India's defence sector likely to rise at 14% CAGR amid indigenisation push: Jefferies

The Indian defence sector is all set to witness explosive growth, with the country's defence market likely to grow 14 per cent CAGR from FY24 to FY30, driven by a rising focus on indigenisation and opening up export possibilities for Indian defence companies, a recent sectoral report by Jefferies said.

The report says that geopolitical tensions worldwide, coupled with an increasing focus on self-reliance in the country's defense, has been a reason for sure momentum in growth terms of order flow and revenues for local defence manufacturers. For increasing this tempo, the government has been trying to foster bilateral relations to push defence exports.

This would imply that India's defence spend is estimated to be more than a factor of two times between FY24 and FY30E, thus bringing in a favorable outcome on the defence stocks. The total Indian defence market opportunity is pegged at about $90-100 billion over the next 5-6 years, while annual growth in the industry is estimated at ~13 per cent over these years.

At the same time, while India figured in the top three in global defence spending, its 2022 defence expenditure represented just 10 percent of the U.S. outlay and 27 percent of China's expenditure. On the supply side, India also currently remains the second-biggest importer of defence equipment globally.

Major equipment is the capital defense spending that needs to increase steadily in growth rate 7-8 per cent each year, maintaining the nature over the last ten years.

On the export front, Indian defence companies are likely to witness healthy growth with exports likely to clock an 18 per cent CAGR between FY24 and FY30. India's defence exports have already surged 14 times between FY17 and FY24 to $2.6 billion. Jefferies said the number is likely to touch $7 billion by FY30, in line with the government target of attaining $6 billion by FY29.