- India's defence capex is expected to rise over 10% in FY27 after double-digit growth in FY26
- Defence capital spend fell 13% YoY in Nov 2025 but rose 57% YoY Apr-Nov 2025 compared to FY26 BE
- Rs1.8 trillion was allocated for defence capex in FY26, with 62% utilized by Nov 2025 amid conflicts
India's defence capex allocation in the upcoming Budget 2026-27 on Feb. 1, 2026, will be a key monitorable for defence stocks. According to global brokerage Jefferies, the defence budget should rise more than 10% year-on-year on top of the double-digit growth in FY26. To be clear, the country's defence capital spend decreased 13% YoY in November 2025, however, it has been up 57% YoY in April-November 2025 compared to the expected budgeted growth of 13% for FY26.
According to Jefferies, nearly Rs1.8 trillion was allocated for India's defence capex in the FY26 budget estimate (BE). Around 62% of this was achieved between April-November 2025 compared to 41-54% in April-November 2021-24, aided by emergency procurements after the the India-Pakistan conflict (Operation Sindoor) in May 2025. The Defence Secretary recently indicated a potential 20% hike in the FY27 defence budget to maintain operational readiness and self-reliance amid persistent global tensions.
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Jefferies pegs India's defence capex to rise 10% in FY27
Notably, US President Trump has called for a 50% hike to the US defence budget to $1.5 trillion in 2027. ''Ministry of Defence (MoD) has also discussed a possible 17-18% CAGR ahead in capital spend with a view to raise overall defence spend to 2.5% of GDP compared to less than 2% currently,'' said Jefferies. Over the last five years, India's defence expenditure has followed an upward trajectory.
Finance Minister Nirmala Sitharaman will unveil the upcoming Budget 2026-27 on Sunday, Feb. 1, 2026 in the Parliament. India Inc expects higher capex allocation for sectors such as defence, railways, infrastructure, among others. As the Indian markets gear up for higher earnings momentum heading into the last leg of FY26, several domestic defence players are relying on increased defence spending, especially after the Defence Secretary indicated a potential 20% hike in FY27 budget to maintain operational readiness.
The Jefferies report also suggests that the increased spending could benefit a host ofprimed for significant tailwinds, including the likes of Hindustan Aeronautics (HAL), Bharat Electronics and Data Patterns. The brokerage firm, which has identified HAL as its top pick, expects all these companies to sustain a double-digit EPS CAGR over the medium term.
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