Investors are bullish on New Delhi’s defense ambitions as it aims to double its military production to 3 trillion rupees (about $33 billion) by 2029, despite the recent crash of an Indian-made Tejas fighter jet at an air show in Dubai. It also aims to increase defense exports to Rs 5,000 billion by the same year, among other goals. Macquarie Research said in a November 20 report that “India’s defense budget continues to increase, given the geopolitical relationships India shares with its neighbors and its intentions to modernize its military.” India is the world’s fifth largest military spender, according to data from the Stockholm International Peace Research Institute. An April report showed the country spent $86.1 billion on defense in 2024. Top Picks India’s private companies accounted for 64% of defense exports in FY25. India supplies equipment to over 80 countries including the US, France and Armenia. Macquarie Research has named Indian engineering giant Larsen & Toubro (L&T) and state-owned company Bharat Electronics as the top candidates. The firm is overweight on L&T and has set a price target of Rs 4,350, about 8.3% above Monday’s closing price. Although L&T derives only 3% of its total revenue from defense, it is “one of the most trusted private sector companies in executing defense projects in India”. The company develops and manufactures defense products, systems and platforms in partnership with the Research and Development Department of the Indian Ministry of Defense and the Armed Forces. In October, the company signed an agreement with U.S.-based General Atomics Aeronautical Systems to build medium-altitude, long-lasting unmanned aerial vehicles for the Indian military. Macquarie is also overweight on state-run Bharat Electronics Ltd., India’s largest defense electronics maker. The company’s price target is 480 rupees, 16.8% higher than Monday’s closing price. Macquarie analysts said, “India is a major Indian defense player in the new-age electronic warfare and missile ecosystem with a strong and diversified order backlog (USD 8.5 billion) across platforms, including export book.” The report also noted that Bharat Electronics has offices in New York, Muscat, Colombo and several Southeast Asian markets to support export growth. Mr Macquarie said defense spending was changing globally “from a short-term surge due to war in 2022-2025 to a prolonged rearmament phase until 2030, given persistent multipolar tensions with countries around the world”. Despite the cutting-edge technology of the Western defense ecosystem, it faces supply constraints in shipbuilding, munitions and electronics, making Asia’s manufacturing depth and cost-effective scalability “essential.” Growing Threat, Growing Spending In April, a terrorist attack by Islamic extremists killed 26 civilians in Indian-controlled Kashmir. New Delhi retaliated with airstrikes inside Pakistan, sparking a four-day conflict and raising fears of a broader escalation rooted in decades of hostility between the two countries. After the ceasefire on May 10, Prime Minister Narendra Modi said India would strongly counter any future attacks and said the operation against Pakistan was proof of the reliability of indigenous weapons. “If there is a terrorist attack on India, there will be an appropriate response,” he said, adding that India “will not distinguish between governments sponsoring terrorism and masterminds of terrorism.” “During this operation, the reliability of Indian-made weapons was also proved,” the Prime Minister said, adding, “The time has come for Indian-made defense equipment.” New Delhi has set its defense budget for fiscal year 2026 at about 6.8 trillion rupees to strengthen its military while reducing dependence on foreign suppliers. According to an announcement by the Indian government, India will produce 1.54 trillion rupees worth of defense supplies in fiscal 2025, bringing domestic production to a record high of 1.27 trillion rupees. Of this, state-owned enterprises accounted for 77% of total production, with the private sector contributing 23%, up from 21% in the previous year.
