Defence stocks rally after Centre prepares import embargo on 101 items

The ministry has prepared a list of 101 items for which there would be an embargo on the import beyond the timeline indicated against them.

Aug 10, 2020 02:08 IST India Infoline News Service

On Monday, investors had bullish sentiments on defence stocks after the Ministry of Defence announced an imported embargo on 101 items beyond given timelines to boost indigenisation of defence production. The list was prepared after several rounds of consultations with all stakeholders, including Army, Air Force, Navy, DRDO, Defence Public Sector Undertakings (DPSUs), Ordnance Factory Board (OFB) and private industry to assess current and future capabilities of the industry.

On Sensex, at around 2.40 PM, the Bharat Forge stock was trading at Rs423.80 per piece up 3.87%, while Larsen & Toubro (L&T) was at Rs963.30 per piece surging by 5.20%, Reliance Naval at Rs2.80 per piece above 4.87%,  Astra Microwave Products at Rs114.35 per piece zooming by 5.34%, Bharat Dynamics at Rs441.40 per piece above 5.33%, BEML at Rs683.25 per piece up 4.10% and Apollo Micro Systems at Rs128.60 per piece up 3.84%.

It needs to be noted that, Bharat Dynamics also touched an all-time high of Rs465.10 per piece during the first half of the trading session. Overall, up to 13% rise has been witnessed in defence stocks on Dalal Street.

In its statement on Sunday, the ministry said, "This is a big step towards self-reliance in defence. It also offers a great opportunity to the Indian defence industry to rise to the occasion to manufacture the items in the negative list by using their own design and development capabilities or adopting the technologies designed and developed by Defence Research and Development Organisation (DRDO) to meet the requirements of the Armed Forces in the coming years."

According to the ministry, almost 260 schemes of such items were contracted by the Tri-Services at an approximate cost of Rs 3.5 lakh crore between April 2015 and August 2020. With the latest embargo on the import of 101 items, it is estimated that contracts worth almost Rs four lakh crore will be placed upon the domestic industry within the next five to seven years.

Of these, items almost Rs1.30 lakh cr each are anticipated for the Army and the Air Force. Meanwhile, items worth approximately Rs1.40 lakh cr are anticipated by the Navy over the same period.

Under the list of 101 embargoed items, 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 are included to fulfil the needs of our Defence Services.

Notably, the list further has wheeled armoured fighting vehicles (AFVs) with indicative import embargo date of December 2021, of which the ministry highlights that the Army is expected to contract almost 200 at an approximate cost of over Rs5,000cr.

Similarly, the Navy is likely to place demands for submarines with an indicative import embargo date of December 2021, of which it expects to contract about six at an approximate cost of almost Rs42,000cr.

For the Air Force, the ministry points out that, it is decided to enlist the light combat aircraft LCA MK 1A with an indicative embargo date of December 2020. Of these, 123 are anticipated at an approximate cost of over Rs85,000cr. Hence, there are highly complex platforms that are included in the list of 101 items, of which details of three examples are given above.

The defence ministry said, "The embargo on imports is planned to be progressively implemented between 2020 to 2024." Adding it also hints that more such equipment for import embargo would be identified progressively by the DMA in consultation with all stakeholders.

Furthermore, the ministry mentions that they have bifurcated the capital procurement budget for 2020-21 between domestic and foreign capital procurement routes. A separate budget head has been created with an outlay of nearly Rs52,000cr for domestic capital procurement in the current financial year.

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