can defense sector of india be the next big bet
Imagine a sector where government backing, global demand, and cutting-edge innovation converge to create a wealth-building powerhouse. That’s India’s defense sector today—a dynamic industry fueled by the nation’s push for self-reliance and its strategic role on the global stage. For retail investors, this isn’t just another market trend; it’s a golden opportunity to tap into a high-growth, stable asset class. Whether you’re eyeing stocks, mutual funds, or ETFs, the defense sector offers a unique blend of resilience and reward.
But how do you, as a common investor, navigate this complex landscape? Enter sharpely, an investment research platform designed to empower everyday investors with advanced tools for stock, mutual fund, and ETF analysis. With sharpely, you don’t need to be a financial guru to uncover the best defense investments—you just need the right tools to make informed decisions. In this guide, we’ll take you on a journey through India’s defense sector, showing you why it’s a must-watch for your portfolio and how sharpely’s intuitive features can help you seize its potential.
India’s defense sector is no longer a niche market—it’s a cornerstone of the nation’s economic and strategic ambitions. The government’s Make in India and Aatmanirbhar Bharat initiatives have transformed the industry, prioritizing domestic manufacturing and reducing reliance on imports. This shift has unleashed a wave of opportunities for companies, from established giants to innovative startups, and for investors looking to ride the growth wave.
But how do we know this holds water in the stock markets? On sharpely, we offer something unique, a custom-made index that focuses on defense and aerospace stocks. With the help of this, you can do a data-driven analysis of the index. Let’s first see how the index has faired against the benchmark index historically.
The past data points to defense as the clear winner, but what about the present? To analyze this, we refer to the RRG chart, an advanced sector rotation tool that lets you discover market moves (before they happen!)
The Index is showing strong signs of growth and moving rapidly toward the Leading quadrant.
Not bad, right? Let’s try to understand what are some of the key drivers behind this growth and then we’ll do a deeper analysis into this index using sharpely.
The Union Budget for 2025-26 demonstrates the government's enduring commitment to strengthening national security, with a substantial allocation of ₹6.81 lakh crore dedicated to the defense sector. A significant portion of this allocation, amounting to ₹1.80 lakh crore, is specifically earmarked for capital expenditure, underscoring the government's focus on the critical modernization of the armed forces and the acquisition of advanced military hardware. This commitment to upgrading military capabilities is further evidenced by the 13% increase in the defense budget for the fiscal year 2024-25, which reached ₹6.21 lakh crore, highlighting a consistent upward trend in government spending on defense.
Government-led initiatives such as "Make in India" and "Atmanirbhar Bharat" are central to fostering self-reliance in the defense sector. These initiatives aim to establish robust indigenous manufacturing capabilities, supported by a thriving ecosystem for research and development. The government is actively incentivizing defense exports through various policy mechanisms, with the strategic goal of transforming India into a major global hub for the design, development, and production of defense equipment. Furthermore, there is a strong emphasis on prioritizing domestic procurement, with a significant 75% of the capital outlay in the defense budget specifically designated for the acquisition of equipment from Indian manufacturers, providing a direct and substantial boost to the local defense industry.
The export potential of Indian defense companies is rapidly expanding, presenting a significant opportunity for growth. In recent years, Indian defense exports have witnessed a remarkable increase, reaching over ₹21,083 crore in FY 2023-24, demonstrating the growing capabilities and global competitiveness of the domestic industry. The government has articulated ambitious targets for further increasing defense exports, signaling a strategic intent to tap into the global market and establish India as a reliable and competitive supplier of defense equipment to friendly nations.
The prevailing geopolitical tensions in the region and across the globe are also significant drivers for the growth of the Indian defense sector. These tensions necessitate sustained investments in modernizing military infrastructure, deploying advanced monitoring systems, and enhancing overall defense capabilities to effectively safeguard national interests and territorial integrity. The continuous focus on national security requires the ongoing development and procurement of cutting-edge defense technologies and equipment, thereby creating a sustained and robust demand for the products and services offered by Indian defense companies
.
For investors, this translates to a rare opportunity: a sector with high growth potential, low correlation to volatile markets, and government-backed stability. But with opportunity comes complexity—how do you pick the right stocks or funds?
