Defence stocks experienced a notable surge on Tuesday following government approval for military acquisitions. These proposals, valued at approximately ₹1.10 lakh crore, will largely benefit domestic manufacturers. The Nifty India Defence index re...
By ET Bureau |
Agencies
Despite the rally, analysts say, investors should remain stock selective as valuations have turned demanding
Mumbai: Shares of defence companies were among the top gainers on Tuesday after the Defence Acquisition Council (DAC) gave in-principle approval to military acquisition proposals worth about ₹1.10 lakh crore. Around 98% of the purchases are expected to be sourced from Indian companies, boosting investor sentiment towards defence stocks.
The development triggered buying across defence stocks. Mishra Dhatu Nigam (MIDHANI) surged 12.5%, Data Patterns rose 7.6%, and Hindustan Aeronautics (HAL) gained 4%. Paras Defence and Space Technologies rose over 1%. The Nifty India Defence index climbed as much as 3% to 10,012.95 during the day, crossing the 10,000 mark for the first time, before ending 2.5% higher.
"The approval of proposals worth around ₹1.10 lakh crore provides significant visibility for order inflows and reinforces the structural growth opportunity for domestic defence manufacturers," said Ajit Mishra, SVP Research, Religare Broking.
The Nifty Defence Index has gained about 23% in the past six months, compared with the 1.6% decline in the Nifty, as lingering geopolitical conflict in West Asia has raised expectations of higher defence spending by the government.
Export restrictions, conditions on the use of defence equipment and sanctions have made dependence on foreign suppliers a strategic risk, said Gaurav Garg, head - research, Lemonn.
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"While 98% is indigenous at the bill-of-materials level, aero-engines, seekers, high-end semiconductors and speciality alloys are still substantially imported. That gap is the risk today and the opportunity for the next five years," Garg said.
While the sharp rally and record highs indicate strong momentum, investors should remain selective as valuations in several counters have turned demanding, Mishra said.
Technical indicators are pointing to continued outperformance of the defence index relative to the benchmark in the near term, said Sudeep Shah, vice-president - technical and derivatives research at SBI Securities.
"The immediate support for the index is placed in the 9,750-9,700 zone. As long as the index sustains above this support zone, the uptrend is likely to remain intact, and the index could extend its upward move further," Shah said.
