In today's story, we talk about India's defence sector — what the government is building, why investors got excited, and the one uncomfortable number that the cheerful headlines keep skipping over.
Quick disclaimer before we begin. Stocks or sectors mentioned here are only for context and not investment advice. Please do your own research or consult a registered financial advisor before investing.
Now onto today's story.
The Story
Picture this. It is the early hours of May 7, 2025. Indian armed forces strike nine terror camps inside Pakistan and Pakistan-Occupied Kashmir. The operation is called Sindoor. Within hours, the Nifty India Defence Index jumps. HAL gains 1.87%, BEL gains 1.51%, Solar Industries surges. Paras Defence, a relatively smaller player, eventually clocks a 49% gain in the weeks that follow.
Markets, it turns out, respond quickly when bullets are in the air.
But here is what is more interesting than the short-term rally. India's defence sector story is one of genuine structural change. Over the past decade, something has quietly shifted inside the way this country thinks about making weapons. And that shift has enormous consequences for investors, for India's economy, and for how India positions itself in a world that is rearming at a pace not seen since the Cold War.
Let us start with the money.
So where is the government actually putting its money?
The Union Budget for FY 2025-26 allocated ₹6.81 lakh crore to defence — a 9.5% increase over the previous year. That makes it the single largest allocation among all ministries, accounting for 13.45% of total government expenditure.
But the number that matters more than the headline is buried inside: ₹1.80 lakh crore has been set aside specifically for capital expenditure on defence modernisation. And of that modernisation budget, 75% has been ring-fenced for domestic procurement. That means Indian companies, not foreign suppliers, get the first shot at this money.
This is deliberate. The government wants the money to stay inside India.
And what has that done to Indian defence companies?
A lot. The Nifty India Defence Index surged 22.29% from February 1, 2025 alone. Among individual names, MTAR Technologies climbed roughly 51% in the Budget-to-Budget period, BEL was up 47%, and GRSE gained around 43%. These are not small moves for companies in a sector that was, not long ago, considered boring government-owned territory.
BEL alone had an order book of ₹75,600 crore as of Q2 FY26 — about 3.1 times its annual revenue — supported by programs like QRSAM, Project Kusha, and LCA Mk1A avionics. When a company has three years of revenue already locked in as orders, it tells you something about visibility.
But this is not just a story about defence PSUs anymore.
Private sector companies have been quietly building serious capabilities. Bharat Forge is exporting artillery guns to European countries. Solar Industries supplies ammunition to the armed forces and has emerged as a global name in defence explosives. Data Patterns builds high-end radar and electronic warfare systems. Astra Microwave has identified ₹15,000 to 20,000 crore in export opportunities through FY28.
And then there is the export story, which has been genuinely remarkable.
India's defence exports hit ₹23,622 crore in FY 2024-25 — a record high. That is a 34-fold increase from just ₹686 crore in 2013-14. In one decade, India went from a country that barely exported weapons to one that is now supplying ammunition, aircraft, missiles, and artillery guns to nearly 80 countries.
The government has set a target of ₹50,000 crore in defence exports by 2029. Looking at where India was a decade ago, it would be unwise to dismiss that number entirely.
So what exactly changed?
Three things working together.
First, the policy architecture shifted. The government began releasing Positive Indigenisation Lists — essentially, lists of items that Indian armed forces will no longer import from abroad. They must be made in India. 509 items are currently on these lists, creating captive demand for domestic manufacturers that simply did not exist before.
Second, private sector participation was opened up in a meaningful way. Industrial licences were issued to 462 companies, and DRDO began structuring technology transfers to private partners through its Technology Development Fund. The ecosystem that was once entirely government-owned is now drawing in serious private capital.
Third, Operation Sindoor changed something harder to quantify. When India deployed its indigenous Akashteer air defence system and it worked — shooting down hundreds of drones and missiles during a live conflict — it sent a signal to both domestic buyers and potential international customers. Indian equipment had passed a real-world test.
Now here is where it gets uncomfortable.
All of the above is true. And yet, India is simultaneously the world's second-largest importer of major arms, according to the Stockholm International Peace Research Institute's latest report. Only Ukraine, which is fighting an active war, imports more.
India accounts for 8.3% of all global arms imports. The country that is celebrating its defence export rise is still buying more weapons from abroad than almost any nation on earth.
Russia remains the largest supplier, accounting for 40% of India's arms imports — though that number has been falling steadily. A decade ago it was 70%. India has been diversifying toward France, Israel, and the United States, which is strategically sensible. But the dependence on foreign-made major platforms continues.
This is the gap that the ₹1.80 lakh crore capital budget is supposed to close. And the uncomfortable truth is that closing it takes time. Procurement cycles in India average three to five years due to complex acquisition procedures. DRDO has a well-documented history of delays — the Kaveri engine that was supposed to power India's fighter jet has been under development for nearly four decades. Only 8% of planned artillery guns have actually been inducted despite successful indigenous trials.
This is not a reason to dismiss the sector. It is a reason to understand it clearly.
So what does this mean for you as an investor watching this space?
The structural story is real. Government spending is committed and growing. Order books at major players are multi-year in length. Private sector companies are building genuine capabilities. And the global environment — with Europe rearming, the US pushing allies toward higher defence spending, and India navigating a two-front security concern with China and Pakistan — means the tailwinds are not going away.
At the same time, valuations moved very fast. BDL was trading at a P/E of 86 to 97 times even before the Operation Sindoor rally. Markets have priced in a lot of optimism. What markets tend to price in last is the execution risk — delayed contracts, slow inductions, project overruns, and the occasional policy curveball.
The defence sector deep dive, if done honestly, gives you both sides. A government that is genuinely reshaping how India arms itself. And a procurement machine that remains, in places, stubbornly slow.
India wants to be an arms exporter to the world. It is making real progress. But it has not yet stopped being one of the world's biggest arms buyers. The distance between those two facts is exactly the opportunity — and the risk — that this sector represents.
Until then…
If this gave you a clearer picture of what is actually happening inside India's defence sector, share it with someone who is trying to make sense of it too.
This article is for educational purposes only. Not investment advice.
Happy Investing 😎
Nataraj Malavade Investor, Trader, Author & Mentor www.natarajmalavade.in
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Publication |
Article |
Link |
| 1 |
Ventura Securities |
Budget-to-Budget Winners: Top Performing Defence Stocks |
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| 2 |
Press Information Bureau |
Record ₹6.81 lakh crore allocated for MoD, FY 2025-26 |
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| 3 |
Press Information Bureau |
Defence exports surge to record ₹23,622 crore in FY 2024-25 |
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| 4 |
Mordor Intelligence |
India Defense Market Size, Analysis & Global Report 2030 |
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| 5 |
Business Standard |
India world second largest arms importer: SIPRI |
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| 6 |
Equitymaster |
India's Defence Exporting Stocks to Watch Amid Rising Global Tensions |
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| 7 |
Business Standard |
Defence stocks in focus: HAL, GRSE gain as India conducts Operation Sindoor |
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| 8 |
DD News |
India's defence exports surge 34-fold in 11 years |
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| 9 |
Whalesbook |
Defence Stocks Surge Ahead of Budget 2026 Amid Geopolitical Alerts |
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| 10 |
Defence.in |
Operation Sindoor and the Shift in India's National Security Paradigm |
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