Six Reasons why Investing in India's Defense Industry is a Great Idea

The Indian Defense Industry is great way to invest in an area which is Recession Proof and benefits from the one of the World’s Fastest Growing Economies.Here are Six Reasons that support that this thesis

1. Pakistan – India and Pakistan have a long history of bloodshed and acrimony right from their birth when the British partitioned South Asia in 1947 . India has fought 3 wars in 1948,1965 and 1971 with Pakistan.The tensions between these two countries makes it  one of the world’s  riskiest area in terms of a potential Nuclear War.Recently radical Islamic terrorism emanating from Pakistani’s wild west has become the main source of tension.The recent Mumbai terrorist strikes again ratcheted up the temperature between the countries leading to a suspension in talks.The chances of a detente remain a distant possibility.
2. China – India and China have also a long history of mutual suspicion and border problems.They fought a small scale war in 1962 in the Himalayan region and since then both countries have viewed each other with doubt and suspicion.They have not formalized the long border boundary between them leading to sporadic incidents.However the relations between these two Asian giants have been improving alongwith bilateral trade.Recent visits by the leaders of the two countries have signaled the desire to improve relations.However the Huawei and ZTE ban underscores the suspicions with which these countries view each other.
3. Rapid GDP Growth- India’s GDP has grown at a spectacular pace in the last 5 years as reforms undertaken in the early 1990s fuel growth in India’s economy.Though recent reforms have been stalled,India’s economy continues to grow at a rate which is second fastest among major economies.Its Consumption oriented Growth Model makes it relatively insulated to the Global Financial Crisis,so that the same rapid growth  rate is expected going into the future as well.
4. Rising Internal Strife – India suffers from countless insurgencies and local terrorist groups.Some of these are externally supported while others are home grown.India is the most diverse country in the world with respect to ethnicity,religion,race and language.This naturally gives rise to internal divisions and fractures.The most acute is the Maoist based Terrorism which led the Indian Prime Minister to term its as the biggest threat to the Indian nation.
5. Recession Proof – While this reason holds true somewhat for defense industries in all countries,it strongly applies to India.While countries in Europe are thinking of cutting defense spending,India due to the above reasons can’t even think of doing so.High defense spending is an imperative rather than an option.
6. India’s Great Power Aspirations – India is home to 1/5th of the world’s humanity and is one of the oldest civilizations.Before British colonization,it was one of the most prosperous countries in the world with a great history and culture.With growing economic strength,India is strongly lobbying for a seat in UN’s Security Council.A country with a Great Power aspiration necessarily require a strong military.

How to Invest in Indian Defense Industry

India does not have a lot of options in pure play defense companies like US and Europe.Most of the equipment is imported while the rest is manufactured by government run organizations.However India has been opening up its defense industry to allow private sector participation.One way to invest is to put money into publicly listed Indian government companies like BEL and BHEL which are involved in supplying equipment to the Indian military The second way to invest is to buy private companies like L&T,Tata Motors,Mahindra,ABG Shipyard and Bharti Shipyard.Though their defence related revenue is quite small,it should rapidly grow in the future.