports from the developed world and export to other countries, government has launched initiatives such as ‘Make in India’ and ‘Atmanirbhar Bharat’ with specific reference to defence.
According to ICICI Securities, “We believe indigenisation levels of these major platforms are slated to go up significantly with the indigenisation of engines and other key sub-systems and components through technology transfer (ToTs) from DRDO & foreign OEMs and MoUs with private players, MSMEs & start-ups.”
Points to ponder
However, if investors remember a few basic principles while parking their money they would not regret later.
Instead of blindly investing in all the defence sector IPOs, one should analyse their fundamentals and valuations thoroughly. . Though the outlook for the sector appears promising, it is difficult to guess how each company would benefit from the government’s initiative.
Investors should be aware of the risks involved in a thematic stocks and not on the futurestic assumption.
Investors, aiming for listing gains, should note that profits from the primary market depends on the secondary market sentiment, too. Any adverse developments on the global front will impact the market, including the primary listings.
Investors who missed the IPOs should desist buying in the secondary market. Those who purchased in the secondary market after the initial euphoriain some of the recently listed IPOs, including Paras Defence, would have burnt their fingers, as the stock fell from its peak.