Defence stocks may gain from latest import ban

Defence production related stocks like Larsen & Toubro, Bharat Forge and defence PSUs such as Bharat Electronics and HAL would be in focus on Monday as the government has fast-tracked indigenous production of many items and plans to phase out high levels of import dependence over a period of time.

The Department of Military Affairs (DMA), Ministry of Defence (MoD) has prepared a list of 101 items for which there would be an embargo on the import beyond the timeline indicated against them, said a release on Sunday.

“It is estimated that contracts worth almost Rs 4 lakh crore will be placed upon the domestic industry within the next five to seven years. Of these, items worth almost Rs 1,30,000 crore each are anticipated for the Army and the Air Force while items worth almost Rs 1,40,000 crore are anticipated by the Navy over the same period,” the defence ministry said.

Bharat Forge, Bharat Electronics, Larsen & Toubro, HAL, Cochin Shipyard, Garden Reach, BEML, Bharat Dynamics, Mishra Dhatu Nigam and BHEL may bag large contracts with their past records in defence-related production, brokers said.

Defence production related stocks have rallied post-Galwan Valley clash on June 15.

The list of 101 embargoed items comprises not just simple parts but also some high technology weapon systems like artillery guns, assault rifles, corvettes, sonar systems, transport aircraft, light combat helicopters (LCHs), radars and many other items.

The list also includes, wheeled armoured fighting vehicles (AFVs) with indicative import embargo date of December 2021, of which the Army is expected to contract almost 200 at an approximate cost of Rs 5,000 crore.

Similarly, the Navy is likely to place demands for submarines with indicative import embargo date of December 2021, of which it expects to contract about six at an approximate cost of Rs 42,000 crore. For the Air Force, it has been decided to enlist the light combat aircraft with an indicative embargo date of December 2020. Of these, 123 are anticipated at an approximate cost of over Rs 85,000 crore, the release said.

The embargo on imports is planned to be progressively implemented between 2020 and 2024. The aim behind promulgation of the list is to apprise the Indian defence industry about the anticipated requirements of the Armed Forces. More such equipment for import embargo would be identified in consultation with all stakeholders, the defence ministry said.

The recently published draft Defence Production and Export Promotion Policy, 2020 suggests a more bottom-up framework to empower system integrators achieve greater scale by expanding the role of the private sector, especially MSMEs. Key objectives include achieving Rs 1.75 lakh crore turnover, including Rs 35,000-crore exports; cutting defence imports; entry in the global defence exports value chain, among others.