Defence Stocks Surge as DAC Approves ₹52,000 Crore in Indigenous Weapon System Acquisitions

Defence Stocks Surge as DAC Approves ₹52,000 Crore in Indigenous Weapon System Acquisitions​

Defence stocks saw a significant rally in early trading on Monday, July 6, following the Defence Acquisition Council's (DAC) clearance of capital acquisition proposals amounting to approximately Rs 52,000 crore. This crucial approval has dramatically lifted sentiment across the Indian defence manufacturing sector.

At around 9:45 am, Paras Defence and Space Technologies jumped 4.68% reaching Rs 1,354.60. Bharat Electronics (BEL) rose 2.14% to Rs 427, while Mazagon Dock Shipbuilders gained 1.08%, trading at Rs 2,571. Hindustan Aeronautics (HAL) advanced by 0.82% to Rs 4,465.10. The broader Nifty India Defence index climbed 1.35%, settling at 9,703.75.

Scope of the DAC's Strategic Acquisitions​

The rally is a direct result of the DAC clearing procurement proposals aimed at strengthening the operational capabilities of the Indian armed forces. As the highest decision-making body for defence procurements in India, the council’s approval signifies major strategic backing for indigenous systems.

These approvals encompass several critical weapon systems and platforms. They include the Akash Tarang anti-drone electronic warfare system, man-portable anti-tank guided missiles (MPATGM), medium-range surface-to-air missile (MRSAM) systems, V-SHORADS, active protection systems (APS) for tanks, and jet-powered loitering munitions.

For the Indian Navy specifically, DAC also granted approval for naval shipborne unmanned aerial systems (UAS) and multi-influence ground mines. Furthermore, the council cleared proposals for establishing a Land Based Testing Facility (LBTF).

JM Financial's Outlook on BHEL amidst Defence Buys​

JM Financial Institutional Securities maintained its 'Buy' rating on Bharat Heavy Electricals (BHEL), with an unchanged target price of Rs 435. The brokerage noted that while the government allowing four Chinese electrical equipment companies to participate in PSU tenders for high-voltage transformers and gas-insulated switchgear (GIS) has limited impact, the DAC’s approval for a Land Based Testing Facility benefits BHEL significantly.

The firm highlighted that BHEL could emerge as a key beneficiary due to its rich and relevant experience in electric propulsion systems for Indian naval assets. JM Financial projects that BHEL's June quarter revenue will reach Rs 66 billion, marking a 20% year-on-year increase.

Future Growth Projections for BHEL Stock​

JM Financial provides robust financial estimates for the company over the coming years. The brokerage expects BHEL to achieve an EBITDA margin of "minimum 1.9%" in its immediate future. This quarter marks a return to profitability, following previous losses in corresponding quarters across the last eight years.

The firm projects strong growth trajectories for BHEL’s key metrics during FY26-FY28. Revenue is expected to grow at a CAGR of 21%, EBITDA by 57%, and profit after tax is forecast to grow by 71%.

Understanding Acceptance of Necessity (AoN)​

It is important to note that the DAC approval represents an Acceptance of Necessity (AoN). This is the government's in-principle approval for a defence procurement proposal, representing the first stage of the acquisition process.

An AoN does not constitute a purchase order. Contracts are finalized and awarded only after rigorous tendering, technical evaluation, and commercial negotiations have been successfully completed.