To understand which players currently have a stronger influence and which are showing strong signs of growth, we will refer to the ‘Constituents’ table from our custom index on sharpely.
The table reveals the heavyweights shaping India’s defense sector. HAL, BEL, and BDL lead the charge, commanding nearly half the index’s weight, making them the giants to watch. These market leaders signal where the sector’s biggest opportunities lie—aerospace, electronics, and missile systems are driving the momentum. Meanwhile, mid-tier players like GRSE and PARAS show the rising influence of shipbuilding and space tech, offering diversification potential.
You can find the weightage of all stocks under the ‘overview’ section of our sharpely index: Aerospace and Defense.
But does the highest weighted stock always mean best return giving, too? Not necessary. On sharpely, you can analyze and compare stocks across more than 200 metrics. Depending on your style of investing and strategy you can take your pick of the metrics. Let’s see an example. We’ve added the following metrics to our analysis:
Here’s a snapshot of it:
As you can see with data spread across fundamentals, technicals, and our in-house developed scores you get a great broader outlook into any index of your choice.
This shows us that right now HAL, BEL, and BDL are market angels, while some are falling under the momentum trap and could be bad bets.
But is this the complete truth? Let’s dig a little deeper into the big players.
The Indian defense sector is witnessing significant growth, driven by government initiatives like 'Atmanirbhar Bharat' and increasing defense spending. Here are five key stocks for investors to watch:
The state-owned aerospace giant is involved in the design, development, and manufacturing of aircraft, helicopters, engines, and avionics. HAL boasts a massive order book (₹94,000 Crore) and strong revenue growth, fueled by indigenization projects (LCA Tejas, LCH Prachand) and export potential. Challenges include project delays and reliance on government budgets. Here’s a quick look into some of the key metrics of HAL:
A Navratna PSU specializing in defense electronics, including radar, communication, and electronic warfare systems. BEL has a robust order book (₹71,650 crore) and is expanding into non-defense sectors. A key risk is client concentration in the defense sector. Here’s a quick look into some of the key metrics of BEL:
Focused on manufacturing missiles and munition systems, a key player in India's defense self-reliance. BDL has a strong order book (₹22,700 crore) and is increasing its export footprint. Inconsistent past financial growth and rising debtor days are potential concerns. Here’s a quick look into some of the key metrics of BDL:
A leading shipyard constructing warships and submarines for the Indian Navy. MAZDOCK has a substantial order book (₹34,787 crore as of Dec 2024) and is expanding its capacity. Historical time and cost overruns in projects pose a challenge. Here’s a quick look into some of the key metrics of MAZDOCK:
Primarily an explosives manufacturer that has diversified into defense explosives and systems, including drones and UAVs. Solar Industries has secured significant defense contracts (₹6,084 crore for Pinaka rockets) and is expanding into drone manufacturing. A high PE ratio and potential domestic market slowdown are risks to consider. Here’s a quick look into some of the key metrics of Solar Industries India Limited:
Beyond the top five, companies like Zen Technologies (training simulators), Astra Microwave Products (defense electronics), Paras Defence and Space Technologies (defense and space tech), Data Patterns (defense and aerospace electronics), Garden Reach Shipbuilders & Engineers (warships), and Cochin Shipyard (shipbuilding and repair) offer specialized capabilities and growth potential within the sector.
In the beginning, we checked how the index is currently performing with RRG. We’ve used the tool and tried to figure out how each stock fairs in the current market. Let's have a look:
The latest data can be found here. Just select the ‘Stock’ tab in RRG and choose the ‘SHI: Aerospace & Defense’ Index.
Investing in defense stocks requires a long-term perspective, considering the cyclical nature of contract awards and sensitivity to government policies and geopolitical events. Project delays and technological obsolescence are also key risks. Diversification and thorough research are crucial for navigating this sector.
The Indian defense sector presents significant opportunities driven by indigenization and increasing defense needs. While the top players offer stability and scale, other specialized companies also contribute to a dynamic and growing ecosystem. Investors should conduct careful due diligence and consider the inherent risks before investing in this strategically important sector.
Disclaimer: This blog is for informational purposes only and does not constitute financial advice. Investors should conduct their own research and consult with a qualified financial advisor before making investment decisions.
