India’s defense sector is set for significant long-term growth, fueled by rising capital expenditure and policies boosting domestic manufacturing, according to JP Morgan. Key drivers include increasing defense exports, a focus on local production, high returns on capital employed (RoCE), and strong cash flows.
The government has transformed defense manufacturing policies over the past decade, creating a solid foundation for growth. JP Morgan emphasized that the sector is still in its early growth phase. While stock prices have risen, the recent market correction presents a favorable opportunity to invest in leading companies.
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“Geopolitical factors and historically low defence spending have spurred increasing capital expenditure in the sector. In the past, defence capex grew at a slower pace due to competing fiscal priorities, with imports being the default choice for defence equipment.”
India’s Defense Sector Growth
India’s defense sector is witnessing rapid growth, with capital expenditure projected to rise from $85 billion in the past five years to $150 billion over the next five years according to Zeenews, driving annual revenue growth at an estimated CAGR of 12-15%, according to JP Morgan.
This growth is supported by policies promoting indigenous design, development, and production of defense equipment, boosting self-reliance and fostering significant investments in defense and aerospace manufacturing.
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Several defense hubs have been established, and global companies are increasingly sharing critical expertise with India. Defense exports hit a record ₹21,083 crore ($2.63 billion) in FY 2023-24, a 32.5% rise from the previous fiscal year, reflecting a 31-fold increase over the past decade. Meanwhile, India’s total defense production value grew by 17% to ₹126,887 crore in the last fiscal year.
