Domestic defence players rose up to 2 percent in trade on Thursday, June 26, as North Atlantic Treaty Organisation (NATO) allies planned to increase their defence spending to five percent of their gross domestic product (GDP) by 2035.
NATO leaders agreed to the massive hike, from two percent of GDP to five percent, following strong pressure from U.S. President Donald Trump, and expressed their “ironclad commitment” to come to each other's aid if attacked.
"Allies commit to invest 5 per cent of GDP annually on core defence requirements as well as defence- and security-related spending by 2035 to ensure our individual and collective obligations," said the 32 NATO leaders, in a final summit statement.
As a result, India-based defence companies, such as Hindustan Aeronautics and Bharat Electronics, saw sharp buying interest, rising up to two percent each in the afternoon session. Further, the Nifty India Defence index also gained one percent, with gains led by Garden Reach Shipbuilders, DCX Systems and Bharat Dynamics.
Defence exports from Indian firms have risen 13 times since FY2016, as private sector exports rose by 67x and the domestic procurement share surged to 75 percent, with large headroom for growth.
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According to a report by InCred Equities, defence exports are targeted to reach Rs 5 lakh crore by 2028-29, building on the 32.5 percent increase in exports from 2022-23 to 2023-24.
The private sector's share in defence exports has risen from 13 percent in 2016-17 to 62 percent in 2023-24. Total defence exports have skyrocketed at an annual growth rate of 46 percent, reaching Rs 21,100 crore in 2023-24, driven by items like missiles, radars, and armoured vehicles exported to over 85 countries.
The brokerage added that India has a low presence in the global defence export market, contributing a mere 0.2 percent to global exports in 2020-24. Despite being the world’s largest arms importer with a 9.8 percent share of global imports in 2019-23, India’s export capabilities remain
underdeveloped.
India exported to 41 states, with key recipients including the US, France, and Armenia, often involving niche equipment like radar systems, small arms, or support for co-production projects.
"The global market is dominated by players like the US (43 percent share) and France (9.6 percent), indicating significant room for India to expand its export footprint. With initiatives
like ‘Make in India’ and increasing domestic production, India has the potential to leverage its growing defence manufacturing base to capture a larger share of the global market in the coming years," said InCred Equities.
Further, the government is focusing on indigenous production, supported by defence PSUs and increasing private sector participation, with policies aimed at reducing import dependency and boosting defence exports, which is a positive for defence sector stocks.
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