Thread by @zerodhamarkets

India's defence exports hit a record ₹38,424 crore in FY26, up 62.66% from the previous year. Ten years ago, defence was not a private-market story in the way it is now. The domestic industrial ecosystem was narrow, state-heavy, and deeply dependent on imports. How did we get here?
Let's find out. 🧵👇

To be clear, the dependence hasn't fully vanished. MP-IDSA noted last year, drawing on SIPRI data, that India was still the world's largest arms importer in 2019-2023, with around 9.8% of global imports. But something important has changed. Defence production has risen from ₹46,429 crore in 2014-15 to ₹1.50 lakh crore in 2024-25. In FY25 alone, the Ministry of Defence signed 193 contracts worth ₹2.09 lakh crore, of which ₹1.69 lakh crore went to domestic industry.

Ammunition is not like a tank or a radar. It's a consumable. In an intense conflict, shells, rockets, and propellants are burned through fast. That's why militaries maintain reserve benchmarks in the first place. If you're below both the floor and the cushion, you end up empty-handed as enemies come knocking.

A shortage like that doesn't appear overnight. For most of independent India's history, there was only one domestic source of ammunition: the Ordnance Factory Board, a large state-run network inherited from the British era. Private firms were effectively shut out. The OFB had a monopoly, and it wasn't meeting its own targets.

The CAG had been raising alarms since 2015. In some cases, the system had even lowered its own targets and still failed to meet them. The second source of ammunition was imports from Russia, but those came with technology transfer deals that never handed over the deepest design know-how or critical sub-systems.

This was India's defence procurement model for decades: a weak domestic monopoly, an unreliable external supplier, and a forty-day reserve requirement it was meeting for barely half its weapons.

Then came Russia's invasion of Ukraine in 2022, and it changed how the whole world thought about ammunition. Ukraine's pre-war stockpiles were depleted far faster than expected. NATO countries began drawing down their own inventories to resupply Kyiv. By late 2023, the chair of the NATO Military Committee said "the bottom of the barrel is now visible."

The lesson was uncomfortable and simple. Modern war consumes ammunition at a pace that peacetime systems are rarely built for. Good weapons, capable soldiers, and sound strategy matter less if you run out of shells.

For India, this landed in a very specific way. Its defence planning has long assumed the possibility of a two-front conflict with China and Pakistan simultaneously. That demands deep ammunition reserves. By the Army's own auditor's account, India didn't have them. In some of its most important categories, stocks wouldn't have lasted ten days.

The government had already started moving before Ukraine. In October 2021, it broke up the Ordnance Factory Board into seven separate corporate entities. The ammunition business went into a new company, Munitions India Limited, or MIL. The logic was that a corporate structure would create more accountability than an old bureaucracy ever had.

But the more important shift was outside the old state system. The private sector was finally brought in properly. Ammunition is not an industry companies enter lightly. It needs capital, land, specialist chemistry, safety systems, and confidence that demand will continue for years. No private company will spend hundreds of crores building a plant if orders might vanish after one procurement cycle.

So the government changed the economics. It began issuing longer-term supply contracts to private firms. Companies could now build capacity knowing demand wouldn't disappear.

By end of 2024, 154 out of 175 ammunition variants had already been indigenised, and the government said indigenous sources were being established for all types. The Indian Army's ammunition budget is around ₹20,000 crore a year. Until recently, 35-40% of that was being spent on imports. By 2024, that share had fallen below 10%. Over three years, the Army placed ammunition orders worth nearly ₹26,000 crore on domestic manufacturers.

Once a country builds serious ammunition capacity for security reasons, a new question appears. What happens to that capacity in peacetime? A plant built for wartime resilience doesn't stop needing orders when there's no war. That excess capacity can find a useful outlet in exports. India seems to have arrived at this logic, but from the other direction: we built capacity out of fear, not ambition.

MIL, now operating at greater scale, began receiving large export orders for artillery shells. As per Reuters, Indian-made shells were reaching Ukraine through European intermediaries, including Italian and Czech companies. India didn't sell directly to Ukraine and said it was monitoring the matter, but didn't officially move to shut the trade down either.

Estonia's defence minister spoke publicly about Indian companies setting up ammunition manufacturing lines in his country. Indian firms building shell capacity inside a NATO member state was not even a plausible conversation before the OFB breakup. That's a much bigger shift than a headline export number suggests.

The export record is one reason defence is back in market focus ahead of Q4 FY26 results. The sector now has the things markets care about: large order books, a visible procurement pipeline, and a state still directing serious capital toward domestic suppliers.

In February 2025, Solar Industries disclosed a ₹6,084 crore Ministry of Defence order for Pinaka rockets. By its most recent earnings call, its defence order book had reached around ₹18,000 crore and quarterly defence revenue had crossed ₹700 crore.

Bharat Forge is on the weapons-platform side of the same cycle. In March 2025, the Ministry of Defence signed contracts worth about ₹6,900 crore for the Advanced Towed Artillery Gun System with Bharat Forge as a key supplier. A few months later, it also figured in a ₹2,770 crore contract for over 4.25 lakh close-quarter battle carbines for the Army and Navy.

The industrial story is broader than the listed one. A meaningful share of India's ammunition capacity still sits with public-sector and unlisted players. The market offers a window into the theme, but not the whole picture.

A decade ago, ammunition was mostly a readiness problem and an institutional embarrassment. Today it's also an industrial category, with policy support, private capacity, export relevance, and listed companies with enough exposure for markets to care. The next phase depends on whether India can move beyond import substitution into deeper design control, stronger technology ownership, and repeatable export capability.

We cover this and one more interesting story in today’s edition of The Daily Brief. Read on Substack, watch on YouTube, or listen on Spotify, Apple Podcasts, or wherever you get your podcasts; just search for “The Daily Brief by Zerodha.”