India's Defence Sector Poised for 12-15% Growth, Says JP Morgan

India's defence sector is on track for substantial and sustained growth, bolstered by increasing capital expenditure and strategic reforms, according to a recent report from global investment banking firm JP Morgan.

The growth is driven by a combination of rapidly expanding defence exports, a strong focus on domestic manufacturing, high returns on capital employed (RoCE), and robust cash flows. JP Morgan highlights that the sector is in its early stages of a long-term growth trajectory, with stock prices on the rise, although the recent market correction is seen as an attractive entry point for investors in leading companies.

For the past decade, the Indian government has successfully implemented policy shifts, procedural reforms, and a change in mindset to accelerate the growth of indigenous defence manufacturing. These efforts have been further supported by geopolitical factors and historically low defence spending, which have spurred an increase in capital expenditure. In the past, defence capex grew slowly due to competing fiscal priorities, with imports being the default choice for acquiring defence equipment.

India’s defence capital expenditure is set to increase significantly, with projections showing a rise from USD 85 billion over the past five years to USD 150 billion in the next five years. This surge in capital expenditure is expected to drive the sector’s revenue growth at a compound annual growth rate (CAGR) of 12-15 percent.

The government has introduced a series of reforms aimed at promoting self-reliance in defence manufacturing, fostering indigenous design, development, and production. Significant investments are being made in defence and aerospace manufacturing, with the establishment of multiple defence hubs across the country. Furthermore, several global companies have either shared, or shown willingness to share, critical defence and aerospace expertise with India.

One of the standout achievements has been India’s record-breaking defence exports. In the financial year 2023-24, defence exports reached Rs 21,083 crore (approximately USD 2.63 billion), marking a 32.5 percent increase from the previous fiscal year’s Rs 15,920 crore. Defence exports have grown 31-fold over the past decade compared to 2013-14, reflecting the country's growing presence in the global defence market.

India’s total defence production also saw a 17 percent increase, reaching Rs 126,887 crore in the last fiscal year, further demonstrating the sector’s positive momentum.

As India continues to invest in and expand its defence manufacturing capabilities, the sector is set for continued growth and global recognition, positioning the country as a significant player in the international defence landscape.