Indian defence sector shares experienced a robust rally on Tuesday, with major players like Mishra Dhatu Nigam Ltd (MIDHANI), Hindustan Aeronautics Ltd (HAL), and Data Patterns India Ltd leading the charge. The surge followed the Defence Acquisition Council's (DAC) approval of acquisitions worth Rs 1.1 lakh crore, coupled with Jefferies initiating coverage on several key defence companies.
Major Gains Across the Board
MIDHANI climbed nearly 13%, hitting a high of Rs 474.90. Data Patterns shares rose over 6%, while HAL gained 4%. Apollo Micro Systems, Paras Defence, Zen Technologies, and MTAR Technologies also saw gains exceeding 3%. Other beneficiaries included Bharat Electronics Ltd (BEL), BEML, Solar Industries, Astra Microwave, and Garden Reach Shipbuilders, with increases of 1-3%.
DAC Approvals Fueling Optimism
The Rs 1.1 lakh crore worth of acquisitions cleared by the DAC are a significant catalyst for the sector. JM Financial highlighted that these approvals included Advanced Light Helicopters (ALH) for the Indian Army, presenting a substantial order potential for HAL. Enhancements for fighter jet capabilities, such as the overhaul of Su-30MKI aircraft, are also positive for HAL.
Furthermore, the DAC's clearance for Ground-Based Multi-Purpose Jammers (GBMPJ) is expected to benefit BEL, while approvals for Arudhra Radars are positive for both BEL and Data Patterns. These projects will undergo further technical and financial clearances before final awarding.
Analyst Coverage Boosts Sentiment
Adding to the positive momentum, Jefferies initiated coverage on several defence firms. The brokerage assigned a 'Buy' rating to Solar Industries India Ltd and Astra Microwave Products Ltd, citing increasing domestic defence spending and growing exports. Bharat Dynamics Ltd (BDL) received a 'Hold' rating from Jefferies.
Brokerages Remain Bullish
Antique Stock Broking expressed a constructive outlook on the defence sector, emphasizing the expanding pipeline of acquisition programs, increased domestic sourcing, and the government's focus on indigenous capabilities. Their top picks include Mazagon Dock Shipbuilders Ltd, HAL, BEL, and Astra Microwave. They also noted that faster conversion of Approvals in Principle (AoNs) into contracts is crucial for sustained revenue and order-book growth.