For India, this shift is in line with a policy framework that prioritizes self-reliance in defense production. Along with initiatives to strengthen domestic production capacity, the government’s continued emphasis is expanding the sector’s significant market share. Increased participation from private industry, startups and MSMEs also deepens the domestic defense ecosystem while encouraging innovation and cost efficiency in projects.
A key driver of the sector’s growth is the ongoing procurement pipeline and approvals for capital acquisitions in the armed forces. Recent approvals of major defense acquisition proposals indicate the government’s ongoing commitment to modernizing military capabilities and improving operational readiness. Such approvals not only support order flow but also provide increased revenue for the sector in the medium term.
Export opportunities are emerging as another important catalyst. With many countries increasing defense spending and seeking diversified sources of supply, Indian manufacturers are gradually expanding their presence in global markets. The Middle East already accounts for a significant share of global arms imports, and continued demand for equipment such as missiles, air defense systems, surveillance technology and electronic warfare solutions could open new avenues for Indian defense exporters.
At the same time, the sector faces unique operational challenges. Supply chain constraints—especially for specific components and imported subsystems—can sometimes affect production schedules or execution schedules for complex defense platforms. Addressing these barriers through greater localization and technology development is a key priority for policymakers and industry stakeholders.
Despite these near-term setbacks, the broader outlook for the defense industry remains positive. Increased budget allocations, emergency procurement programs and technology-focused development roadmaps are likely to maintain order and improve long-term revenue prospects for sector stakeholders.
Combined, rising defense spending, a robust procurement pipeline and growing export opportunities indicate that India’s defense sector is moving into a structurally robust growth phase. As indigenization deepens and domestic capabilities expand across platforms—from electronics and missiles to space systems—the sector is well positioned to benefit from domestic modernization and global demand for defense equipment.
Bharat Electronics: Buy | Target Rs.520
Backed by a strong INR730b order book and steady flow, Bharat Electronics is well positioned to benefit from major platform programs in the Army, Navy and Air Force. A remarkably strong market indicates expectations of sustained revenue growth of more than 15% in the coming years.
Strong execution drove higher-than-expected revenues and margins, supported by cost discipline and operating profitability. Effective supply chain management has shielded the company from semiconductor shortages and commodity volatility, while high levels of internalization continue to support better-than-expected profits.
Looking ahead, Bharat Electronics is positioned to capitalize on significant orders, including the QRSAM, Akash-NG, next-generation Corvettes, and base programs. Under the guidance of management, with improved margins and sound execution, revenue and PAT are expected to grow at 18% and 16% CAGR during FY25-28.
Kirloskar Fuel Engines: Buy | Target 1600 Rs
Kirloskar Oil Engines continues to strengthen its market position in the low and high horsepower power generation segments, supported by continuous capacity expansion and a consultant-led sales approach.
The company is witnessing an improving order outlook due to increased opportunities in the nuclear and defense sectors, demand for CPCB 4+ alternatives, and increased exports. B2C business transactions enable rapid focus on high-margin B2B portfolios.
In 3QFY26, revenue rose 35% YoY to INR13.8b, driven by strong performance in the power generation and industrial segments. EBITDA margin was 12.2%, impacted by other higher costs respectively, while adjusted profit after tax was INR1,022m.
Over 9MFY26, revenue, EBITDA, and profit after tax recorded steady growth, reflecting healthy demand momentum and improving operational performance.
(Author Siddhartha Khemka, Head of Research – Wealth Management, Motilal Oswal Financial Services)
