In the backdrop of lingering geopolitical crisis across the globe, the need for stronger defence resources is likely to spur strong growth momentum for the sector in the coming time, brokerages believe. The shift in the government's stance over the last few decades that led to an increased focus on indigenisation of defence equipment has only strengthened this argument.
In this context, Nuvama Institutional Equities views the recent stock price correction in the defence sector as a valuable opportunity, alleviating valuation concerns, particularly in light of the Government of India’s ambitious targets of Rs 50,000 crore in defence exports and Rs 3 lakh crore in defence production by 2030.
The brokerage also noted that over the past three decades, India’s defence spending growth rate has been among the highest (at ~8 percent) across major countries. According to the firm, this positions the sector for substantial growth, with an estimated $130 billion opportunity over the next five years.
"We find India making significant strides on the global defence spending index, as the government's strategic initiatives are transforming its role from a sub-systems/components supplier to a one-stop-shop offering comprehensive turnkey solutions on the global stage," said Nuvama.
Analysts at Philip Capital echo this sentiment, viewing the defence sector as a compelling investment theme with multiple growth levers and strong long-term execution visibility. Key factors include a robust order book, a healthy project pipeline, and timely execution through localisation and sub-contracting.
Additionally, the brokerage points to favourable government policies prioritising local manufacturing, strategic partnerships, and import restrictions, all of which fuel optimism for the sector. As a result, Philip Capital maintains a positive outlook on defence stocks.
Taking its bullishness further, the brokerage initiated coverage on several defence stocks. It initiated 'buy' calls to Bharat Electronics, Hindustan Aeronautics, Data Patterns and Solar Industries, forecasting 24-37 percent upside potential. Philip Capital also initiated an 'neutral' call on Bharat Dynamics, predicting a near 17 percent upside.
Catch all the market action on our LIVE blog
Looking ahead, Nuvama expects 2025 to be a pivotal year for India, with major programs such as QRSAM, P-75I, LCA Mark1A, and Pinaka likely to receive orders. The firm forecasts steady industry growth, particularly focusing on the Air Force and Navy.
Meanwhile, analysts at Elara Capital foresee a sharp increase in ordering flow for the sector in Q4, with defence capex for FY25 expected to meet its targets. Notably, 75 percent of the total budgeted defence capex for FY25 is allocated to domestic companies.
Elara Capital, on the other hand, has selected Hindustan Aeronautics and Bharat Electronics as its top picks, forecasting a 29 percent and 16.5 percent upside potential, respectively. The firm expects HAL’s inflows to rise by Rs 1.2 lakh crore in FY26. Elara also includes Bharat Dynamics in its top picks, despite expecting just over 8 percent upside.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
