Defence stocks witnessed strong buying interest on Tuesday following the government's approval of ₹1.10 lakh crore worth of military materiel procurement, with the Nifty India Defence index gaining 3% to reach a record high of 10,012.95, up from the previous close of 9,754.55. As per The Economic Times, Midhani emerged as the top gainer, rising up to 12.5%, while HAL, Data Patterns, Paras Defence, Apollo Micro Systems and MTAR Tech surged up to 10% each to trade at ₹5,009, ₹1,545, ₹1,545, ₹417.25 and ₹1,545 respectively. BEL advanced 1.6% to ₹411 and Solar Industries added 1.5% to trade at ₹22,280. The majority of defence counters traded in positive territory, with only Dynamatic Tech declining during the session. In comparison, the benchmark Nifty 50 index fell 99 points, or 0.41% to 23,682. According to Religare Broking, the approval provides significant visibility for order inflows and reinforces the structural growth opportunity for domestic defence manufacturers. The Nifty Defence Index has gained about 23% in the past six months, compared with the 1.6% decline in the Nifty, as lingering geopolitical conflict in West Asia has raised expectations of higher defence spending by the government.
The Defence Acquisition Council (DAC) on September 7 accorded Acceptance of Necessity (AoN) for procurement proposals worth ₹1.10 lakh crore, spanning the Army, Navy and Air Force. According to Kotak Institutional Equities, nearly 98% of the value is earmarked for domestic industry, making this one of the largest single-sitting indigenous clearances on record. With this approval, cumulative AoNs since FY24 have crossed ₹18 lakh crore. The procurement proposals were cleared by the Defence Acquisition Council (DAC) headed by Defence Minister Rajnath Singh, as reported by Upstox. The services will now proceed with the acquisition process to select companies for awarding the contracts. As per The Economic Times, around 98% of the purchases are expected to be sourced from Indian companies, boosting investor sentiment towards defence stocks. The current package is different from the import-heavy approvals seen earlier in March 2026, with the focus more strongly tilted towards domestic manufacturing and the Buy-Indian/Indian Designed, Developed and Manufactured (IDDM) route.
For the Indian Army, approvals cover CBRN recce vehicles, high mobility vehicles, self-propelled mechanical mine layers, advanced light helicopters (ALH Dhruv), trawl tanks and Sarvatra bridge systems. The CBRN recce vehicles will be capable of detecting, identifying, monitoring and marking of areas contaminated with CBRN agents. The HMVs are expected to enhance operational capabilities, logistic support and mobility in challenging terrains. The ALHs will execute complex missions across all terrains and operational situations for the Indian Army and the Indian Air Force. The Navy received clearance for Arudhra medium-power radars and Marine Gas Turbines (MGT) for warship propulsion, representing a pointed import-substitution move as MGT will replace existing Air Route surveillance radars at various Naval Air Stations and reduce dependency on foreign vendors. According to Lemonn, while 98% is indigenous at the bill-of-materials level, aero-engines, seekers, high-end semiconductors and speciality alloys are still substantially imported. This gap represents both a risk and opportunity for the next five years.
The Air Force has been given the go-ahead for proposals to enhance the war-fighting capabilities of fighter aircraft, transport aircraft and helicopters. Approval was also accorded for the procurement of ground-based multi-purpose jammers (GBMPJ) and the Defence Forces Secure Access Card system. According to JM Financial, the clearance for Advanced Light Helicopters (ALH) for the Indian Army is an order potential for HAL, with the brokerage noting that the Acceptance of Necessity (AoN) granted for proposals to enhance fighter jet capabilities could include an overhaul of the Su-30MKI, which is also positive for HAL. The GBMPJ approval is positive for BEL, while that for Arudhra Radars is positive for both BEL and Data Patterns. These projects represent a comprehensive upgrade to India's air power capabilities across all three branches of the armed forces.
According to Kotak Equities, BEL screens as the standout multi-item winner present across CBRN systems, Arudhra radars, ground-based jammers, IAF EW upgrades and secure-access cards, extending a visible pipeline after ₹6,200 crore of order wins earlier in FY2027. HAL is the biggest single-ticket beneficiary via ALH Dhruv (sole OEM), marine gas-turbine assembly and IAF platform upgrades. Within the land systems ecosystem, companies like BEML, Larsen & Toubro (L&T), Ashok Leyland Defence, Tata and Bharat Forge stand to gain from high-mobility vehicles, mine-layers, trawl tanks and Sarvatra bridges. JM Financial noted that before final awarding, these projects would undergo other stages of negotiations/approvals, including technical and financial clearances and, eventually, Cabinet Committee on Security (CCS) approvals. SBI Securities identified EL, HAL, Astra Microwave, BEML, BHEL, Data Patterns, Bharat Forge and L&T as key beneficiaries, while DAM Capital identified specific beneficiaries for each project component. As per The Economic Times, while the sharp rally indicates strong momentum, investors should remain selective as valuations in several counters have turned demanding.
According to Kotak Institutional Equities, AoN is an in-principle first step, while RFP-to-contract typically lags two years, so order accrual will be in FY2027-29E. It estimates ₹6.5 lakh crore – ₹7 lakh crore of new orders over FY2027-29E as these convert. So far in FY27, the DAC has given approvals worth ₹1.62 trillion, according to data shared by Motilal Oswal Financial Services. Over FY25-YTDFY27, approvals worth ₹13 trillion have been accorded for the defence sector, which enhances the Total Addressable Market (TAM) of domestic players. Jefferies said that India's defence spend should see a double-digit CAGR in the medium-term in the background of global geopolitical tensions, with private sector companies having visible growth prospects north of 20% backed by government focus on domestic manufacturing. Jefferies initiated a Buy on Solar Industries with target price of ₹28,160 and Astra Microwave with target price of ₹2,055, while maintaining a Hold on Bharat Dynamics with target price of ₹1,280. Technical indicators suggest continued outperformance of the defence index relative to the benchmark, with immediate support placed in the 9,750-9,700 zone.
