HAL, BEL, BDL, Mazagon Dock, Cochin Shipyard, GRSE shares: Budget 2025 expectations

Stock market participants are hoping for a double-digit growth in outlay for the defence sector in the Union Budget 2025, with focus on research & development, drones and anti-drone systems. All eyes would also be on Defence Industrial Corridors and production-linked incentives (PLIs) for the sector’s expansion. The recent slide in several defence stocks was largely on account on growth-related concerns and a higher outlay for FY26 would be crucial to instill confidence among stock market investors.  

In January so far, Data Patterns (India) Ltd has plunged 13 per cent, BEML 11 per cent, Bharat Electronics Ltd (BEL) 7 per cent and Hindustan Aeronautics Ltd (HAL) 6 per cent. Bharat Dynamics Ltd is up 13.50 per cent during the same period. Garden Reach Shipbuilders & Enginers Ltd (down 7 per cent), Cochin Shipyard Ltd (5.48 per cent) and Mazagon Dock Shipbuilders Ltd (up 5 per cent) fared mixed.

"The recent stock price correction across defence pack is a chance to make a lunge, given a mounting growth story over and above the already known ambitious targets of GoI of Rs 50,000 crore in defence exports and Rs 3 lakh crore in defence production by 2030. We particularly prefer the subsegment Defence Electronics," Nuvama Institutional Equities said.

Against the market expectations, Nuvama expects defence capex to increase  in single digit,  7–8 per cent YoY, with higher allocation towards R&D, UAV/drones, anti-drone systems, etc as some key large programmes in the pipeline (QRSAM, P-75I, LCA Mark1A, Pinaka, etc) are likely to materialise, skewed towards Air Force and Navy.

MOFSL said the defense budget has seen a YoY growth in absolute terms over the years, and capital allocation usually forms a third of the total defense budget. However, in the past few years, post-Covid, budget allocation for defense as a percentage of GDP has declined and has been hovering around 1.5-1.6 per cent. 

"To achieve a target defense turnover of $25 billion, it is essential to increase defense spending to 1.8-2 per cent of GDP. In the Union Budget, we will keenly monitor the allocation for the defense sector and will seek a more expedited finalization of large platform orders from the MoD," it said.

Bajaj Broking is expecting initiatives boosting defence exports and accelerating domestic defence procurement, in addition to capital allocations.

Amey Belorkar, Fund Manager for Defence and Aerospace Venture Fund, IDBI Capital Markets & Securities said the Budget 2025 will be pivotal in accelerating India’s journey towards self-reliance in the defence and aerospace sectors, both of which are on the brink of significant growth. 

"A particular focus on emerging areas such as unmanned aerial systems (UAS), advanced materials, cyber defence, and space technology could unlock substantial opportunities for private capital engagement.

Belorkar sees initiatives targeting the modernisation of India’s armed forces, along with anticipated attention on Defence Industrial Corridors and production-linked incentives (PLIs), are set to provide crucial momentum for the sector’s expansion. 

"Defence continues to be a cornerstone of India’s strategic goals. With recent upticks in ordering, we expect the Budget to further amplify growth in this sector, especially in domestic manufacturing under the Atmanirbhar Bharat initiative. HAL and Bharat Electronics looks good, given their strong order books and alignment with the government’s indigenization drive," said Prateek Bansal, Partner – Taxation, White & Brief – Advocates & Solicitors.

Defence Budgets
D Naveen Kumar, Associate Director at CareEdge Ratings noted that India's defence budget has consistently ranged between 1.90 per cent to 2.80 per cent of its Gross Domestic Product (GDP). For the fiscal year 2024-25, a substantial allocation of Rs 6.22 lakh crore had been dedicated for the defence sector of which 28 per cent (Rs 1.72 lakh crore) is towards capital outlay, 50 per cent towards salaries and pension and the balancetowards maintenance and other expenses. 

"Given that the government has set the defence production target of Rs 3 lakh crore by FY29, CARE Ratings estimates defence production target for FY25-26 is to be in range of Rs 1.90 lakh crore-Rs 2.00 lakh crore with total budgetary allocation for defence in the range of Rs 6.50 lakh crore to Rs 6.70 lakh crore," Kumar said.    

What defence industry participants say

Munjal Sharad Shah, Managing Director, Paras Defence & Space Technologies Ltd sad with India now looking onwards to the manned space missions, satellite constellations and beyond, the Budget 2025 needs to first and foremost stay the path of transformative reforms. 

"India also needs to create clusters that can become pillars of sectoral growth. States like Maharashtra, Gujarat, Uttar Pradesh are now joining the southern states to emerge as significant contributors to defence and space sector. The key focus has to be on advanced technologies such as optronics, semiconductors, quantum etc as these will be crucial," Sharad said. 

Mandip Singh, President Strategic Alliances at DroneAcharya Aerial innovations said the induction of commercial drones to perform a variety of defense oriented tasks has highlighted the critical need for dual use technologies particularly in the drone sector. 
 
"To truly harness the potential of drones, the upcoming budget should emphasize the 'Make in India' initiative, encouraging indigenous production of advanced drone technologies. Further, establishing dedicated drone corridors & drone parks and enhancing ease of doing business for drone startups can catalyze sectoral growth. With the right fiscal measures, we can envision India becoming a global hub for drone technology, fostering innovation that meets both civilian and defense needs," Singh said.

Jaikaran Chandock, Director, Balu Forge Industries said: "Defence will be one of the key focus areas for the upcoming Union Budget 2025, as the government intensifies its efforts to achieve self-reliance in design, development and manufacturing of defence equipment. The budget should propose an increase in the capital outlay for the defence sector to bolster capacity and capability, driving progress towards achieving self-reliance and attaining the defence exports target of Rs 50,000 crore by 2029."