India's defence sector holds a lucrative ordering opportunity of USD 138 billion over FY24–32 amid the escalating demand for defence equipment, technologies, and services, offering significant prospects for companies engaged in defence production and technology development, according to a report titled 'India Defence' by Nomura.
The report highlights that India's defence capital expenditure is poised to surge to 37 per cent of the total budget by FY30, marking a substantial increase from the projected 29 percent in FY25.
This equates to a cumulative capital outlay of Rs 15.5 trillion over FY24–30, indicating substantial growth compared to previous periods.
"India's government is actively supporting the defence sector through favourable policy reforms, incentives, and initiatives to promote indigenous manufacturing and technology development. We expect the share of defence capital outlay to increase to 37per cent of total defence budget in FY30 (FY24RE: 26 per cent). This implies a cumulative capital outlay of USD 186 billion over FY24–30 (vs. cumulative FY18–24F: USD 93 billion)," said the report.
The report attributes this growth to increasing defence budgets, modernization efforts, and the government's focus on indigenous manufacturing under initiatives like "Make in India." According to the report, the defence sector presents lucrative opportunities across various segments.
Equippment Manufacturing
The defence aerospace sector alone accounts for USD 50 billion, covering investments in aircraft, helicopters, unmanned aerial vehicles (UAVs), avionics, and related systems. Defense shipbuilding is another significant opportunity area, with USD 38 billion of potential for naval vessels, submarines, patrol boats, and support ships to bolster maritime security.
Investments in missiles, artillery, and gun systems are projected to reach USD 21 billion, aligning with India's efforts to enhance its artillery and missile capabilities. The report also highlights substantial growth in defence exports, totaling USD 29 billion, with momentum expected to continue.
Stock-wise opportunities
The report states that shares of Hindustan Aeronautics (HAL) have the potential upside of 28 per cent for its strong moat in fighter aircraft and helicopters, and significant capability upgrades that provide the basis for the development of an indigenous engine program.
While Bharat Electronics holds the potential upside of 32 per cent, for its increased visibility on order inflows, conviction on margin delivery, and expansion in return ratios,. In the last year, the shares of HAL have grown by 156 per cent to Rs 3877, and the Bharat Electronics shares have gained 109 percent in one year to Rs 227.
The Indian government is actively supporting the defence sector through policy reforms, incentives, and initiatives aimed at promoting indigenous manufacturing and technology development. This support creates a conducive environment for companies operating in the defence industry.
Additionally, the report underscores the increasing focus of India's defence industry on expanding its global presence through exports, technology transfer, and collaboration.
Companies with expertise in defence manufacturing and technology development are well-positioned to capitalize on export opportunities, diversify their revenue streams, and expand their market reach.
The report states that Hindustan Aeronautics (HAL) has the potential for its strong moat in fighter aircraft and helicopters and significant capability upgrades that provide the basis for the development of an indigenous engine program, while Bharat Electronics holds the potential for its increased visibility on order inflows, conviction on margin delivery, and expansion in return ratios.
