The brokerages highlighted Bharat Electronics (BEL), Hindustan Aeronautics (HAL) and Larsen & Toubro (L&T) among preferred large-cap plays, while selectively backing niche platforms and shipbuilders for their order backlogs and indigenisation tailwinds.
The defence budget for FY27 has been pegged at Rs 7.84 trillion, accounting for 15% of the Union Budget and marking a 15% year-on-year increase over FY26 estimates, according to Antique. Capital outlay on defence has been raised to Rs 2.19 trillion, lifting the share of capex in total defence spending to 28%, a move the brokerage said signals an improvement in the quality of expenditure and underpins sustained order inflows for domestic manufacturers.
“With rising geopolitical tensions, countries—including India—are strengthening their defence preparedness. This provides a tremendous opportunity for domestic Indian defence manufacturers,” Antique said in its sector note dated Monday. The brokerage added that its channel checks indicate that budgetary support will not be a constraint for weapon system acquisitions and that “double-digit growth in defence capex can be expected in the coming years”.
Motilal Oswal echoed the positive structural outlook, noting that defence has emerged as the clear priority within the government’s capital expenditure programme. The brokerage said defence capex is expected to grow 17.6% year-on-year in FY27 to about Rs 2.2 trillion, even as overall central government capex growth moderates from the post-pandemic surge. It added that defence capex utilisation has been robust, with the budget fully utilised in FY25 and around 80% of the revised FY26 defence capex already deployed by December 2025.
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Order pipeline strengthens visibility
Antique pointed to a sharp ramp-up in approvals by the Defence Acquisition Council (DAC), which has accorded Acceptance of Necessity for proposals worth around Rs 3.3 trillion in year-to-date FY26, surpassing the Rs 2.2 trillion approvals seen in FY25. The approvals span a wide range of platforms and systems, including landing platform docks, submarines, missiles, air defence systems, drones and artillery-related procurements, reinforcing the breadth of the opportunity set for listed defence manufacturers.The brokerage said the Ministry of Defence is also working to reduce procedural timelines in awarding orders, which could translate into a spate of large contract awards in FY27 and FY28. On this basis, Antique expects major platforms and electronics companies to see sustained order inflows over the next few years.
Brokerage picks, ratings and targets
Antique reiterated a constructive stance on the sector, maintaining BUY ratings on several defence names. Its top picks include Hindustan Aeronautics (HAL), Mazagon Dock Shipbuilders, Bharat Electronics (BEL), Solar Industries and PTC Industries. The brokerage has set a target price of Rs 532 for BEL, Rs 3,407 for Mazagon Dock Shipbuilders, Rs 16,600 for Solar Industries, Rs 23,005 for PTC Industries and Rs 6,346 for HAL, reflecting its expectations of strong earnings growth and order book expansion over the medium term.
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Motilal Oswal’s sector preferences are more selective within the broader capital goods and defence universe. In its Budget impact note, the brokerage said its top picks linked to the defence-led capex cycle include L&T, Bharat Electronics and Cummins India, citing their exposure to defence manufacturing and related industrial demand, along with balance-sheet strength and execution capabilities.
Valuations and execution risks loom
Despite the supportive policy backdrop, brokerages cautioned that the market’s exuberance around defence stocks has raised the bar for delivery. Antique said the reaffirmation of the government’s resolve on defence preparedness strengthens long-term visibility but does not eliminate risks around order execution, project timelines and working capital intensity, particularly for companies handling large, complex platforms such as aircraft, submarines and warships.
Motilal Oswal added that while defence capex growth is in line with expectations of around 20% year-on-year, overall government capex growth is now in high single digits, implying that incremental upside for defence stocks will increasingly depend on company-specific execution and earnings delivery rather than just policy announcements.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
