India’s $75 Billion Defense Transformation
India’s military modernization push is entering a crucial phase as Prime Minister Modi’s government allocates a record ₹6.81 lakh crore ($75 billion) to defense in its 2025-26 budget, representing a 9.53% year-over-year increase. Defense stocks have outperformed the Sensex by 26.7% over the past 12 months, with the BSE Defense Index up 35.7% compared to the benchmark’s 9% gain.
For instance, Defence Secretary Rajesh Kumar Singh has described India’s defence industry as being at an “inflection point,” emphasizing the country’s intensified focus on indigenisation to bolster defence capabilities and address supply chain vulnerabilities . He also highlighted that 75% of India’s current defence capital expenditure is now directed towards domestic procurement, marking a significant increase from 60% just three years ago .
India’s Ministry of Defence has set ambitious goals under the Defence Production and Export Promotion Policy (DPEPP) 2020. The policy aims to achieve a turnover of ₹1.75 lakh crore (approximately $25 billion) in defense manufacturing by 2025, which includes an export target of ₹35,000 crore (about $5 billion) in aerospace and defense goods and services . These targets have been reiterated by Defense Minister Rajnath Singh, emphasizing the government’s commitment to boosting domestic defense production and exports . The sector valuations have surged, reflecting investor optimism despite some analysts warning of overheating.
Here’s our countdown of seven defense stocks strategically positioned to benefit from India’s military modernization:
Cochin Shipyard Limited (CSL)
BSE: 532987 | NSE: COCHINSHIP
Market Cap: ₹39,594 crore
YTD Performance: -2.0%
P/E Ratio: 48.1
Strategic Position: Cochin Shipyard Limited (CSL), originally focused on commercial shipbuilding, has indeed evolved into a significant defense contractor. This transformation is highlighted by its delivery of India’s first indigenous aircraft carrier, INS Vikrant, to the Indian Navy on July 28, 2022 . This milestone underscores CSL’s pivotal role in India’s maritime modernization efforts. As of late 2023, CSL’s order book stood at over ₹22,000 crore, with approximately ₹16,600 crore attributed to defense contracts . This indicates that about 75% of its order book is defense-related, up from 42% in 2022. CSL is preparing to undertake the construction of India’s second indigenous aircraft carrier, known as IAC-2. The Indian Navy has proposed this project, estimated at around ₹40,000 crore (approximately $4.8 billion), to the Ministry of Defence .
Technical Indicators: As of May 6th, 2025, CSL is up 30% from its 52-week low and is trading above both its 50-day moving average of ₹1,436 and its 200-day average of ₹1,477.
Bharat Dynamics Limited (BDL)
BSE: 541143 | NSE: BDL
Market Cap: ₹56,293 crore
YTD Performance: +38.0%
P/E Ratio: 99.5
Over the past 12 months, BDL’s stock has increased by approximately 64%, reflecting strong investor confidence amid rising geopolitical tensions and increased defense spending. As of April 1, 2025, BDL’s order book stands at ₹22,700 crore (approximately $2.73 billion), which is over 6.8 times its annual revenue of ₹3,300 crore for FY2024-25. BDL is a key supplier of Akash surface-to-air missiles and anti-tank guided missiles, contributing significantly to its order book.
“Commodore A. Madhavarao (Retd), Chairman and Managing Director of BDL, emphasized that BDL is committed to developing next-generation weapon systems, including hypersonic missiles and loitering munitions, to meet the evolving requirements of modern warfare.”
Technical Indicators: As of May 6th, 2025, CSL is up 72% from its 52-week low and is trading above both its 50-day moving average of ₹1,308 and its 200-day average of ₹1,196.
Paras Defence and Space Technologies Ltd
BSE: 543367 | NSE: PARAS
Market Cap: ₹5,503 crore
YTD Performance: +36.01%
P/E Ratio: 89.6
This small-cap defense technology specialist has been the sector’s top performer in 2025, as its high-tech optronic and electromagnetic systems gain traction with military buyers. In Q4 FY25, the company reported a 97% year-over-year increase in net profit, reaching ₹19.7 crore. Revenue also rose by 36% to ₹108.2 crore during the same period.The company recently announced a ₹860 crore ($103 million) contract for space-qualified infrared imaging systems, its largest order to date
Paras has been a market darling, but the valuation looks stretched even with its impressive growth. For instance, Jyoti Gupta, a research analyst at Nirmal Bang Institutional Equities, noted that Paras Defence’s stock valuation has outpaced its fundamentals, suggesting that the company needs to demonstrate consistent execution to justify its premium multiple.
Technical Indicators: As of May 6th, 2025, PARAS is up 100% from its 52-week low and is trading above both its 50-day moving average of ₹1,048 and its 200-day average of ₹1,016.
Sector Catalysts for 2025-26:
- Potential orders for 114 Multi-Role Fighter Aircraft worth $18 billion
- Advanced Medium Combat Aircraft (AMCA) moving to production phase
- Submarine program (Project 75I) contract award ($5.5 billion)
- Further military modernization after potential border normalization with China
Risk Factors Despite strong fundamentals, investors should be aware of key risks:
- Budget constraints: Despite increased allocations, India’s defense capital expenditure remains constrained at 1.9% of GDP, below the 3% military planners have requested.
- Geopolitical risk: Any sudden de-escalation in border tensions could reduce urgency for military modernization.
- Execution challenges: Previous defense programs have faced significant delays, with the Tejas fighter development spanning over three decades before operational deployment.
Bottom Line
India’s defense transformation represents one of the most compelling sectoral growth stories in emerging markets. The seven stocks highlighted in our countdown offer varying risk-reward profiles across the market capitalization spectrum, from established giants like HAL and BEL to emerging technology leaders like IdeaForge and Paras Defence.
With the government declaring 2025 as the “Year of Reforms” for defense and implementing policies to accelerate procurement, investors have multiple avenues to participate in India’s military modernization. The sector’s outperformance over the broader market is likely to continue, albeit with higher volatility, as valuations have already priced in significant growth expectations.
For long-term investors, the structural shift toward indigenous defense production and rising geopolitical tensions provide a supportive backdrop, but selectivity and valuation discipline will be increasingly important as the sector matures.
Disclaimer: I am not a SEBI-registered investment advisor. The information provided in this blog is for educational and informational purposes only and should not be considered as financial advice. Please consult a qualified professional before making any investment decisions.