NEW DELHI — Kotak Institutional Equities projected that India's defense capital expenditure will reach Rs 2.8 trillion by fiscal year 2030. The projection, detailed in a report released on July 13, 2026, represents an 11 per cent compound annual growth rate (CAGR) over the FY2026–30 period.

The report highlights a broad expansion in India’s defense sector, citing that Indian defense exports increased 50 times over the past decade and totaled Rs 384 billion in FY26. Kotak Institutional Equities identified a Rs 500 billion export target by FY2029, driven by cost-competitive indigenous platforms, combat performance in Operation Sindoor, and eased export controls. The United States remains the largest destination for these exports, with Europe and Armenia emerging as new markets.

Domestic procurement has also grown significantly, with the share rising from 54 per cent in FY19 to over 70 per cent. This shift aligns with the defense Acquisition Procedure 2020, which mandates more than 50 per cent indigenous content in defense purchases. Acceptance of Necessity (AoN) approvals increased approximately 10 times between FY2021 and FY26, a trend the report uses to imply Rs 6.5–7 trillion in new orders during FY2027–29.

Kotak Institutional Equities also outlined India’s growing focus on unmanned systems, estimating the country will spend USD 25–30 billion on drones and USD 4–5 billion on counter-drone systems over the next decade. These projections come as the global military drone market, valued at approximately USD 30 billion in calendar year 2024, is expected to reach USD 75 billion by 2029.

India currently ranks as the fifth-largest military spender globally at USD 84 billion, against a backdrop of rising worldwide defense outlays. Global military spending grew from USD 600–700 billion in the 1990s to USD 2.7 trillion in 2024, with the Stockholm International Peace Research Institute (SIPRI) forecasting it will reach USD 6.6 trillion by 2035.

The report noted strong financial performance among Indian defense firms. Domestic manufacturers delivered a 25 per cent revenue CAGR during FY21–26, with EBITDA margins expanding by 500 basis points to roughly 25 per cent. Indian defense companies are projected to sustain a 26 per cent revenue CAGR, more than double the global average of 11 per cent. However, when adjusted for lower research and development spending, their margin advantage over global peers narrows from 800 basis points to about 450 basis points. Indian defense stocks trade at a 50X one-year forward price-to-earnings multiple, compared to 28X for global peers.