Shares of defence sector companies rallied up to 15 per cent on Wednesday, February 19 after Defence Secretary Rajesh Kumar Singh vouched for relaxation in foreign direct investment (FDI) policies in the defence industry.
Speaking at a defence conclave, the defence secretary said relaxation in FDI policies and streamlining the industrial licensing procedure will propel growth in the defence industry.
In May 2020, the government announced increasing the FDI limit in the defence sector from 49 per cent to 74 per cent under the automatic route for companies seeking new defence industrial licences, and up to 100 per cent through the government route wherever it is likely to result in access to modern technology.
Citing the defence budget allocation, Singh said, it was Rs 6.21 lakh crore that will go up by 9.5 per cent to 6.81 lakh crore in 2025-26. “And we should be spending over the next decade, something between USD 20-25 billion, perhaps even USD 30 billion per annum, "as per our modernisation initiatives", he added.
GRSE, Data Patterns, Premier Explosives Lead Rally
Stocks across the defence sector saw solid rallies. Leading the rally were Garden Reach Shipbuilders & Engineers (GRSE), which surged 15 per cent to Rs 1,405.55, Data Patterns, which climbed 14.66 per cent to Rs 1,632.5, and Premier Explosives, which zoomed 14.33 per cent to Rs 404.
Other defence stocks like Apollo MicroSystems, DCX Systems, Mazagon Dock Shipbuilders, Zen Technologies, Cochin Shipyard, Bharat Dynamics, Paras Defence and Astra Microwave Products surged between 7-13 per cent each.
Defence stocks have been on a severe downtrend since the Union Budget 2024-25 was announced in July 2024. The Budget had failed to impress investors, as there were no significant capex announcements for the defence sector, triggering the downtrend. Prior to the Union Budget 2024-25, shares of major domestic defence companies had witnessed a stellar run, specifically between February 2024 and July 2024, following the Rs 6.21 lakh crore capex allocation to the sector in the Interim Union Budget 2024-25.
However, the lack of any further capex announcements for the sector in the Union Budget 2024-25 contributed significantly to the downtrend seen by domestic defence stocks. Notably, shares of some of the key domestic defence players such as Cochin Shipyard, GRSE, Bharat Dynamics, and Hindustan Aeronautics among others fell as much as 60 per cent from their 52-week highs during the 7-month period between the announcement of Union Budget 2024-25 and Union Budget 2025-26.
Defence Industry At The Cusp Of Massive Expansion
The defence secretary during the conclave hosted by Axis Bank said that the defence industry in India is at the cusp of a massive expansion.
"Our exports have increased to Rs 21,000 crore, almost a 30 times jump in the last ten years. It is very obvious that the defence industry in India is at the cusp of a massive expansion," the defence secretary said.
"It is an ongoing effort which we sort of need to continue to focus on. It is also in line with our priorities of modernising and reforming the defence ecosystem in our quest for 'Atmanirbharta' or strategic self-reliance," the defence secretary said.
