India’s defence and aerospace industry is shifting towards a capability driven growth model, with manufacturers stepping up investments in production facilities, technology and acquisitions rather than relying solely on large government orders. According to a recent report by DAM Capital, the transition reflects companies’ efforts to strengthen their competitive positions and capture a larger share of domestic and international defence supply chains.

The sector continues to await progress on a procurement pipeline estimated at approximately Rs 5 lakh crore. Major programmes include the acquisition of 114 Rafale fighter aircraft under the Multi Role Fighter Aircraft programme, estimated at around Rs 3.25 lakh crore, and six P 75(I) submarines valued at approximately Rs 90,000 crore. Other significant programmes awaiting final approvals include eight Next Generation Corvettes and the Quick Reaction Surface to Air Missile system. These projects could provide multi year revenue visibility once contracts are awarded and execution begins.

However, DAM Capital believes the more significant development is the growing emphasis on internal manufacturing capabilities. Aerospace companies are directing capital expenditure towards dedicated production facilities, aero engine components, landing gear, specialised manufacturing processes and integrated production ecosystems. These investments are intended to increase domestic value addition, improve manufacturing efficiency and enable Indian suppliers to participate in global aerospace programmes as international original equipment manufacturers diversify their supply chains.

Strategic acquisitions are also gaining importance. Companies are using improved access to capital to acquire technologies, established products, customer relationships and specialised manufacturing capabilities in India and overseas. Given the lengthy qualification and approval processes associated with aerospace and defence manufacturing, acquisitions can provide faster access to established capabilities than developing them independently.

Defence electronics and unmanned aerial systems are emerging as important growth segments. Increasing electronic content in military platforms, import substitution initiatives and expanding export opportunities are supporting demand for indigenous technologies. A reported Rs 20,000 crore Fast Track Procurement programme covering drones, loitering munitions and related systems could create additional opportunities for domestic manufacturers, including suppliers of sensors, radars, electronic warfare equipment and propulsion systems.

The domestic manufacturing opportunity also extends to critical materials. Mishra Dhatu Nigam, known as MIDHANI, could benefit from import substitution in nickel based superalloys, titanium alloys and special steels used in aero engines and other advanced defence applications. Certifications and approvals from organisations such as CEMILAC, NADCAP and GE Aerospace can help qualified Indian manufacturers meet stringent requirements and access international aerospace supply chains.

Overall, the industry’s long term growth prospects are supported by domestic military modernisation, indigenous manufacturing initiatives and global supply chain diversification. However, the timing of major contract awards, execution capabilities, capital expenditure requirements and the ability to secure customer qualifications will remain important factors in determining individual companies’ performance. Manufacturers that successfully build specialised capabilities and establish global customer relationships could be better positioned to benefit from the sector’s expansion.