Most defence stocks were in the green amid brokerages’ optimism over the sector’s outlook given a slew of procurements and order flows.

What Happened: Brokerages say that the developments will likely reduce concerns that the market may have about the lack of orders in the defence sector.

The Defence Acquisition Council (DAC) has sanctioned significant procurements worth ₹1.44 lakh crore for the Indian Armed Forces. These include future-ready combat vehicles (FRCVs) and air defence fire control radars for the army as well as Dornier 228 aircraft, next-generation fast patrol vessels and next-generation offshore patrol vessels for the Indian Coast Guard.

On Monday, the Cabinet Committee approved a contract worth over ₹26,000 crore between the Indian Air Force and Hindustan Aeronautics Limited (HAL) for the procurement of 240 aero engines for the Air Force's Su-30 MKI aircraft.

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Brokerages’ Views: ICICI says that the developments imply that the government is concentrating on enhancing the capabilities of the Air Force, the Army and the Coast Guard. It expects companies that make aero-engine parts, to benefit from increased domestic sourcing requirements, as long as they get the needed approvals.

Additionally, the domestic ecosystem might receive a boost, as the majority of acceptance of necessity (AoNs) fall under the "Buy Indian" and "Buy Indian-Indigenously Designed Developed and Manufactured" categories, which reinforce the government's focus on self-reliance in defence.

Bharat Electronics (BEL) stands to gain from its participation in nearly every platform, the brokerage said, selecting the firm as its top pick among defence PSUs. It had an “add” rating for the stock with a target price of ₹350.

Among the non-government entities, its top picks were Solar Industries and Azad Engineering. It had a “buy” call on both firms with target prices of ₹13,250 and ₹2,450 respectively.

Antique Stock Broking also expressed optimism for the industry, which it said is set for strong growth opportunities in the near to long term.

“The total share of domestic procurement has seen a phenomenal improvement from 54% in FY19 to 75% in FY24 and is expected to improve further,” Antique said.

It said that the recent procurement and orders are a great opportunity for defence firms and maintained a “buy” recommendation for most stocks within its coverage, including HAL with a target price of ₹6,145, BEL with a target price of ₹381, Bharat Dynamics with a target price of ₹1,579, Mazagon Dock Shipbuilders with a target price of ₹5,486 and Garden Reach Shipbuilders (GRSE) with a target price of ₹2,092.

Price Action: Most defence stocks were in the green on Wednesday.

Mazdock surged 5.71% to ₹4,708.95.

GRSE added 3.43% to trade at ₹1,978.80.

HAL was trading 1.29% higher at ₹4,894.80.

BDL gained 1.31% to trade at ₹1,337.55.

BEL was up 0.52% at ₹298.70.

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