Defence stocks rally up to 11% as govt bans import of 101 defence items

"This decision will offer a great opportunity to the Indian defence industry to manufacture items on the negative list by using its own design and development capabilities," the govt said.

Shares of defence equipment manufacturers and suppliers rallied up to 11 per cent on the BSE on Monday after the Ministry of Defence (MoD) announced on Sunday a phased, year-wise embargo on the import of 101 items of defence equipment, invoking the Prime Minister Narendra Modi’s Atmanirbhar Bharat (Self-Reliant India) initiative.

At 09:23 AM, Bharat Dynamics was trading nearly 8 per cent higher at Rs 452 on the BSE. The stock hit an all-time high of Rs 465.10 during the session. Other stocks, too, were trading with decent gains. For instance, L&T was ruling over 3 per cent higher at Rs 946.40 while Bharat Electronics was up over 8 per cent at Rs 107.35. Bharat Forge was quoting nearly 4.5 per cent higher at Rs 426. Hindustan Aeronautics, the state-owned aerospace and defence company, on the other hand, hit a 52-week high of Rs 1,039.50 during the day. Another company Astra Microwave Products was also trading over 8 per cent higher at Rs 117.50 on the BSE. In comparison, the benchmark S&P BSE Sensex was trading 0.8 per cent or over 300 points higher at 38,345.99 levels. 

“This decision will offer a great opportunity to the Indian defence industry to manufacture items on the negative list by using its own design and development capabilities or adopting the technologies designed and developed by the Defence R&D Organisation to meet the requirements of the Armed Forces,” tweeted Defence Minister Rajnath Singh. CLICK TO READ FULL REPORT

Last week, the Ministry of Defence came out with the draft Defence Production & Export Promotion Policy (DPEPP) 2020 to provide thrust to India’s defence production capabilities and promote exports. This was in line with India’s ambition to become self-reliant “Atmanirbhar Bharat”. Focus is directed towards achieving the twin objectives of self-reliance and exports through active participation of public and private sectors.

Commenting on the policy, analysts at ICICI Securities had said that this would provide significant thrust to defence manufacturing companies in scaling up their production capabilities in the long term. "In our coverage universe, companies like L&T, Bharat Electronics (BEL) and Cochin Shipyard (CSL) having strong indigenous capabilities are likely to benefit from this policy in the long run." 

However, the intent on the paper is good but the execution on ground in terms of rapid indigenisation, pick-up in ordering, allocation of funds to defence capital expenditure would be key monitorables to achieve the desired objectives of the policy, the brokerage had said in a report issued on August 4.

"Given the changing geopolitical landscape, upside to current defence capital expenditure (capex) over two-three years cannot be ruled out despite current challenges on the funding/liquidity front. Successful ramp-up of capabilities/capacity of tier-I players like BEL/HAL etc will largely depend on how well the vendor base (sub-systems, parts, etc) rises to the occasion, greater predictably of contract and transparent framework," Edelweiss Securities had said in a sector update report issued on August 4.