HAL, defence stocks soar as govt clears proposals worth ₹2.23 lakh cr

Shares of state-owned Hindustan Aeronautics Ltd hit a record high on Friday after the government cleared various capital acquisition proposals amounting to ₹2.23 lakh crore, of which acquisition worth ₹2.20 lakh crore (98% of total amount) will be sourced from domestic companies.

The public sector undertaking (PSU) stock opened at ₹2,495 against its previous closing price of ₹2,379.80 apiece on the National Stock Exchange (NSE). The scrip rose as much as 4.5% to hit a record high of ₹2,500 in intraday trade today. The market capitalisation of the Tejas aircraft maker soared to ₹1.66 lakh crore.

The Defence Acquisition Council (DAC), under the chairmanship of Defence Minister Rajnath Singh on November 30, 2023, accorded approval for the procurement of Light Combat Helicopter (LCH) for the Indian Air Force (IAF) & Indian Army and Light Combat Aircraft (LCA) Mk 1A for IAF from HAL.

The Acceptance of Necessity (AoN) has also been accorded by the DAC for the upgradation of Su-30 MKI Aircraft indigenously from HAL. While procurement of these equipment will provide enormous strength to the IAF, acquisition from domestic defence industries will take the indigenous capability to a new height. It will also reduce dependability on foreign Original Equipment Manufacturers (OEMs) substantially.

Shares of HAL have rallied 36% over the past month. The stock has gained 95% on a year-to-date basis.

Bharat Dynamics, another PSU stock, gained 4% in intraday trade today after the Defence Acquisition Council cleared the procurement of Medium Range Anti-Ship Missiles (MRAShM) for the surface platform of the Indian Navy. The MRAShM is envisaged as a lightweight surface-to-surface missile which will be a primary offensive weapon onboard Indian Naval Ships.

The missile maker's stock opened at ₹1,192 on Friday against its previous closing price of ₹1,162.75. The counter hit an intraday high of ₹1,217, taking the company's market cap to ₹22,089 crore.

To maximise indigenisation, the DAC has accorded approval for a major amendment in the Defence Acquisition Procedure (DAP) 2020. It has been decided that henceforth, in all categories of procurement cases, a minimum 50% of indigenous content must be in the form of material, components and software that are manufactured in India.

"For the purpose of calculation of Indigenous content, cost of Annual Maintenance Contract (AMC)/Comprehensive Maintenance Contract (CMC)/After Sale Service shall be excluded. Also, the DAC has taken decision to further encourage start-ups/MSMEs participation in the defence ecosystem. For all procurement cases with AoN cost upto Rs 300 crore, registered MSMEs and recognised start-ups will be considered for issue of Request for Proposal (RFP) without any stipulation of financial parameters, which can further be relaxed with approval of Defence Procurement Board (DPB) for AoN cost upto Rs 500 crore on case-to-case basis," the defence ministry says in a release.