The government’s focus on technology adoption, process reforms and steady indigenization puts the sector in a crucial position for long-term growth.Macro trends indicate healthy double-digit growth in defense investments, with the capital expenditure budget steadily increasing – from INR 1,343 billion in FY21 to an estimated INR 2,016 billion in FY27.
The share of procurement from domestic players is visibly increasing, due to increasing local production capacities and policy-driven initiatives. Levels of indigenization have improved significantly, with key defense manufacturing companies reporting a significant reduction in dependence on imports.
As supply chain restrictions have been relaxed and operational efficiencies have improved under the new Defense Procurement Manual (DPM 2025), the margins between the first and second lists of suppliers have shown stability. Critical reforms – such as streamlined procurement processes, capped damages for indigenous suppliers and extended guaranteed order times – translate into improved flexibility and long-term cost optimization for public and private sector participants. The industry’s momentum is being driven by early-stage technology programs, emerging export opportunities, and government-approved joint development initiatives.
Notable milestones include the indigenous first flight of advanced fighter jets, accelerated missile development and ambitious export capabilities – such as the Akash missile system targeting new markets.
However, challenges remain: fast-track procurement for contingencies, timely approval of projects and scaling up the domestic fighter jet engine ecosystem require focused execution.
The ability to leverage innovation, integrate SMEs and startups, and maintain supply chain resilience remains essential to sustaining growth.
India’s defense manufacturing sector is moving decisively towards self-sufficiency and global competitiveness. With the government setting a target of INR 500 billion in defense exports by FY29 and doubling export volumes from FY25, the medium-term opportunities are attractive for both state-owned and private players.
Enhanced participation in joint ventures, technology partnerships and local development frameworks (iDEX, Make II) are reshaping sector boundaries. As policy reforms crystallize and order fulfillment accelerates, the sector offers a fertile landscape for investment and innovation, underlined by operational stability and scalable export potential.
In short, India’s defense sector is on a transformative path. Continued policy support, deepening indigenization and robust export ambitions point to meaningful value creation in the medium term – for manufacturers, suppliers and stakeholders investing in the country’s strategic future.
Bharat Electronics: Buy| Target Rs 490
The Indian Army’s ₹300 billion tender for the DRDO-developed QRSAM ‘Anant Shastra’ project, with BEL as the lead integrator, increases its order book to over ₹1 trillion and underlines its leadership in strategic defense programmes.
BEL is strongly positioned under the TPCR 2025 roadmap and will benefit from continued opportunities in the Army, Navy and Air Force, in the areas of radars, EW systems, communications networks and drone defense solutions.
Additional growth drivers include orders for next-generation corvettes, Tejas Mk1A avionics, loitering ordnance and exports. With an expected revenue/EBITDA/PAT CAGR of ~18%/17%/17% for FY25-28, BEL offers robust long-term growth prospects, making it an attractive investment in the Indian defense modernization journey.
Hindustan Aviation: Buy| Target Rs 5800
HAL is strategically positioned for continued long-term growth, supported by a record FY25 order book of INR 1.89 trillion, almost double the previous year, and a strong future pipeline worth ~INR 1 trillion to be realized over 1 to 2 years.
Key growth drivers include production scale-up, sustained ROH orders (~INR 200 billion per annum), new programs such as Tejas Mk1A, Su-30 avionics upgrade, LCH Prachand deliveries and upcoming Tejas Mk2 production. The company aims to deliver 12 LCA aircraft in FY26.
It also signed a landmark ToT agreement with GE for production of indigenous F-414 engines (~80% technology transfer), enhancing self-reliance. We estimate HAL’s revenue/PAT to grow at a CAGR of 21%/14% in FY25-27, with EBITDA margins remaining stable at around 29%, supported by indigenization and operational efficiencies.
(The author is Head – Research, Wealth Management, Motilal Oswal Financial Services Ltd)
(Disclaimer: Recommendations, suggestions, views and expert opinions are their own. These do not represent the views of the Economic Times)
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