As we step into 2025, the global geopolitical landscape remains uncertain. While we hope for improved international stability, investors must stay vigilant, particularly regarding India’s defence preparedness and its capability to indigenously manufacture advanced defence systems. Although India is not currently engaged in cross-border conflicts, geopolitical risks persist, and any escalation could impact financial markets unpredictably.
A major concern is China’s long-standing ambition to annex Taiwan. The timing and manner of such an event remain uncertain, but its ramifications on global financial markets could be significant. Historically, India depended heavily on foreign imports for its defence needs, with nearly 65-70% of its military equipment sourced internationally until 2018.
India has made a strategic shift towards self-reliance in defence manufacturing, with approximately 65% of its military equipment now produced domestically. This transformation is driven by government initiatives, policy reforms, and strong industry participation.
India’s defence industrial base has grown substantially, comprising 16 Defence Public Sector Undertakings (DPSUs), private conglomerates like Tata and L&T, over 430 licensed companies, and nearly 16,000 MSMEs. The private sector contributed 21% of India’s total defence production in 2024, a figure expected to rise further in the coming years.
The defence budget allocation in 2025 budget has not seen any significant increase over 2024, and cause many defence stocks to additionally correct from overvalued zone !
Under the Make in India initiative, India has successfully developed cutting-edge defence platforms, including:
This progress underscores India’s growing technological prowess in defence manufacturing. The annual defence production target of Rs 1.75 trillion by the end of fiscal 2025 is well within reach, with an ambitious goal of Rs 3 trillion by 2029, further solidifying India as a global defence manufacturing powerhouse.
India’s defence exports have skyrocketed, increasing from Rs 6.8 billion in 2014 to an unprecedented Rs 210 billion in 2024—a staggering 30-fold growth in just a decade. This surge highlights India’s resilience in the global defence market, despite fluctuations in domestic military expenditure.
The country’s diverse export portfolio includes:
A landmark achievement in India’s defence exports is the inclusion of ‘Made in India’ boots in the Russian Army’s inventory, signifying the country’s high manufacturing standards and growing global footprint.
Currently, India exports defence equipment to over 100 nations, with the USA, France, and Armenia emerging as the top three destinations in 2023-24.
Despite increased budget allocations for defence in the 2025 Union Budget, India’s focus on military modernization and indigenous manufacturing remains stronger than ever. For investors, this presents a lucrative opportunity. The recently Introduced Defence Index is already down by more than 25% from it’s peak, while many fundamentally sound stocks are down by > 50 – 60% from their peak.
The correction offers good opportunity to take long term bet in few of the selected Defence Stocks. Our personal view is that HAL and BEL are prime contenders to keep eye on in 2025.
Instead of waiting for geopolitical escalations to unfold, long-term investors should closely monitor India’s leading defence stocks and capitalize on attractive valuations when opportunities arise.
As India strengthens its strategic position on the global stage, its defence sector is set to experience unprecedented growth, making defence stocks a compelling investment avenue in 2025.
Disclaimer: This article is for information purpose only. It is NOT a stock recommendation and should not be treated as such. Read full disclosures here.
