Capital expenditure to surge as New Delhi bets on domestic manufacturers to build military might amid rising geopolitical tensions
New Delhi is writing the biggest check in Indian defense history—and this time, the money is staying home.
The Union Budget for FY2026-27 has earmarked Rs 7.84 lakh crore for defense, a 15% year-on-year increase.
But dig deeper into the numbers, capital spending—the actual money that flows into building fighters, submarines, and missile systems—has jumped to Rs 2.19 lakh crore.
“The defence budget for FY26–27 is pegged at Rs 7.84 trn, accounting for 15% of the Union Budget, marking a 15% YoY increase over FY26BE. This allocation stands at 2% of the estimated GDP for FY27E,” states Antique Broking in their sector.
More critically, “allocation for capital spending has been raised by 21.8% over FY26BE to Rs 2.19 trn,” the brokerage notes, adding that “the share of capital spending in overall defence expenditure has increased to 28%, signaling an improvement in the quality of expenditure.”
The Atmanirbhar Arsenal
The real good news? Much of this is going to domestic manufacturers. The Ministry of Defence has reserved 75% of the capital acquisition budget for domestic procurement, a clear signal that India’s defense industrial base is no longer just aspirational.
The proof is in the approvals. Antique Broking reports that “for YTDFY26, DAC has accorded Acceptance of Necessity (AoN) for proposals worth approximately INR 3.3 trn under various categories of capital procurement, which promotes domestic manufacturing as per DAP-2020. Thus, approvals have surpassed the FY25 levels of Rs 2.2 trn.”
The approved shopping list includes Landing Platform Docks, Mine Counter Measure Vessels, Loitering Munition Systems for Artillery Regiment, Guided Pinaka Multiple Launch Rocket System, drone detection systems under MK-II for the Indian Army, and Astra MK-II Missiles.
The Order Pipeline
According to Antique Broking’s industry interactions, the bottleneck isn’t money anymore. “Our interactions with industry indicate that the budget will not be a constraint for acquisition of weapon systems and double-digit growth in defence capex can be expected in coming years,” the brokerage states confidently.
“With rising geopolitical tensions, countries—including India—are strengthening their defence preparedness. This provides a tremendous opportunity for domestic Indian defence manufacturers,” Antique Broking observes.
“With project approvals worth Rs 3.3 trn in YTDFY26, we believe defence PSUs have strong growth opportunities in the foreseeable timeframe.”
Antique maintains buy ratings for most stocks across its defense coverage.
The firm also notes that “MoD is working on reducing the procedural timelines in awarding orders. Thus we see major orders getting placed in FY27–28.”
The firm has identified specific order pipelines for India’s defense companies:
Hindustan Aeronautics Limited (HAL) is positioned to capture orders for “Tejas LCA Mk-1A (97 nos), Tejas MKII, AMCA,” according to Antique’s analysis.
Mazagon Dock Shipbuilders faces a potentially transformative order book. Antique Broking identifies “six submarines under P75I (Est Rs 700 bn), three additional submarines under P75 (est. Rs 360 bn), and Frigates under P-17B” as key opportunities.
Bharat Electronics Limited is in line for “QRSAM (Quick Reaction Surface-to-Air Missile), Next-Generation Corvette (Rs 45 bn), LCA (97 aircraft) Avionics Packages (Rs 25 bn),” the report notes.
PTC Industries has made strategic moves that Antique highlights: “The company has commissioned VAR and VIM mill in September 2025 for making large titanium castings. The Electron Beam Cold Hearth Refining furnace mill is under construction for re-melting and recycling titanium scrap and producing aviation-grade titanium alloy ingots indigenously.”
Solar Industries is positioned for “Pinaka (guided) MBRL system. Anti-Drone Systems and Ammunition shells,” according to the brokerage.
Execution is Key
For investors, India’s defense allocation now stands at 2% of GDP—a threshold defense strategists consider minimum for a nation with India’s security challenges. Combined with the government’s push for domestic manufacturing and a record Rs 3.3 lakh crore in year-to-date approvals, the sector appears to be entering a golden era.
As Antique Broking succinctly puts it, “Given the current geopolitical scenario, a quantum jump in the modernization budget is a must.”
