Defence stocks are in focus as the government plans to gradually increase its procurement of military equipment from domestic players, rather than importing from other countries.
In April so far, PSU defence stocks like Hindustan Aeronautics, Mazagon Docks and Bharat Electronics have risen by about 12-38%. Meanwhile, private-sector defence players like Paras Defence and Data Patterns have also gained between 12% and 24% this month.
Major announcements
On Thursday last week, the central government announced its third positive indigenisation list. This is the list of defence items whose imports have been banned.
This, and the first two lists for the import ban, include over 300 items, such as lightweight tanks, artillery guns, naval utility helicopters, and airborne early warning signals.
Some of these items will begin to face complete import bans starting December 2022, while more and more items will get banned every December till December 2027.
This is not all. During the Budget announcement in February, Finance Minister Nirmala Sitharaman said that around ₹84,600 crore worth of defence goods will be purchased from domestic companies. This is 68% of the total equipment purchase budget of the defence ministry in FY23.
Last year, the government had sourced 58% of its defence equipment from domestic firms. So clearly the ratio of domestically procured to imported defence equipment is rising.
Private sector defence stocks gain traction
Private sector defence stocks have also seen buying action. This is after the government announced on Friday that from the allocation of budget expenditure reserved for the domestic defence industry, 25% will be set aside for the private sector.
If we consider this in rupee terms, then the 25% is over ₹21,000 crore of purchases from the private sector defence firms in FY23.
Surging defence exports
The defence stocks don’t only benefit from import bans, but also from a rise in defence exports from local players.
From 2017 to 2021, there has been a six-fold increase in defence exports to ₹8,435 crore, which is over $1 billion.
This is only the beginning, as the government targets to ramp up annual defence exports to a whopping $5 billion by the year 2024.