Defence stocks rally as DAC clears Rs 1.10 lakh crore acquisition proposals

Mumbai saw a surge in shares of defense companies on Tuesday following the Defence Acquisition Council (DAC)'s approval for military procurement proposals worth approximately ₹1.10 lakh crore. The in-principle clearance for these projects is anticipated to be fulfilled largely by Indian manufacturers, which has boosted investor confidence towards defense stocks.

A significant portion of the shares showing gains were from companies like Mishra Dhatu Nigam (MIDHANI) up 12.5%, Data Patterns rising 7.6%, Hindustan Aeronautics (HAL) climbing 4%, and Paras Defence and Space Technologies surging more than 1%. The Nifty India Defence index reached as high as 3% during the day, crossing the 10,000 mark for the first time before closing 2.5% higher.

Ajit Mishra, SVP Research at Religare Broking, highlighted that the approval of the ₹1.10 lakh crore worth proposals provides substantial visibility for order inflows and paves the way for the growth potential for domestic defense manufacturers. The Nifty Defence Index has seen a 23% increase over the past half-year compared to the 1.6% decline in the Nifty, due to the lingering issues related to West Asian geopolitical conflicts raising the expectation of increased defense spending by the government.

However, despite the favorable market conditions, analysts advise investors to remain cautious as valuations in several defense stocks have become relatively expensive. Technical indicators suggest a continued positive outlook for the defense index in the short term, with the immediate support level being in the range of 9,750-9,700. As long as the index maintains above this support, the uptrend is likely to persist.