Motilal Oswal picks 4 defence stocks with upside potential of up to 36% after DAC’s Rs 79,000 cr clearance

The recent approval by the Defence Acquisition Council (DAC) for capital acquisition proposals worth Rs 79,000 crore marks a pivotal moment in India's journey towards self-reliance in defence. This significant financial outlay, primarily aimed at domestic procurement, underscores the government's unwavering commitment to bolster the indigenous defence manufacturing ecosystem, aligning perfectly with the 'Make in India' and 'Atmanirbhar Bharat' initiatives.

Historically, India has been one of the world's largest importers of defence equipment. For decades post-independence, strategic necessities coupled with nascent domestic industrial capabilities led to a heavy reliance on foreign suppliers, often from the Soviet Union/Russia, France, the UK, and later the USA and Israel. This import dependence not only drained foreign exchange reserves but also left India vulnerable to geopolitical pressures and technology denial regimes. The Kargil War in 1999, for instance, starkly highlighted the critical need for indigenous capabilities and a robust defence industrial base. Recognizing this, successive governments have attempted to indigenize defence production, but the pace accelerated significantly with the launch of the 'Make in India' program in 2014, with defence identified as a core sector.

What precisely happened? The Defence Acquisition Council (DAC), India's highest decision-making body on defence procurement, chaired by the Defence Minister, gave its Acceptance of Necessity (AoN) to various capital acquisition proposals. These proposals, valued at Rs 79,000 crore, prioritize procurement from Indian industries. This means that the armed forces will acquire new platforms, systems, weapons, and equipment, all designed, developed, and manufactured within the country. The move is a strong signal to domestic defence manufacturers, including both Public Sector Undertakings (PSUs) and private players, to scale up their capabilities and innovate. Companies like Bharat Electronics (BEL), Hindustan Aeronautics Limited (HAL), Bharat Dynamics Limited (BDL), and Astra Microwave Products are specifically identified as potential beneficiaries, indicating a clear pipeline for their products and services.

Key stakeholders in this process are numerous and interconnected. At the apex is the **Defence Acquisition Council (DAC)**, which formulates the defence acquisition policy and approves all major capital procurements. The **Ministry of Defence (MoD)**, through its Department of Defence Production, oversees the implementation of policies and supports the defence industrial base. The **Indian Armed Forces** (Army, Navy, Air Force) are the ultimate users; their operational requirements drive the procurement process. **Defence Public Sector Undertakings (DPSUs)** like BEL, HAL, and BDL have historically been the backbone of India's defence production, and this decision provides them with substantial orders. Increasingly, **Indian private sector defence manufacturers** are emerging as crucial players, bringing in agility, innovation, and global best practices. Foreign Original Equipment Manufacturers (OEMs) also play a role, often through joint ventures, technology transfer agreements, or licensing arrangements, especially in complex systems where full indigenization is still a long-term goal.

This decision matters immensely for India on multiple fronts. **Economically**, it provides a massive stimulus to the manufacturing sector, fostering job creation, boosting R&D, and contributing to overall GDP growth. It encourages investment in high-tech manufacturing and skill development. **Strategically**, it enhances India's national security by reducing dependence on unreliable foreign supply chains, especially during times of crisis. It strengthens India's strategic autonomy and gives it greater leverage in international relations. **Technologically**, it drives indigenous innovation and capability building, moving India up the value chain in complex defence technologies. Furthermore, it aligns with broader government policies like the **Defence Acquisition Procedure (DAP) 2020**, which strongly emphasizes 'Buy Indian – IDDM' (Indigenously Designed, Developed and Manufactured) and 'Buy Indian' categories, and aims for a defence manufacturing turnover of USD 25 billion by 2025, including USD 5 billion in exports.

From a constitutional perspective, **Entry 1 of List I (Union List) in the Seventh Schedule** of the Indian Constitution grants the Union government exclusive power over 'Defence of India and every part thereof including preparation for defence.' This constitutional mandate underpins all defence policy and acquisition decisions. The DAC's actions are a direct exercise of this power, ensuring the nation's security through robust indigenous capabilities. The government's push for 'Make in India' in defence is also supported by **Article 39(b) and (c)** of the Directive Principles of State Policy, which call for the state to direct its policy towards ensuring that the ownership and control of the material resources of the community are so distributed as best to subserve the common good, and that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment. While not directly about defence, the indigenization drive aligns with these principles by building national economic strength.

Looking ahead, this substantial procurement pipeline promises sustained growth for India's defence industry. It could transform India from a net importer to a significant defence exporter, positioning it as a key player in the global defence market. However, challenges persist. Ensuring timely delivery, maintaining high-quality standards, investing adequately in cutting-edge R&D, and fostering a truly competitive environment for both public and private players will be crucial. The success of this initiative will ultimately depend on consistent policy support, streamlined bureaucratic processes, and robust collaboration between the government, armed forces, industry, and academia. This move is a clear step towards a more self-reliant and strategically independent India on the global stage.