The World Is Rearming. India Is Manufacturing. Just What Are the Defence Stocks to Own.

Global military spend at a record USD 2.9 trillion and growing at 10% CAGR through 2030, India’s defence exports targeting Rs 750 billion by FY30 

“The world is not preparing for the last war — it is investing for the next one.” That is the opening line of Ashika Institutional Equities’ defence sector initiation — and it captures precisely what is different about the current global rearmament cycle. This is not a temporary spending surge triggered by a single conflict. It is a simultaneous, broad-based increase in military budgets across Europe, Asia, North America and the Middle East — a structural shift that Ashika describes as the end of the post-Cold War “peace dividend” and the beginning of a new era of “strategic imperatives.”

The Global Backdrop

“Global military spending reached a record USD2.9 trillion in 2025, marking the 11th consecutive year of growth and representing 2.3% of global GDP,” the report states, citing SIPRI data. Military expenditure grew at approximately 5% CAGR during CY20-25 — more than double the 2% CAGR of the preceding five years — and is expected to accelerate to approximately 10% CAGR between CY25-30.

Europe is spending at an average of 3.2% of GDP on defence, with military budgets rising 14% in CY25 after a 17% surge in CY24. Asia and Oceania recorded 8.1% growth in defence spending in 2025. “This synchronized and broad-based rise in defence budgets across major regions is expected to sustain demand for advanced platforms, precision munitions, electronics, and next-generation defence technologies over the coming decade,” the report states.

Technology is simultaneously reshaping what defence spending buys. The shift is from platform-centric warfare — tanks, ships, aircraft — toward network-centric warfare built on AI, drones, autonomous systems, electronic warfare, cybersecurity, satellites and sensors. Defence electronics and software are expected to command a growing share of procurement budgets globally as technology superiority becomes as important as firepower.

India’s Transformation 

India’s defence story is the domestic expression of this global trend — and it is one of the most consequential industrial policy shifts underway in the country. India is transitioning from being one of the world’s largest defence importers to an emerging global manufacturing hub.

The defence budget is expected to rise from 1.9% of GDP in FY25 to 2.5% by FY30. Private sector participation in total Indian defence production value is expected to grow from 20% in FY25 to approximately 30% in FY30. R&D spending is growing at approximately 10% CAGR during FY25-30, accounting for 16% of total defence production.

The export multiplier is already visible. “India’s defence exports scaled at approximately 40% CAGR over FY14-FY26 to reach Rs 384 billion,” the report notes — with Akash missile exports to Armenia worth Rs 60 billion and BrahMos exports to the Philippines worth Rs 32 billion as landmark examples. While the government’s target is Rs 500 billion by FY29, Ashika projects a steeper trajectory — “defence exports to cross the Rs 750 billion milestone by FY30,” implying an 18% CAGR that exceeds official guidance.

What Will Drive Value Creation

Ashika identifies five defence sub-segments as structurally attractive for the next decade — all characterised by high barriers to entry, significant IP content, long programme lifecycles and strong export potential. Defence electronics. Missiles and precision-guided weapon systems. Unmanned aerial systems, drones and autonomous platforms. Space defence and space-based military infrastructure.

And electronic warfare, cyber-electromagnetic operations and signal intelligence. Together, these categories represent the shift from traditional platforms to the technology-intensive warfare of the future — and Indian companies are building capabilities in each.

Domestic procurement provides production scale. Scale drives manufacturing efficiency and cost reduction. Improved cost competitiveness strengthens export positioning. Export revenue funds R&D and IP creation. And R&D creates more sophisticated products that win more domestic and export orders. “Over the medium to long term, this self-sustaining manufacturing ecosystem has the potential to establish defence manufacturing as India’s next globally competitive industrial sector,” the report states.

The Risks 

Procurement delays — complex administrative approvals can translate into earnings volatility and elongated working capital cycles. Technology obsolescence — accelerating innovation can disadvantage companies bound to legacy hardware and low R&D spend. Execution challenges — scaling from prototype to large-scale supply chain can cause margin contraction. And valuation risk — “market enthusiasm often prices flawless future execution prematurely, making strict valuation discipline critical before committing capital.”

Across nine companies covered, Ashika says four are BUYs — BEL at Rs 506 target, HAL at Rs 6,069, BEML at Rs 2,590 and Solar Industries at Rs 23,543 — and five HOLDs.

Source: Ashika Stock Services