Defence stocks traded higher in early trade on Monday, July 6, after the Defence Acquisition Council (DAC) accorded Acceptance of Necessity (AoN) for capital acquisition proposals worth around Rs 52,000 crore, lifting sentiment across the sector.

At around 9:45 am, Paras Defence and Space Technologies jumped 4.68% to Rs 1,354.60, Bharat Electronics (BEL) rose 2.14% to Rs 427, Mazagon Dock Shipbuilders gained 1.08% to Rs 2,571, while Hindustan Aeronautics (HAL) advanced 0.82% to Rs 4,465.10. The Nifty India Defence index was trading 1.35% higher at 9,703.75.

Adding to the positive sentiment, JM Financial Institutional Securities reiterated its 'Buy' rating on Bharat Heavy Electricals (BHEL) with an unchanged target price of Rs 435. The brokerage said the government's decision to allow four Chinese electrical equipment companies to participate in PSU tenders for high-voltage transformers and gas-insulated switchgear (GIS) "will have limited impact on BHEL."

It also said the DAC's approval for a Land Based Testing Facility (LBTF) for electric propulsion systems for Indian naval assets means "BHEL could emerge as a key beneficiary given its rich and relevant experience."

JM Financial expects BHEL to report June quarter revenue of Rs 66 billion, up 20% year-on-year, with an EBITDA margin of "minimum 1.9%" and a return to profitability in the first quarter after reporting losses in the corresponding quarter over the previous eight years.

The brokerage estimates BHEL's revenue, EBITDA and profit after tax will grow at a CAGR of 21%, 57% and 71%, respectively, during FY26-FY28.

The rally follows the DAC's approval of procurement proposals aimed at strengthening the operational capabilities of the Indian armed forces. The council is the highest decision-making body for defence procurements in the country.

The approvals cover a range of indigenous weapon systems and platforms, including the Akash Tarang anti-drone electronic warfare system, man-portable anti-tank guided missiles (MPATGM), medium-range surface-to-air missile (MRSAM) systems, very short-range air defence systems (V-SHORADS), active protection systems (APS) for tanks and jet-powered loitering munitions.

For the Indian Navy, the DAC also cleared proposals for multi-influence ground mines, naval shipborne unmanned aerial systems (UAS) and the establishment of a Land Based Testing Facility.

An Acceptance of Necessity is the government's in-principle approval for a defence procurement proposal and marks the first stage of the acquisition process. It is not a purchase order, with contracts awarded only after tendering, technical evaluation and commercial negotiations are completed.