Introduction

The defence sector safeguards our nation from internal and external threats. India boasts of the world’s second-largest army, and our government is focused on making this sector self-sufficient by promoting indigenous manufacture and production of defence equipment while reducing foreign dependence. To further this initiative, the Indian Government has sanctioned an allocation of ₹6,21,941 crores to the Ministry of Defence. This segment includes a variety of public and private players responsible for manufacturing defence supplies and equipment needed for land, naval, and aerospace systems.

So, how do you choose the best defence stocks to invest in? The simplest way is by looking at their Compound Annual Growth Rate (CAGR). This metric shows you the average annual growth attained by an investment during a specific period. In this article, you will be introduced to the best defence stocks according to their 5-year CAGR and their benefits.

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Why Invest in Defence Stocks?

By investing in defence stocks, you can gain the following benefits.

• Defence companies usually have long-standing contracts with the government and are known to provide steady returns. This stability can be used to hedge against volatility.
• Increased governmental support to the defence sector has resulted in improved performance, which translates into better returns for you as an investor. For instance, the Indian government's push for self-reliance in the defence sector through initiatives like Atmanirbhar Bharat has given this sector a tremendous boost.
• Technological advancements are at the forefront of growth of the defence sector. By investing in these stocks, you gain exposure to companies dealing with cybersecurity, aerospace, etc.
• Another benefit of investing in these stocks is the diversification you get. Adding defence stocks to your portfolio can help you mitigate risk in your portfolio.
• Finally, the consistent increase in defence spending and the need for national security increase the demand for defence equipment, supplies, and services. In turn, this increases the growth prospects for players in this field. Ultimately, all this increases the demand for defence stocks, resulting in better returns for you.

India’s Best Defence Stocks for 2025

Here are some of the best defence stocks for 2025 according to their 5-year CAGR.

• Taneja Aerospace and Aviation Limited

Taneja Aerospace and Aviation Ltd (TAAL) is a leading manufacturer and provider of aircraft components and specialised aviation services. It is also involved in the design and construction of airfield infrastructure. With a market cap of ₹1,068.09 crores and one and five-year CAGRs of 62.54% and 81.22%, respectively, it is one of the leading defence stocks in India.

• Sika Interplant Systems Limited

Sika Interplant Systems Ltd offers specialised engineering and support systems to the defence and aviation sectors. It is involved in a wide array of activities, from manufacturing solutions, design and research, and engineering to system integration and distribution services. With a one- and five-year CAGR of 101.64% and 69.99%, respectively, this Indian company has a market capitalisation of ₹1,082.67 crores.

• Hindustan Aeronautics Limited

Hindustan Aeronautics Ltd (HAL) is among the oldest and largest manufacturers of helicopters, aircraft, engines, and a variety of equipment for the defence and aerospace sectors. This stock boasts an impressive market capitalisation of ₹2,85,028.56 crores and a one- and five-year CAGR of 79.36% and 63.41%, respectively.

• Bharat Dynamics Limited

Bharat Dynamics Ltd (BDL) is a force to be reckoned with in India’s defence segment. This vital manufacturer of missile systems, ammunition, and defence equipment has contributed to India’s progress in the defence forces. This company’s market capitalisation is ₹37,838.41 crores, and its one- and five-year CAGR is 86.8% and 47.96%, respectively.

• Paras Defence and Space Technologies Limited

Paras Defence and Space Technologies Limited has become a prominent player in India’s defence and space programs. As a provider of advanced technologies focused on innovative solutions, it caters to the defence, space, and space exploration segments. With a market capitalisation of ₹4,193.16 crores and one- and five-year CAGRs of 45.02% and 15.3%, this stock has a high growth potential.

Conclusion

With growing domestic demand, government support, and a high export potential, defence stocks are a lucrative option. From portfolio diversification and stable revenue generation to exposure to technological development, you can gain a lot by investing in them. This, coupled with the government’s keen interest in self-reliance and strengthening the defence sector, has further fuelled the growth of these stocks. However, before investing, consider your risk tolerance and investment objectives to ensure defence stocks are the right fit for you.

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