Defence related companies gain as government approves 49% FDI

MUMBAI: Shares of companies with interest in defence sector moved higher after the Union Cabinet approved to raise limit of foreign investment in the sector to 49 per cent from the current 26 per cent.

The FDI hike in defence is intended to cut imports by indigenising defence production as India is one of the world's largest arms importers.

"It is a composite cap, incorporating all forms of foreign investment, FDI, FII, FPI, NRI, etc," said a government official confirming that the proposals has been cleared.

Foreign investment in defence will be though the approval route, implying it will have to be cleared by the Foreign Investment Promotion Board (FIPB).

Though the 49 per cent cap will be general rule for the defence sector, 100 per cent overseas ownership will be allowed in case the investments comes bundled with state of the art technology. Such investment proposals will have to be cleared by the Cabinet Committee on Security (CCS).

"Good development, but not great. Round one has gone to protectionist forces. 49 per cent is the same as 26 per cent technically and hence may not open the investment floodgates," said Amber Dubey, Partner and India Head of Aerospace and Defense at global consultancy KPMG to ET.

At 10:00 a.m.; Pipavav Defence was up 0.38 per cent at Rs 52.70 on the BSE. It gained 2.5 per cent intraday to touch a high of Rs 53.85.

BEL was up 2.15 per cent at Rs 1829.70 on the BSE. It gained 4.56 per cent intraday to touch a high of Rs 1872.95.

BHEL was up 1.20 per cent at Rs 233 on the BSE. It gained 1.50 per cent intraday to touch a high of Rs 233.

L&T was up 0.42 per cent at Rs 1491.10 on the BSE. It edged up 0.8 per cent intraday to touch a high of Rs 233.