Defence and Power Stocks Jefferies Is Betting On as It Believes India’s Capex Cycle Is Back

Synopsis: The investment in India’s capital expenditures (Capex) continues to increase, according to Jefferies. With increased Clarity in the Budget, along with growing activity on many major projects. 

After a slow start to 2025, India’s infrastructure narrative has regained its momentum. Jefferies remains doubtful that concerns about a capital expenditure slowdown were exaggerated, and they anticipate certain sectors to become more robust as the government continues to spend and execute its plans effectively.

Jefferies observes that despite industrial stocks experiencing a weak start to 2025, new indications of capital expenditure (Capex) strength are emerging for the capital expenditure cycle in India. 

The surrounding has improved following the finalisation of the FY26 budget, which showed that while Government Capex will slow down, it will not be cut back sharply, as there were fears about; the improved performance from industrial companies through their earnings also provided support for the recovery of stock price performance.

In relation to outlooks for investment over the longer term within the infrastructure and industrial sectors, Jefferies has long forecasted a compound annual growth rate (CAGR) of around 10 percent from FY26 to FY29; however, the prior guidance (6 percent) was substantially lower than the current projection. 

Jefferies identified the transmission and distribution of power and defence as the sectors that will primarily lead this Growth Phase. The firm has identified that defence spending and spending for both Roads and Railways are already being funded at a level higher than budgeted and stated that Capex within the Power Sector will grow to almost 19 percent YoY for FY27.

Jefferies brought one example alongside the others to the transmission space, where project awards surged to Rs 1.6 lakh crore in FY25 from Rs 39,500 crore in FY24, thereby demonstrating solid growth. On the other hand, Power Grid is anticipating that its capital expenditure will increase from Rs 28,000 crore in FY26 to Rs 45,000 crore by FY28. 

Meanwhile, the shortage of equipment is expected to maintain the prices of players like Siemens Energy and Hitachi Energy at a high level. Additionally, KEI Industries is quite a fortunate entity as more than 30 percent of its revenue is already derived from transmission cables.

Jefferies Recommendation 

Jefferies continues to recommend Companies such as Larsen & Toubro, Siemens Energy, Hitachi Power, Hindustan Aeronautics and KEI Industries; mainly due to the anticipated increase in power-related investments, Data Centre-based demand growth due to growth in demand related to heavy-duty battery storage markets, and progress related to India’s push to expand Defence Manufacturing.

The brokerage also added that the Government’s last indigenous defence manufacturing since 2014 has already started to give robust outcomes, which is clearly visible from the recent war that took place between India and Pakistan (Operation Sindoor). Indian-made missiles, loitering munitions and unmanned aerial systems were successfully deployed to hit designated targets with high precision, underlining the growing effectiveness, reliability, and strategic depth of the country’s domestic defence ecosystem, being one of the reasons why Jefferies is bullish.

In conclusion, according to Jefferies, India is currently experiencing growth in capital expenditure (capex) compared to expectations. There is also clear visibility regarding government spending for both the energy and defence sectors. As a result of this ongoing government support, the companies involved with either the energy or defence sectors are well-positioned for growth due to continual industrial investment expected over the next several years.

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