Bharat electronics stock is a good buy

Bharat electronics stock is a good buy

By Rajiv Kapoor | 25 June, 2016

All the stock market gains triggered by the Indian government’s announcement of liberalisation in foreign direct investment rules in certain sectors were washed away by Britain voting to leave the European Union in a historic referendum termed Brexit. This historic divorce made the world financial markets like equities, currencies, crude oil, bonds, etc go into a tailspin witnessing a Black Friday bloodbath across the globe. An analyst rightly put the present gloom and doom situation as how investors across the globe had mispriced the risk (Brexit) and now quickly repriced the same. The Indian stock market indices opened Friday morning mirroring the other south Asian neighbours to a huge gap down by nearly 4%. The 30 share BSE Sensex plunged 604 points to 26,397 levels while the 50 share NSE Nifty dropped 181 points to close the week at 8,088 levels. The Tata Motors stock fell nearly 8% as a result of the UK referendum. The company derives majority of its revenue from its British luxury car unit Jaguar Land Rover (JLR) being the largest automotive manufacturer in Britain. The Tata Group has a huge exposure to the UK and fear that operations of their companies such as Tata Steel and Tata Motors could take a hit in Britain due to immigration and other restrictions plunged their blue chip stocks to lower levels. Meanwhile, some brokerage reports are also expecting that the UK is not the only negative story but it is about EU’s further disintegration in the near future. The only green tick and biggest beneficiary amid the bloodbath of global equity and currency market was gold. Gold prices shot up to Rs 30,885 per ten gram hitting a 26 month high, spurring investors to shift their allocation to a safe investment haven. In the short term, volatility will remain quite high and Indian stock markets are expected to trend lower due to the future and option expiry next week. Any bounce back is going to be a sell on rise market for foreign and domestic investors in the next few days.

The Indian Defence capex is entering a new era of growth with over 50$ billion worth of projects cleared by the Defence Acquisition Council in the last two years. The defence sector has been a high priority area in the government’s Make in India programme with strong emphasis on indigenisation. Bharat Electronics is a blue chip government company with a 35% market share in the defence electronics space and the huge order book could make it one of the biggest beneficiaries. The company is totally debt free, has excellent research and development capabilities, good order book and low competition. The stock trades at a premium to its historical valuation and coupled with the fact that it is the largest listed defence player in the country, makes it an attractive buy. At the current market price of Rs 1,250, investors can see a price appreciation of over 25% in the next nine months for the Bharat Electronics stock.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.

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