India’s defence sector is undergoing a structural transformation. Backed by the government’s push for self-reliance, long-term order visibility, and rising export interest, the sector is evolving from a slow-moving PSU-driven space to a competitive, innovation-focused industry. This evolution has turned several defence stocks into serious long-term wealth creators.
In this blog, we break down the most critical facts about the sector’s growth trajectory, identify key companies shaping this transformation, and provide a complete framework for evaluating listed defence stocks in India.
Overview of India’s Defence Sector
India has the third-largest military in the world and one of the most complex defence procurement ecosystems globally. Historically reliant on imports, India has reversed its dependence with a major thrust on indigenisation:
- Defence Budget FY26: ₹6.81 lakh crore, a 9.5% increase from FY25
- Capital Outlay: ₹1.8 lakh crore allocated for equipment modernisationDomestic procurement target: 75% of capital acquisition to come from Indian sources
- Export Growth: From ₹6.8 billion in FY14 to ₹236.22 billion in FY25 (30x increase)
India's defence production is anchored by a mix of public sector undertakings (HAL, BEL, BDL, Mazagon Dock) and high-potential private and midcap players (Paras Defence, Apollo Micro, Data Patterns). The government’s “Positive Indigenisation Lists” now cover over 3,000 line items across sensors, radars, missiles, electronics, and sub-systems, drastically increasing addressable opportunities for domestic companies.
Top Defence Stocks in India (2025 and Beyond)
1. Mazagon Dock Shipbuilders Ltd
Mazagon is India’s largest defence shipyard. It is responsible for manufacturing destroyers, stealth frigates, and submarines like the Scorpene-class Kalvari. As of FY25, it has an order book worth ₹40,000+ crore and a capex plan of ₹3,000 crore to expand production capacity.
The company is also profitable, debt-free, and generates strong free cash flow. It’s expected to benefit directly from the Navy’s indigenisation plans.
2. Bharat Electronics Ltd (BEL)
BEL is a strategic supplier of radar, electronic warfare systems, and C4I (command, control, communication, computers & intelligence) systems. With over ₹76,000 crore in order book and ~₹20,000 crore in FY24 revenue, BEL is one of India’s largest defence electronics firms.
The company’s focus is now expanding to exports and non-defence verticals like smart cities, e-mobility, and cybersecurity. It maintains a strong balance sheet with high ROCE and consistent dividends.
3. Hindustan Aeronautics Ltd (HAL)
HAL dominates India’s military aviation ecosystem. It is involved in manufacturing fighter aircraft (Tejas, Su-30 MKI), helicopters (Dhruv, LCH), and avionics systems. Its order book stands at over ₹1.7 lakh crore.
HAL expects another ₹1.6–1.7 lakh crore worth of new orders over the next 2–3 years, including repeat Tejas orders, new utility helicopters, and export contracts. It invests ₹3,000 crore annually in capex to expand manufacturing lines and support R&D.
4. Paras Defence and Space Technologies
Paras operates in niche verticals like electro-optics, defence electronics, and simulation systems. It also serves ISRO and private space companies. The firm has developed in-house capabilities for optics, drones, and upcoming directed energy technologies.
Its order book is growing across both defence and space domains, and it’s building export presence in Southeast Asia and Africa.
Data Patterns designs and manufactures electronics for missile systems, radar subsystems, and onboard avionics. It has delivered strong revenue growth (33% CAGR over five years) and maintains high operating margins (~30%).
Its asset-light model, consistent R&D investments (~10% of revenues), and ability to execute small-volume high-complexity orders make it a standout player.
Apollo provides mission-critical electronics, sub-systems, and embedded solutions. It caters to defence, aerospace, and homeland security projects. The company has received Make-II project approvals and is entering the underwater weapons domain via strategic tie-ups.
Challenges include working capital stress and promoter pledging, but the firm’s technology stack and order diversification are strong positives.
What makes defence stocks unique?
Defence companies usually have strong order book visibility, often holding confirmed orders worth three to five times their annual revenue. These contracts run across multiple years typically between three to ten, which makes revenue streams more stable and predictable. Unlike sectors that depend on frequent reorders, defence firms work on long-term government projects, reducing earnings volatility.
The entry barriers in this sector are also high. Firms need specialised licences, strict government approvals, and deep technical expertise. This limits competition and protects margins. Since defence is linked to national security, it remains a policy priority regardless of which government is in power. Plus, exports are rising steadily, with Indian companies now supplying to over 80 countries. This gives them additional growth avenues beyond domestic demand.
Things to check before investing:
- A good order book to revenue ratio is 3x or more. It shows future growth visibility.
- Check if the company’s capex matches its ability to deliver. High spend without orders can be risky.
- Look at ROE, ROCE, and EBITDA margins to see how profitable the business is.
- Strong order books are not enough. Make sure the cash flow from operations is positive.
- Delayed MoD payments can lead to high receivables. This affects working capital.
- Watch for promoter pledging or frequent share dilution.
- Companies with export orders are less dependent on local policy delays.
Sectoral Risks: India’s defence sector is heavily linked to government policy. A change in procurement rules or budget cuts can delay contracts. Some stocks are trading at 70–100x earnings, which makes them vulnerable if growth slows.
Execution delays are common, especially in Make-II and iDEX projects. Global events can affect exports and delivery schedules. PSU clients and the Ministry of Defence often take time to clear payments, putting pressure on cash flows. This is a key risk for smaller firms.
Outlook for India’s Defence Sector: The defence sector is likely to remain a long-term structural growth story. With a ₹3 trillion defence production target by 2029, deep indigenisation mandates, and growing export acceptance, Indian defence firms are now global suppliers—not just subcontractors.
The role of private players is expanding, R&D investments are rising, and the sector is diversifying into aerospace, cybersecurity, and space tech. As India transitions from a defence importer to a global defence exporter, the listed universe of companies is expected to grow in both size and scope.
Conclusion: Defence stocks are not quick trades. They are long-cycle investments backed by government spending, global demand, and increasing domestic capabilities. Stocks like Mazagon Dock, BEL, HAL, Paras Defence, Data Patterns, and Apollo Micro Systems offer exposure across the value chain—from heavy platforms to specialised electronics.
Investors looking at this sector should focus on fundamentals, capital allocation discipline, and the ability to convert large order books into sustainable profits.
As always, conduct independent research before making any investment decisions.
This blog is for informational purposes only and should not be considered investment advice.
Happy investing.
