India's Defence Sector Presents Long Runway Of Growth: JP Morgan

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New Delhi: India's defence sector is poised for substantial and sustained growth, driven by increasing capital expenditure, according to global investment banking firm JP Morgan.Key factors underpinning this growth include rapidly expanding defence exports, a significant emphasis on domestic manufacturing, high returns on capital employed (RoCE), and robust cash flows.

Over the past decade, the government has successfully implemented a paradigm shift in policy, procedures, and mindset to accelerate the growth of domestic defence manufacturing.JP Morgan highlighted that the sector remains in the early stages of a prolonged growth trajectory."Stock prices have surged, but we believe the recent market correction offers an attractive entry point into leading incumbents," the report stated.

"Geopolitical factors and historically low defence spending have spurred increasing capital expenditure in the sector. In the past, defence capex grew at a slower pace due to competing fiscal priorities, with imports being the default choice for defence equipment."

India's capital expenditure on defence is projected to rise from USD 85 billion over the past five years to USD 150 billion in the next five years. This is expected to drive sectoral revenue growth at a compound annual growth rate (CAGR) of 12-15 per cent over the coming years, JP Morgan noted.

The government has introduced multiple policy measures and reforms to foster indigenous design, development, and production of defence equipment, thereby advancing self-reliance in defence manufacturing.Significant investments are being made in defence and aerospace manufacturing, with the establishment of several defence hubs. 

Moreover, many global companies have already shared, or shown willingness to share, critical defence and aerospace expertise with India.

India's defence exports reached a record Rs 21,083 crore (approximately USD 2.63 billion) in the financial year 2023-24, marking a 32.5 per cent increase from Rs 15,920 crore in the previous fiscal year.

Notably, defence exports have grown 31-fold over the past decade compared to 2013-14. The total value of defence production in India also increased by 17 per cent to Rs 126,887 crore in the last fiscal year.