BEL, BEML, other defence shares rise up to 12%, Nifty defence index soars 5%: Here are three likely reasons

BEL shares rise in trade.

• Defence shares surged; BEL and BEML rose up to 12% on strong buying.
• India-EU defence pact and BEL's profit boost drove sector momentum.
• Nifty India Defence index jumped 5 percent ahead of the Union Budget.

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Defence shares advanced on Wednesday, with Bharat Electronics Ltd (BEL), BEML rising up to 12 percent, driven by broad-based buying across the sector. The strong momentum pushed the Nifty India Defence index up by around 5 percent during the session.

Key factors behind the sharp rise in defence shares

1) India-EU defence pact: India and the European Union on Tuesday concluded a defence and security agreement aimed at enhancing cooperation in areas such as counter-terrorism, the Indo-Pacific and joint development of military hardware. The pact was finalised at the India-EU summit between Prime Minister Narendra Modi and European Commission President Ursula von der Leyen, and European Council President Antonio Costa.

Officials said the agreement would improve interoperability in the defence sector and create opportunities for Indian companies to participate in the EU’s Security Action for Europe (SAFE) programme, supporting long-term growth prospects for domestic defence manufacturers.

2) Rub-off from BEL rally: Shares of BEL jumped 10 percent to a record high of Rs 457.50 after the firm reported a 20.4 percent year-on-year rise in consolidated net profit for the December quarter, while revenue from operations increased nearly 24 percent.

BEL, which is also a constituent of the Nifty 50 index, saw heavy buying interest, triggering a spillover effect across other defence stocks.

3) Pre-Budget rally: The rally also comes ahead of the Union Budget scheduled for February 1. The Nifty India Defence index gained about 5 percent amid expectations that the government may announce a meaningful increase in capital expenditure for the defence sector, according to brokerage firms.

The index extended gains for a second straight day and has risen more than 8 percent over the past two sessions.

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