MUMBAI: Prime Minister Narendra Modi ’s pledge to double production in defence manufacturing sparked a rally in shares of companies in the industry.Shares of Bharat Forge, Bharat Electronics , Pipavav Defence and Astra Microwave Products jumped between 4 per cent and 20 per cent on Wednesday on hopes the government will announce steps in the Budget to boost defence manufacturing in India.Modi, while inaugurating Aero India 2015 in Bengaluru on Wednesday, said the government was keen to expand the role of private sector to Indian defence production and that preference would be given to defence products made locally.Pipavav Defence, which rose as much as 20 per cent intraday to touch its fresh 52-week high of Rs 82.80, ended at Rs 77.75, up 12.52 per cent. The stock has been in the thick of action of late on news reports that Mahindra & Mahindra may be in talks to buy out the company.Shares of Astra Microwave Products rose 16.36 per cent to end atRs 153.60. Bharat Electronics surged 9 per cent to Rs 3,997.95. Dynamatic Technologies, Walchandnagar Industries and Bharat Forge rose between 4 per cent and 7 per cent."There have been a series of policy changes in the past few months in defence sector as the government wants Indian companies to manufacture and supply equipment to the Indian defence forces," said Sadanand Shetty , senior fund manager The government intends to spend $100 billion (about Rs 6 lakh crore) to raise defence procurement over the next 10 years. Currently, India spends around $40 billion annually on defence, of which 40 per cent, or around $16 billion, is spent on buying new equipment and products."There could be a huge potential for Indian companies to benefit from the defence sector if the government starts sourcing defence equipment from them," said Kush Katakia , chief executive officer, Beanstalk Advisory . Modi said on Wednesday, "If we could raise the percentage of domestic procurement from 40 per cent to 70 per cent in the next five years, we would double the output in our defence industry."

But, fund managers and analysts are wary of near-term prospects of these shares after the sharp run-up in recent days. "One can explore the defence theme only for the long-term as defence spending over a trillion dollar will span out in several years. The near-term revenue impact on any companies in this sector is nil," said Shetty.

In the last five trading days, Pipavav shares have gained 41 per cent, Astra’s have risen 30 per cent, and Bharat Electronics’ have moved up 20 per cent. "While the new government plans to increase defence manufacturing in India, we believe execution of those plans could take time," UBS’s analyst Sonal Gupta said in a recent research note. "While Pipavav could be a strong platform to leverage such opportunities, there remains inherent uncertainty with respect to winning tenders, etc. We believe such a deal could be near-term negative for stock price performance as earnings are unlikely to flow in the next 3-4 years."