The Indian government has taken a significant step by approving proposals worth ₹1.45 lakh crore for defence equipment procurement from domestic manufacturers. This move, announced by the Defence Acquisition Council (DAC), led to a surge in defence stocks like Mazagon Dock, Cochin Shipyard, and Bharat Dynamics. The DAC's decision has not only uplifted the defence sector but has also sparked interest in share market investment, particularly in defence-related shares.
Approval of major defence procurements
In a meeting chaired by Defence Minister Rajnath Singh, the DAC sanctioned the Acceptance of Necessity (AoN) for 10 capital acquisition proposals, totalling ₹1,44,716 crore. This high-level approval is essential for boosting the capabilities of the Indian Armed Forces, as the approved proposals focus on purchasing cutting-edge defence technology from local manufacturers. These initiatives reinforce India's focus on achieving self-reliance in defence under the 'Aatmanirbhar Bharat' mission.
Among the approved procurements are Future Ready Combat Vehicles (FRCVs), aimed at modernising the Indian Army's tank fleet. These FRCVs are designed to offer superior mobility, multi-layer protection, lethal firepower, and real-time situational awareness. Given the long-term potential of this sector, such strategic acquisitions also make share market investment in defence stocks more attractive.
Defence stocks react positively
Following the DAC's announcement, several defence-related stocks saw a notable rise in their market value. On Wednesday, shares of Mazagon Dock Shipbuilders (MDL) increased by 1.7%, reaching ₹4,533.3 on the National Stock Exchange. Likewise, Garden Reach Shipbuilders & Engineers (GRSE) gained 1.6%, and Cochin Shipyard's shares rose by 1.8%.
These stocks had already surged by up to 7% before the DAC meeting, reflecting investor confidence in the sector. For investors exploring share market investment, defence stocks are proving to be a lucrative option.
Bharat Dynamics, a prominent manufacturer of defence equipment, also experienced a rise in its stock value, up by 0.8% to ₹1,331.7 per share. Hindustan Aeronautics Limited (HAL) witnessed a modest increase of 0.2%, with its share price reaching ₹4,841.9. These gains underline the growing potential of the defence sector for those looking at share market investment as a way to capitalise on long-term growth.
Key proposals to boost defence capabilities
One of the major highlights of the approved proposals is the procurement of Air Defence Fire Control Radars. These radars will play a crucial role in detecting and tracking aerial targets while providing precise firing solutions.
Additionally, a Forward Repair Team (Tracked) with cross-country mobility has been greenlit, designed to conduct in-situ repairs during mechanised operations. This equipment, developed by Armoured Vehicles Nigam Limited, will be utilised by mechanised infantry and armoured regiments. Such advancements present a strong case for share market investment in defence-related companies, as these technologies will see increased demand.
Enhancements for the Indian Coast Guard
The DAC has also approved three proposals to enhance the Indian Coast Guard's (ICG) capabilities. These include the acquisition of Dornier-228 aircraft, Next-Generation Fast Patrol Vessels, and Next-Generation Offshore Patrol Vessels.
These vessels are equipped with advanced operational features that allow for high performance in rough weather conditions and extended-range missions. The new equipment will strengthen ICG's ability to patrol maritime zones, conduct search and rescue operations, and provide disaster relief. These acquisitions further bolster the attractiveness of share market investment in sectors tied to maritime and defence operations.
Government's defence budget
The government has allocated a substantial budget of ₹6,21,941 crore for the Ministry of Defence for FY 2024-25. Of this, ₹1.72 lakh crore has been earmarked for capital acquisition, with ₹92,088 crore set aside for operational readiness and sustenance.
This massive investment underscores the government's commitment to strengthening India's defence sector, making it a promising area for share market investment. With defence stocks on the rise and long-term government support, this sector is poised for continued growth, presenting ample opportunities for investors.
Key takeaways for investors
The recent approval of ₹1.45 lakh crore in defence procurements by the DAC has significantly boosted India's defence capabilities and the stock market. With several defence stocks experiencing a surge in value, this development highlights the growing potential of share market investment in the defence sector.
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