Defense shares fall for third day: What's behind the decline?
What's the story
Shares of defense companies fell for the third consecutive day on Tuesday, with the Nifty Defense index declining by 1.5%. The fall was witnessed amid widespread selling in the sector, even after the Defense Acquisition Council (DAC) approved procurement proposals worth over ₹79,000 crore. The proposals cover upgrades, overhauls, and fresh procurements across key defense platforms.
Market reaction
Profit booking leads to market correction
The market correction is being attributed to profit booking, despite the recent DAC approvals. Mazagon Dock Shipbuilders led the losses with a 4% dip in its share price. Solar Industries India and Data Patterns (India) also witnessed declines of 3.5% and around 3%, respectively. The Nifty Defense index has now fallen over 2% in three sessions.
Future prospects
DAC approvals promise long-term order visibility
PL Capital noted that the DAC has approved proposals worth around ₹3.3 lakh crore for the Army, Navy, and Air Force in recent months. These include missiles and air defense systems, electronic warfare and sensors, unmanned systems, and naval platforms, among others. The approvals are expected to provide strong multi-year order visibility while promoting higher localization and private sector participation in India's defense industry.
Market impact
Analysts predict benefits for domestic defense manufacturers
Analysts believe the DAC approvals will benefit domestic defense manufacturers, especially in the fields of missiles, electronics, unmanned systems, naval shipbuilding and sustainment services. PL Capital highlighted key approvals such as long-range guided rocket ammunition for the Pinaka system and Astra Mk-II missile. These are expected to benefit Solar Industries India and Bharat Dynamics and Bharat Electronics, respectively.
Approval scope
DAC approvals cover a wide range of capabilities
Motilal Oswal observed that the DAC approvals cover a wide spectrum of capabilities such as munitions, missiles, air defense systems, surveillance and communication equipment. Though these approvals do not immediately translate into order inflows, they significantly de-risk order inflows for key defense PSUs and select private players over the next two to four years.