JPMorgan has emphasised the significant growth potential of India's defence sector, initiating coverage on major companies such as Bharat Electronics Ltd. (BEL), Hindustan Aeronautics Ltd. (HAL), and Mazagon Dock Shipbuilders. The firm projects a long runway of growth driven by several key factors.

India's defence capital expenditure is expected to rise dramatically from approximately $85 billion over the past five years to $150 billion in the next five years. This increase is anticipated to support a compound annual growth rate (CAGR) of 12-15% in sector revenue over the coming years.

The report highlights a robust expansion in defense exports, which reached a record ₹21,083 crore (around $2.63 billion) in the fiscal year 2023-24, marking a 32.5% increase from the previous year. Over the last decade, exports have grown 31-fold, reflecting a strong trajectory for future growth.

JPMorgan underscores the Indian government's commitment to enhancing domestic manufacturing capabilities within the defence sector. This includes initiatives aimed at self-reliance and reducing dependence on imports, which are expected to further bolster growth prospects.

The recent corrections in stock prices for key defence companies present attractive entry points for investors. For instance, BEL has been rated "overweight" with a target price of ₹340, while HAL has a target of ₹5,135, and Mazagon Dock is rated "neutral" with a target of ₹4,248.

Large defence firms are projected to deliver annual earnings per share (EPS) growth of 15-17%, alongside return on equity (RoE) figures ranging from 23-33%. These metrics indicate strong financial health and investment potential within the sector.

JPMorgan's optimistic outlook aligns with India's broader geopolitical strategy and rising global demand for indigenous defence products. The combination of increased capital expenditure, expanding exports, and a focus on domestic production positions India's defence sector for substantial long-term growth.