Defence stocks: Why did HAL, BEL, BDL, Data Patterns surge up to 5% today?

Defence stocks in India were rising today amid report that the Indian Army is set to receive a significant boost with the Defence Ministry expected to clear a ₹30,000-crore proposal for acquisition

Defence shares rising today: Shares of defence companies were rising in trade today, rallying up to 5 per cent on the National Stock Exchange (NSE) in Tuesday's intraday trade in an otherwise range-bound market.

 

Data Patterns (India) share price, Bharat Dynamics (BDL) share price, Hindustan Aeronautics (HAL) share price, Bharat Electronics (BEL) share price, Astra Microwave Products share price, Mishra Dhatu Nigam (Midhani) share price, Dynamatic Technologies share price, DCX Systems share price, and Zen Technologies share price, from the Nifty India Defence index, were up in the range of 2 per cent to 5 per cent.

 

Meanwhile, the Nifty India Defence index was the top gainer among sectoral indices at 09:55 AM and was up 1.5 per cent, as compared to 0.10 per cent decline in the Nifty 50.  READ STOCK MARKET UPDATES TODAY LIVE

 

Why are defence stocks rising today?

 

According to reports, the Indian Army is set to receive a significant boost with the Defence Ministry expected to clear a ₹30,000-crore proposal for the acquisition of three regiments of the indigenous Quick Reaction Surface-to-Air Missile (QRSAM) system. The Defence Acquisition Council is expected to take up the proposal by late June.

 

Developed by Bharat Dynamics Limited (BDL) and Bharat Electronics (BEL), in accordance with the Defence Research and Development Organisation (DRDO), the QRSAM is a highly mobile air defence system capable of tracking and engaging targets while on the move or during short halts. With a range of approximately 30 kilometer, it will complement existing systems like Akash and MRSAM for short to medium-range threats.

 

The approval comes amid a continuous push by the government towards indigenisation. Besides, the recent border tensions between India and Pakistan led to Emergency Procurement from the government which is expected to result in additional orders for the defence companies.  ALSO READ | United Spirits shares rise on buzz of Diageo stake sale in RCB franchise

 

Defence sector outlook in India

 

Overall, FY25 revenue growth for most of the public sector undertakings (PSUs) in the defence space, like HAL, BEL, BDL, Midhani, was largely in-line with provisional numbers provided by the companies. However, PSUs like Mazagon Dock and GRSE's reported revenues were a bit better than provisional estimates.

 

Ebitda margin for most of the defence companies (including private players) was ahead of expectations driven by favourable contract and product mix and increased indigenisation, according to ICICI Securities.

 

In terms of aggregate order backlog of PSUs, ₹3.6 trillion crore worth of contracts are in place (4.5x FY25 revenues), giving healthy growth visibility. The order outlook here onwards remains strong and we believe the sector is expected to thrive in the coming years due to faster acquisition processes, greater indigenisation, and advanced indigenous systems, ICICI Securities said.

 

The government emphasises on creating an environment to boost the Aatma Nirbhar Bharat programme in the defence sector and create a level-playing field for private players, including MSMEs.

 

Further, the hike in foreign direct investment (FDI) to 74 per cent through the automatic route would boost investments.

 

"This will likely boost investments in the space, as foreign players in the defence sector would look at setting up joint ventures to establish defence manufacturing bases in India, considering the ample opportunity with the opening up of the defence sector. The government has also established defence corridors in Tamil Nadu and Uttar Pradesh, which have helped reduce the import dependency," according to Mirae Asset Sharekhan