Operation Sindoor has once again brought the defence sector into the spotlight. Not only has India’s defence sector proven its mettle on the battlefield, but it has also delivered stellar returns in the equity markets. While the sector has always held strategic importance, the Russia-Ukraine war intensified global attention on strengthening defence capabilities — for India and other nations alike.
To boost India’s air power and promote a self-reliant aerospace industry, the Defence Minister recently announced the launch of a ‘Made in India’ fighter jet programme aimed at developing and producing a fifth-generation stealth fighter jet domestically. Let’s break down this development.
What’s Happening?
Defence Minister Rajnath Singh has approved the execution model for the Advanced Medium Combat Aircraft (AMCA) programme — a project designed to develop a fifth-generation, stealth, multi-role fighter jet for the Indian Air Force and Navy. The initial development cost is estimated at around Rs 15,000 crore.
Currently, only three countries — the United States (F-22 and F-35), China (J-20), and Russia (Su-57) — operate fifth-generation stealth fighter aircraft. India will be the fourth nation globally to possess such advanced capabilities.
This move comes amid growing tensions with China, which already operates the J-20 and is reportedly planning to sell 40 J-35 jets to Pakistan. Additionally, around 200 Pakistani engineers and technicians are currently working with TAI on Turkey’s fifth-generation aircraft.
Where India Stands Against China
India faces complex defence challenges, bordered by two nuclear-armed nations: China and Pakistan. Yet, the Indian Air Force has only 31 fighter squadrons, well below the minimum requirement of 42. This shortfall has been primarily caused by the retirement of ageing jets such as the MiG-21, MiG-23, and MiG-27, with insufficient replacements over the past two decades.
Meanwhile, China is rapidly modernising its air fleet. It has already unveiled two sixth-generation fighter jets — the Chengdu J-36 and Shenyang J-50 — and is expected to ramp up J-20 production to 100 units per year.
China aims to deploy 1,000 J-20 jets by 2030 — the same year India’s AMCA is expected to complete its first flight. By 2035, when India plans to induct the AMCA, China may already have 1,500 advanced jets in operation, underscoring the urgency for India to accelerate its defence modernisation.
Defence Index Leads Over Nifty50
Investor interest in defence stocks has seen a sharp revival since May 7, following the successful and precise execution of Operation Sindoor. The Nifty Defence Index is currently outperforming the broader markets, beating not only the Nifty50 benchmark but also all other sectoral indices.
The Nifty Defence Index has surged approximately 72% in just three months, compared to a 12% return from the Nifty50.
As of May 29 (year-to-date), the Defence Index has posted robust double-digit gains of 34.33%. In contrast, most other indices have been limited to single-digit returns, with the exception of the Nifty Financial Services Index, which has delivered around 12.10%.
What’s in it for Investors?
India, once heavily reliant on imports for 65–70% of its defence needs, has reversed that trend. Today, around 65% of defence equipment is produced domestically — a major step towards self-reliance.
Significantly, the Defence Ministry hasn’t restricted this initiative to public sector players. The private sector has been encouraged to participate — independently, via joint ventures, or as part of consortia. Hindustan Aeronautics Ltd (HAL) will lead the manufacturing effort under the approved model.
This development alone could drive a substantial rally in defence stocks. Moreover, if India manages to complete the project on or ahead of schedule, it could not only fulfil domestic defence needs but also position itself as a credible global defence exporter.
What’s Next?
The rollout of the prototype is expected between 2028 and 2029, with series production likely to begin around 2032–33. The Indian Air Force aims to induct the AMCA by 2034.
India’s defence expenditure is expected to rise steadily, in line with escalating geopolitical tensions. Although the current allocation stands at around 2.3% of GDP — lower than the 3–5% typically seen in global defence powerhouses — analysts forecast a 7–8% annual increase in capital outlay over the next five years. This could translate into more than $130 billion in new defence procurement.
Meanwhile, the private sector — which currently contributes 21% to total defence production — is also expected to expand its role significantly, supported by favourable policies and recent announcements.
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