DAM Capital initiates coverage on defence sector
Brokerage firm Dam Capital has initiated coverage on India’s defence sector with a bullish view, saying the sector is set to see multi-decade growth. The sector is becoming self-reliant and export-focused, from being import-dependent, with strong policy support and high budgetary allocation.
“With the government targeting ₹3 trillion in defence production and ₹50,000 crore in defence exports by financial year 2029, the sector offers significant visibility on scale, growth, and export potential, reinforcing the long-term investment case for India’s defence ecosystem,” DAM Capital said in a note. Defence sector: Top picks
DAM Capital has initiated a 'Buy' rating on Astra Microwave Products for a target price of ₹1,300), Bharat Dynamics (target ₹1,540), Bharat Electronics ( target₹530), Hindustan Aeronautics ( target ₹6,300), Mishra Dhatu Nigam (target ₹430), Solar Industries (target ₹17,060), and Zen Technologies (target₹1,990). The brokerage has maintained a 'Neutral' stance on Garden Reach Shipbuilders & Engineers (target ₹2,660) and Mazagon Dock Shipbuilders (target ₹2,770).
Among defence public-sector undertakings (DPSUs), DAM Capital said that HAL and Bharat Electronics are its top picks. From the private sector, the brokerage said that it prefers Astra Microwave Products and Solar Industries.
Here are factors behind DAM Capital’s bullish view on India’s Defence sector
India’s ₹15 trillion defence pipeline
Over the next five years, the defence sector will offer opportunities of ₹15 trillion, tracking a sustained rise in defence capex budget and exports, according to DAM Capital. The escalating geopolitical tension will also act as a key catalyst for the sector’s long-term growth.
The brokerage sees defence public sector companies reaping the most benefit of this rising opportunity. The brokerage expects contracts worth ₹6 trillion (DAC-approved) to be awarded over the next two years.
Growing defence budget
India’s defence budget has grown steadily since the financial year 2020, with the overall budget compounding at 8.5 per cent CAGR, and capital spending at 10 per cent CAGR. In the financial year 2027 budget estimate, the allocation for defence grew by 22 per cent to ₹2.2 trillion. Of the total capex, the Indian Army accounts for 19 per cent, the Indian Navy 31 per cent, and the Indian Air Force 41 per cent. The remaining 8 per cent was earmarked for the Defence Research and Development Organisation (DRDO).
Tranformation to indigenisation
India’s defence sector is transforming from being import-dependent to export-oriented, which indicates a multi-decade opportunity. After the Galwan Valley clash in June 2020, the government has taken several steps to strengthen the domestic manufacturing ecosystem.
The steps include the simplification of defence procurement through Defence Acquisition Procurement (DAP) 2020, with 'Buy' category given the highest priority, liberalisation of FDI norms, introduction of Positive Indigenisation Lists, promotion of local sourcing, and launch of SRIJAN portal in August 2020. These steps have contributed significantly to the growth and expansion of domestic defence manufacturing industry, the brokerage said.
Focus on domestic procurement
During the period between financial year 2020 and 2026, the armed forces were allocated ₹9.4 trillion, of which actual spending till December 2025 amounted to ₹8.2 trillion. Of the total spending, 70 per cent were utilised in sourcing domestically.
The overall procurement from domestic sources rose to 88 per cent in the financial year 2025 from 58 per cent in financial year 2020. The internal procurement expanded at 17 per cent CAGR since 2020, while the foreign sourcing fell to 16 per cent CAGR, showing a decisive structual shift from buyer to builder.
In the budget estimate for the financial year 2027, out of total of ₹19 trillion defence capex, 75 per cent is earmarked for domestic procurement, of which 25 per cent is allocated for capital asset acquisitions from doemstic private industry.
Export growth
India’s defence exports grew to ₹38,420 crores in the financial year 2026 from ₹690 crores in financial year 2014. DPSUs contributed ₹21,070 crore or 55 per cent, while private companies accounted for 17,350 crore or 45 per cent share.
Now, the government is aiming for achieving ₹50,000 crore defence export by the financial year 2029. Key exports include ammunition and artillery shells, BrahMos cruise missile, Akash surface-to-air missile, drones and counter-drone systems, Pinaka rockets, and ATAGs howitzers, and radars and electronica warfare systems. These platforms represent India’s strategic strengths and are likely to form the backbone of the export-led growth, the brokerage said.
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