India’s Defence Sector: Positioned for a Geopolitical Turning Point
India’s defence industry is undergoing a major shift, driven by domestic reforms and changing geopolitical realities. Rising tensions in the Indo-Pacific, an assertive China, instability in West Asia, and renewed competition among major powers have significantly expanded India’s security needs. This has sped up the push for self-reliance. The country now ranks among the top four military powers in the world and is quickly moving from being a major importer to becoming a credible manufacturer and exporter.
Defence production reached ₹1.5 lakh crore in FY25, and exports rose to ₹23,622 crore, sharply higher than a decade ago. While part of this growth reflects a low base, it also signals broader participation from both public and private players. A record defence budget of ₹6.81 lakh crore, with 75% of modernisation spending earmarked for Indian suppliers, continues to support this shift. Reforms such as the SRIJAN portal, Positive Indigenisation Lists, relaxed FDI rules, and programmes like iDEX and the Defence Industrial Corridors are strengthening the ecosystem, though outcomes will depend on execution and industry capacity.
On the geopolitical front, India is building stronger defence ties with the US, France, Japan, and ASEAN countries. These partnerships focus on maintaining stability in the Indo-Pacific. Initiatives like INDUS-X promote technology sharing and co-development. Increased maritime tensions have led to faster investments in naval assets, drones, surveillance systems, and precision technologies. India is also becoming a key supplier for friendly nations, exporting to 80 to 100 countries. Delivery timelines, scale, and competitiveness remain areas to watch, but the direction of travel is clear.
For investors, these changes create a long-term opportunity. The areas of aerospace, shipbuilding, missiles, drones, electronic warfare, cyber defence, and secure communications present a procurement potential of ₹4 lakh crore over the next 5 to 7 years. With growing order books, rising exports, and geopolitical pressures prompting ongoing investment, India’s defence sector is at a significant turning point. This offers long-term visibility and strategic importance for forward-looking portfolios.
Introducing the Defence Picks – AI Model
The Defence Picks – AI Model smallcase gives investors a clear way to engage in India’s growing defence and aerospace sector.
The portfolio is created using proprietary AI algorithms that find listed companies with significant ties to this ecosystem. It uses a semantic search method to examine unstructured text from sources like annual reports, DRHPs, investor presentations, conference calls, product catalogs, websites, and Ministry of Defence announcements. This approach goes beyond simple keyword matching.
AI models respond to defence-specific questions such as “radar systems for military aircraft,” “naval combat management systems,” and “missile propulsion subsystems.” The results are then aligned with a structured defence ontology that covers air, land, naval, electronics, materials, and related subsystems. This process helps in accurately identifying defence-related companies, including indirect participants like component suppliers, subsystem manufacturers, and dual-use technology providers.
A multi-factor framework, which includes filters for relative price strength and valuation, helps to avoid overpriced stocks and maintain consistency in selection.
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Windmill Capital Team: Windmill Capital Private Limited is a SEBI registered research analyst (Regn. No. INH200007645) based in Bengaluru at No 51 Le Parc Richmonde, Richmond Road, Shanthala Nagar, Bangalore, Karnataka – 560025 creating Thematic & Quantamental curated stock/ETF portfolios. Data analysis is the heart and soul behind our portfolio construction & with 50+ offerings, we have something for everyone. CIN of the company is U74999KA2020PTC132398. For more information and disclosures, visit our disclosures page here.
