Stock market participants are expecting a double-digit hike in defense spending in Union Budget 2025, with a focus on research and development, drones and anti-drone systems. All eyes will also be on Defense Industrial Corridors and Production Linked Incentives (PLIs) to expand the sector. The recent slide in several defensive stocks was largely due to growth concerns and higher spending for FY26 will be important to instill confidence among stock market investors.
So far in January, Data Patterns (India) Ltd has fallen 13 percent, BEML 11 percent, Bharat Electronics Ltd (BEL) 7 percent and Hindustan Aeronautics Ltd (HAL) 6 percent. Bharat Dynamics Limited is up 13.50% over the same period. Garden Reach Shipbuilders & Engineers Ltd (down 7 per cent), Cochin Shipyards Ltd (5.48 per cent) and Mazagon Dock Shipbuilders Ltd (up 5 per cent) performed mixed.
“The recent correction in the stock price in the defense pack is an opportunity, given the growth story of GoI’s already known ambitious targets of Rs 50,000 crore in defense exports and Rs 3 lakh crore in defense production by 2030. We particularly prefer the sub-segment Defense Electronics,” said Navama Institutional Equities.
Against market expectations, Nuvama expects defense capex to grow by 7–8% in the single digits, with higher allocations for R&D, UAV/drones, anti-drone systems, etc. as some of the key ones in the pipeline. Major programs (QRSAM, P-75I, LCA Mark1A, Pinaka, etc.) are likely to be directed towards Air Force and Navy.
MOFSL said that the defense budget has seen year-on-year growth over the years, with capital allocations typically accounting for one-third of the total defense budget. However, in the last few years, post-Covid, the budgetary allocation for defense as a percentage of GDP has declined and has been hovering around 1.5-1.6 percent.
“To achieve the target defense business of $25 billion, defense expenditure must be increased to 1.8-2 per cent of GDP. In the Union Budget, we will keep a close eye on the allocation for the defense sector and Will try to finalize larger platform orders from MoD more quickly,” he said.
Bajaj Broking expects measures to boost defense exports and accelerate domestic defense procurement, besides capital allocation.
Budget 2025 will be instrumental in accelerating India’s journey towards self-reliance in the defense and aerospace sectors, both of which are on the brink of significant growth, said Amy Belwarkar, fund manager for defense and aerospace venture fund, IDBI Capital Markets and Securities. are on
“Special focus on emerging sectors such as unmanned aerial systems (UAS), advanced materials, cyber defense, and space technology can open up substantial opportunities for private investment.
Belwarkar sees initiatives targeting the modernization of India’s armed forces, with an expected focus on defense industrial corridors and production-linked incentives (PLIs), set to provide significant momentum for the sector’s expansion. .
“Defence is a cornerstone of India’s strategic goals. With recent improvements in alignment, we expect the Budget to further expand growth in the sector, particularly in domestic manufacturing under the Atmanirbhar Bharat initiative. HAL and Bharat Electronics is looking good, given their strong “order books and alignment with the government’s indigenization drive,” said Prateek Bansal, Partner – Taxation, White & Brief – Advocates and Lawyers.
Defense budget
D Naveen Kumar, Associate Director at CareAge Ratings noted that India’s defense budget has consistently outstripped its gross domestic product (GDP). (P) has been between 1.90% to 2.80%. For the financial year 2024-25, a substantial allocation of Rs 6.22 lakh crore was earmarked for the defense sector, of which 28 per cent (Rs 1.72 lakh crore) was capital. For expenses, 50 percent is for salaries and pensions and the balance for maintenance. and other expenses.
“Given that the government has set a defense production target of Rs 3 lakh crore till FY29, Care Ratings estimates the defense production target for FY25-26 to be Rs 1.90 lakh crore to Rs 2.00 lakh crore. The total budget allocated for defense will be in the range of Rs 6.50 lakh crore to Rs 6.70 lakh crore,” Kumar said.
What Defense Industry Participants Say
Manjal Sharad Shah, Managing Director, Paras Defense and Space Technologies Limited, laments with India that now the manned space missions, satellite constellations and beyond, Budget 2025 needs to be the first to embark on transformative reforms. .
“India also needs to create clusters that can become pillars of sectoral growth. States like Maharashtra, Gujarat, Uttar Pradesh are now emerging as major contributors in the defense and space sector, joining the southern states. Key focus There should be a focus on advanced technologies like Optronics, Semiconductors, Quantum etc. It will be important,” said Sharad.
Mandeep Singh, President, Strategic Alliances, Drone Acharya Aerial Innovations, said the induction of commercial drones to perform a variety of defense tasks has highlighted the critical need for dual-use technologies, particularly in the drone sector.
“To truly harness the potential of drones, the upcoming budget should emphasize the ‘Make in India’ initiative, encouraging local production of advanced drone technologies. Additionally, drone corridors and Establishing drone parks and increasing ease of doing business for drone startups can be a catalyst. With the right financing initiatives, we can envision India becoming a global hub for drone technology, fostering innovation that citizens and defensive fulfills both needs,” said Singh.
Jakarn Chandok, Director, Baloforge Industries, said: “Defence will be one of the key areas of focus in the upcoming Union Budget 2025, as the government steps up its efforts to achieve self-reliance in the design, development and manufacture of defense equipment. The budget should propose increased investment for the defense sector to strengthen capabilities and capacity, drive progress towards self-reliance and 50,000 by 2029. Achieving defense export target of Rs.
