A day after Defence Minister Rajnath Singh announced that the Ministry of Defence has jotted down 101 items to be placed under an embargo, investors were seen pumping money into domestic defence manufacturers.
A day after Defence Minister Rajnath Singh announced that the Ministry of Defence has jotted down 101 items to be placed under an embargo, investors were seen pumping money into domestic defence manufacturers. BEML shares were up over 5%, BEL shares gained more than 13%, while Bharat Forge surged 6% among other companies that are directly or indirectly related to the defence industry. The move of the Defence Ministry is aimed at promoting the Atmanirbhar Bharat slogan. Although this comes as a major boost for local manufacturers, analysts claim that hurdles could still hinder the plan to manufacture locally.
Share price of Mahindra & Mahindra along with Larsen & Toubro gained over 4% on Monday morning. These were followed by Ashok Leyland that gained over 3%, Astra Microwave Products jumped 8.5%, and Hindustan Aeronautics gained 8%. The Defence Ministry said that Almost 260 schemes of such items were contracted by the Tri-Services at an approximate cost of Rs 3.5 lakh crore between April 2015 and August 2020. It expects almost Rs 4 lakh crore worth contracts will flow towards the domestic industry in the next five to seven years. The list includes artillery guns, short range missiles, radar systems, light machine guns, and even Light Combat Helicopters, among other things.
“We are positively surprised with the pace of policy announcement, which is far more specific and includes clear timelines. One could expect further announcements in days to come for a much greater clarity beyond what is already available,” said Edelweiss Securities in a note. Edelweiss has raised the target price for Bharat Electronics to Rs 140, and for Bharat Forge to Rs 500.
“Ashok Leyland, Bharat Forge are the kind of companies that could gain traction and these are the firms that have focused on this sector for a long period. The challenge, however, has been the execution because of various bureaucratic reasons,” Abhimanyu Sofat, Head of Research, IIFL Securities told Financial Express Online. Sofat added that government companies like HAL, Bharat Dynamics stand to gain along with BEL, BEML and Bharat Forge. “These developments are a step in the right direction given the inclusive approach and better clarity. However, for higher private sector commitment, decision making and execution with respect to pace of ordering, funds availability and seamless-integration across value chain remain key to success,” said Edelweiss Securities.