For India, this shift coincides with a policy framework that prioritizes self-reliance in defence production. The government’s continued emphasis on indigenisation, alongside initiatives aimed at strengthening domestic manufacturing capabilities, is expanding the sector’s addressable market. Increasing participation from private industry, start-ups and MSMEs is also improving the depth of the domestic defence ecosystem while encouraging innovation and cost efficiency across projects.
A key driver of sector growth is the steady pipeline of procurement programs and capital acquisition approvals across the armed forces. Recent approvals of large defence acquisition proposals underscore the government’s ongoing commitment to modernizing military capabilities and enhancing operational readiness. Such approvals not only support order inflows but also provide greater revenue visibility for the sector over the medium term.
Export opportunities are emerging as another significant catalyst. With several countries increasing defence spending and seeking diversified supply sources, 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-defence systems, surveillance technologies and electronic warfare solutions could open new avenues for Indian defence exporters.
At the same time, the sector continues to face certain operational challenges. Supply-chain constraints—particularly for specialized components and imported subsystems—could occasionally affect production schedules or execution timelines for complex defence platforms. Addressing these bottlenecks through greater localization and technology development remains a key priority for policymakers and industry participants alike.
Despite these near-term constraints, the broader outlook for the defence industry remains positive. Increasing budget allocations, emergency procurement programs and technology-focused development roadmaps are likely to sustain order inflows and improve long-term revenue visibility for sector participants.Taken together, rising defence spending, a robust procurement pipeline and growing export opportunities suggest that India’s defence sector is transitioning into a structurally stronger growth phase. As indigenisation deepens and domestic capabilities expand across platforms—from electronics and missiles to aerospace systems—the sector appears well positioned to benefit from both domestic modernisation and global demand for defence equipment.
Bharat Electronics: Buy| Target Rs 520
Supported by a robust INR730b order book and sustained inflows, Bharat Electronics remains well placed to benefit from large platform programs across the Army, Navy, and Air Force. A strong addressable market underpins expectations of sustained revenue growth exceeding 15% over the coming years.Strong execution drove revenues and margins above expectations, aided by disciplined cost control and operating leverage. Effective supply-chain management has insulated the company from semiconductor shortages and commodity volatility, while higher indigenisation levels continue to support better-than-expected profitability.
Looking ahead, Bharat Electronics is positioned to capitalise on sizable orders, including QRSAM, Akash-NG, next-generation corvettes, and base programs. Improved margins and healthy execution underpin management’s guidance, with revenue and PAT expected to grow at 18% and 16% CAGR over FY25–28.
Kirloskar Oil Engines: Buy| Target Rs 1600
Kirloskar Oil Engines continues to strengthen its market position across both low and high-horsepower power generation segments, supported by ongoing capability expansion and a consultant-led sales approach.
The company is witnessing improving order visibility driven by increasing opportunities in the nuclear and defence sectors, CPCB 4+ replacement demand, and growing export traction. The transfer of the B2C business enables a sharper focus on the higher-margin B2B portfolio.
In 3QFY26, revenue grew 35% YoY to INR13.8b, led by strong performance in the power generation and industrial segments. EBITDA margin stood at 12.2%, impacted sequentially by higher other expenses, 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 operating performance.
(The author Siddhartha Khemka, Head of Research – Wealth Management, Motilal Oswal Financial Services)
