Indigenous Systems to Drive Massive Leap as India’s Defence Exports Target Rs 50,000 Crore by FY29

Indigenous Systems to Drive Massive Leap as India’s Defence Exports Target Rs 50,000 Crore by FY29​

Kotak Institutional Equities has set a robust outlook for the Indian defence sector, projecting that indigenous military platforms and growing global demand could propel exports to nearly 50-fold in the coming years. The brokerage report forecasts that India’s defence exports are set to reach Rs 500 billion (Rs 50,000 crore) by FY2029. This target is a significant jump from an estimated Rs 38,400 crore (Rs 384 billion) for FY2026.

The report credits this exponential growth to the rising global acceptance of Indian-made weapons systems. Key platforms driving this success include the Akash surface-to-air missile system, Pinaka multi-barrel rocket launcher, BrahMos cruise missile and Nagastra loitering munition. While the United States has historically been a primary buyer, accounting for around 50 percent of shipments during FY2019-24, European and Armenian markets are also rapidly emerging as vital export destinations.

Defence Capital Expenditure Reaching Trillions by FY2030​

Kotak projects that the defence sector is firmly on a structural multi-year growth path. The brokerage expects defence capital expenditure (CapEx) to grow steadily at an 11 percent compound annual growth rate between FY2026 and FY2030. This sustained growth could take domestic spending up to Rs 2,80,000 crore (Rs 2.8 trillion) by the end of FY2030.

This expansion is being supported by robust military modernization efforts across the nation. Rising levels of indigenisation and a strong procurement pipeline are set to fuel this growth cycle in India's defence industry. Furthermore, the overall defence budget itself is expected to continue its upward trajectory, having grown at an 8.8 percent CAGR from FY2015-27 to reach Rs 7,80,000 crore (Rs 7.8 trillion).

Surge in Domestic Procurement and Order Pipeline​

The domestic procurement side of the defence sector is showing immense strength. Acceptance of Necessity (AoN) approvals have surged nearly 10-fold between FY2021 and FY2026, reaching Rs 9.3 trillion. This massive approval pipeline translates to an estimated order book valued at Rs 6,50,000 crore to Rs 7,00,000 crore (Rs 6.5–7 trillion) for the period FY2027-29, excluding large one-off acquisitions.

Domestic purchases now constitute over 70 percent of total defence expenditures. This represents a rise from the 54 percent seen in FY2019. The increased domestic focus is being driven by changes such as import embargoes and the implementation of the Defence Acquisition Procedure (DAP) 2020, coupled with heightened indigenous content requirements.

Drones Poised to Become Next Major Growth Driver​

The future growth narrative includes a significant role for military drones. Kotak estimates that the global military drone market will expand from approximately $30 billion in 2024 to $75 billion by 2029, representing a steady 20% CAGR.

Domestically, India is set to make substantial inroads into this segment. The report forecasts that India alone will spend between $25 and $30 billion on military drones over the next decade. An additional allocation of $4–$5 billion is expected for counter-drone systems within the same timeframe. Companies like Solar Industries, Bharat Electronics, Zen Technologies, Paras Defence, ideaForge, and Adani Defence are poised to benefit from this emerging market boom.

Stock Recommendations and Investor Caveats​

While the structural outlook for the sector remains highly positive, Kotak cautioned that current stock valuations present limited opportunities for significant upside surprise. Indian listed defence companies currently trade around 50 times one-year forward earnings, compared to roughly 28 times globally. This disparity reflects the expectations of a 26% revenue CAGR against an international average of 11%.

In terms of specific company coverage, Kotak initiated Hindustan Aeronautics with an "Add" rating and a fair value of Rs 4,810, citing its impressive order book of Rs 2.54 trillion and the total opportunity pipeline of Rs 4.63 trillion. Meanwhile, Mazagon Dock Shipbuilders received a "Sell" rating with a fair value of Rs 1,950, and Solar Industries also received a "Sell" rating at a fair value of Rs 10,300, as current valuations are deemed reflective of growth prospects. Bharat Electronics was rated "Reduce," while Cochin Shipyard retained a "Sell" rating.

Kotak concludes that the key beneficiaries in the medium term will be companies possessing large order books and proven execution capabilities, alongside those offering diversified product portfolios to support India’s expanding domestic procurement program and robust global exports.