Defence Stocks Blast On Hike In FDI Limit

After liberalisation in foreign direct investment (FDI) in the defence space by Department of Industrial Policy and Promotion (DIPP), shares of defence equipments and manufacturers have opened on a positive note and also closed on the positive side after market hours.

Shares of defence related companies such as Bharat Electronics (up 20%), BEML (up 5%), Astra Microwave Products (up 8.5%), and Walchandnagar Industries (up 10%), edged higher.

According to a press note issued by the DIPP, the FDI limit in the sector has been raised from 26% to 49% through approval route, subsuming the 24% cap for portfolio investment. However, portfolio investment by FPIs, FIIs, NRIs, FVCI together should not exceed 24% of the total equity of the investee or Joint Venture Company.

In Budget 2014-15, finance and defence minister Arun Jaitley had announced that, in order to revive the manufacturing sector in the country, the government will liberalise FDI norms in the defence, construction and insurance sector.

According to the rules released by the department, the proposals of FDI beyond 49% and having an inflow in excess of Rs 1200 crore will require approval only by the CCS. It will not have to go through the Cabinet Committee on Economic Affairs (CCEA) as required at present. However, all proposals of FDI up to 49% involving inflow of Rs 1200 crore would continue to need the go-ahead from the CCEA.