Defence stocks have experienced a remarkable surge in trading today, capturing the attention of investors. Notably, Mazagon Dock soared by 10%, while Garden Reach Shipyard hit the upper circuit limit with a striking 20% increase. Other prominent gainers included Cochin Shipyard with an 8.8% rise, HAL climbing 4.4%, and Bharat Dynamics achieving a 6% boost. Even Bharat Electronics Limited (BEL), a significant player on the Nifty index, saw a nearly 2% increase. The driving force behind this impressive performance can be traced back to pivotal reforms passed by the German Parliament, paving the way for increased defence expenditures.

The German Influence on Defence Spending

On Tuesday, the German Parliament approved a significant fiscal package aimed at revising the nation’s longstanding debt policies. This move is set to enable a substantial increase in defence spending, alongside a €500 billion fund designated for infrastructure and climate initiatives.

However, this legislation must still clear the Bundesrat, which represents the individual states of Germany. The proposal is scheduled for presentation to the Bundesrat on Friday. Notably, under this new law, defence spending will no longer be restricted by the country’s debt brake, and loans for infrastructure projects will also be exempt from these limits.

Domestic Factors Fueling the Rally

In addition to the German developments, several domestic elements have contributed to the rally in defence stocks. India’s defence budget has seen a significant capital outlay increase, now totaling ₹1.8 trillion, reflecting a 12.9% rise from the revised estimates for FY25. Furthermore, the Indian Army has achieved an impressive 88% self-sufficiency rate in ammunition production.

The Indian Navy is also making strides, recently finalizing a ₹36,000 crore agreement with Mazagon Dock Shipbuilders, with the contract expected to be signed by the end of FY25. This has positively influenced market sentiment, encouraging further investments.

Additionally, the Ministry of Defence has secured a ₹10,200 crore contract for PINAKA systems with Solar Industries and Munition India, potentially benefiting companies like Azad Engineering and PTC Industries.

Other noteworthy developments in the sector include:

• Kalyani Strategic Systems exporting 100 artillery guns.
• Dynamatic Technologies launching a new sub-assembly line for the Airbus A220 in India.
• BEL inaugurating its second assembly line dedicated to electronic fuses for artillery ammunition.

These advancements highlight a vibrant and evolving defence landscape in India, setting the stage for continued growth in the industry.