Defence Sector Eyes Budget 2025 for Higher Allocation and Growth Boost

1 Feb 2025 , 10:14 AM

Defensively, defence stocks rallied on Friday, 31 January. While frontline stocks had risen as high as 9%, it is said that with favourable policy measures and a much higher budget allotment expected from Union Budget 2025, investors seem hopeful.

Top gainer from the sector is, Hindustan Aeronautics, Bharat Dynamics, and Bharat Electronics showed strong buying interest. While, Paras Defence, Mazagon Dock, Cochin Shipyard, Data Patterns and Garden Reach Shipbuilders reported rise between 3% to 7%. The defence industry expects much from Budget 2025, hoping to see a healthy capital outlay, higher investments in R&D, and incentives for technological development.

According to experts, the budget can significantly change India’s defence landscape in the following ways:

• The focus on modernisation and self-reliance in defence manufacturing.
• Defence exports would increase and help establish India as a key player in the global arms market.
• More funding for indigenous tech development and startups in the defence sector.

As can be seen, defence, railways, and road transport absorbed nearly 75% of the capital expenditure FY24. This shows that the government is focusing on infrastructure and security.

India has a defence budget that, for over a decade, has hovered around 2.5% of GDP. Capital expenditure in the budget has steadily increased.
In the July 2024 Union Budget, ₹1.72 lakh crore was set aside for capital acquisitions, out of the total Defence Budget of ₹6.22 lakh crore.

For FY26, the capital budget is to reach ₹1,90,920 crore at an average annual growth of 11% for the last five years. The focus on indigenization has been maintained well, and one expects 75% of the capital budget (approximately ₹1,43,000 crore) to be available for domestic procurement.

Defence startups and tech innovators, such as IdeaForge and Zen Tech, are likely to remain in focus, with possible government incentives encouraging new investments in the sector.

A higher budget allocation for indigenisation and local defence production will benefit companies across the sector, further driving growth and investor confidence. With Budget 2025 to be pro-defense manufacturing, modernization, and innovation, the investors are carefully monitoring the trajectory of growth of the sector for the coming months.