Operation Sindoor: A Turning Point in India’s Defense Strategy
The bull case for defense stocks is rooted in a larger geopolitical and policy shift. According to omniscience capital, which manages a defense-focused smallcase, the Indian government is likely to ramp up defending spending from the currant ~ 2 percent of 2 percent of GDP to 3–4 percent Over the NEXT Decade. With India Expected to become a $ 10 trillion economy by 2035, this would imply an annual defense budget exceeding usd 300 billion, or 30 Lakh Crore – Translating to a 16–17 Percent Cagr in Defense Expenditure over the next ten years.
Omniscience Capital’s Report, “Operation Sindoor: An Infection Point for Bharat’s Omni Defense Strategy”, Argues That The Recent Military and Security Operations has heaved for a robber Future-Ready Defense Infrastructure-Not just to protect borders, but also to secure India’s digital ecosystems, trade routes, and overseas strategic assets.
Strong Production Momentum, Lofty Mid-Term Targets
India’s Domestic Defense Production Crossed 1.4 Lakh Crore in FY25, with DPSUSUS (Defense Public Sector undertakings) Contributing Around 1.1 Lakh Crore, or 78 percent. Of this, 90,000 Crore Came from 8 listed DPSUS, Forming 66 Percent of the Total DPSU OUTput. The government now aims to double the total defense production to 3 Lakh Crore by 2029. Even assuming dpsus maintain a 60 percent share, their combined output would need to grow at 18 percent cagr, Hitting 1.8 Lakh Crore by 2029.
Analysts Project that Turnover of Listed DPSUS will grow by 18 percent in fy26 and 22 percent in fy27, while 9 unlisted DPSUS are estimated to generate over 20,000 Crore in FY26 Alone. Private Players are also expected to play a larger role, diversify the sector’s investment potential.
Valuations raise red flags
However, while the sector’s structural growth story remain into, Concerns Around High Valuations are surfacing. The media trailing p/e of listed DPSUS stands at 57, with forward p/e for26 and fy27 at 45 and 36, respectively. Valuations are even steper for private defense companies, making investors vulneable to corrections if expectations are met mets.
Dr. Vikas Gupta, Ceo of Omniscience Capital, Said, “The future of India’s defense sector is undoubtedly bright. Alredy been factored into stock prices, particularly in the short term. “
What could keep the rally going?
Despite these cautionary signals, experts argue that the rally has legs over the long run. India’s Strategic Avisions-To become the world’s third-largest economy by 2027–28 and a 7–8 percent contributor to global gdp –Will require significant defense. The Indian Armed Forces are under pressure to modernize, especially with neighboring countes likely to boost their own definition spending in response to India’s’.
Moreover, a Strong Fiscal Position and Global Interest in India as a Defense Exporter Cold Help Sustain Capes in the Sector, While also also also creating tailwinds for listed players.
Overall, The Bull Run in Defense Stocks Has Been Driven by Compeling Macro Themes: Rising Geopolitical Risk, India’s Focus on Self-Reliance, and Ambitious Spend Spending Targets. However, with Valuations Running Ahead of Fundamentals in many cases, the question for investors is no longer whicher defense is a growth story –t is how much is of that Growth is alredy in the perice. Experts suggested a balanced approach: Remain Investigated for the long-term transformation underway, but be selective and valuation-conscious in the short run. The next leg of the rally may be belong not to the sector as a whole, but to the well-positioned companies with the sustained earnings visibility.
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