Defence stocks to buy: The defence stocks have received a fresh fillip amid the Middle East conflict, which is not showing signs of de-escalating after entering its second week on Saturday. As a result, the gauge tracking the defence stocks — Nifty India Defence Index — gained almost 5% last week.
The current conflict in the Middle East, which has sucked more than a dozen countries into the fray, saw the US and its ally Israel attacking Iraq, with Tehran responding with full force. The war has not only resulted in loss of lives but also driven a surge in energy prices, including oil, natural gas and products such as gasoil.
While most of the market has reeled under the pressure from the rising oil prices, defence is one segment that has emerged as a winner due to the geopolitical conflict.
Defence sector outlook
According to an analysis by Motilal Oswal Financial Services (MOSL), the current conflict in the Middle East is likely to drive higher global defence spending as nations prioritise security and military preparedness.
In this environment, India’s defence sector is well positioned to benefit from both rising domestic procurement and increasing export opportunities, supported by the government’s push for indigenisation and a growing reputation in global arms markets, said the brokerage.
In FY25, the Middle East accounted for 26% of total global arms imports, which can further increase, thereby opening up opportunities for domestic defence companies to capture this market.
“Along with this, the earlier NATO directive to member nations to increase defence capex allocation and higher budgetary allocation for defence by the Indian government bodes well for increasing the TAM for domestic defence companies,” said the brokerage.
The Union Budget has increased the capital outlay on defence by 18% YoY to ₹2.2 trillion in FY27BE. This increase is important as it provides the necessary funding visibility to support the large pipeline of AoN approvals cleared YTD in FY26.
However, India is heavily reliant on Israel for critical defence components, with the Jewish nation accounting for nearly half of India’s air defence and sensor imports, as highlighted by MOSL, suggesting that a prolonged Middle East conflict could impact the supply chain for critical components.
Defence stocks to buy
That said, Motilal Oswal reiterated its bullish stance on defence stocks like Bharat Electronics, Bharat Dynamics, Hindustan Aeronautics and Astra Microwave.
| Defence stocks | Last close (Rs) | Target price (Rs) | % upside |
|---|---|---|---|
| Bharat Electronics | 458 | 520 | 13.54 |
| Hindustan Aeronautics | 3989 | 5500 | 37.88 |
| Bharat Dynamics | 1336 | 1800 | 34.73 |
| Astra Microwave Products | 1008 | 1150 | 14.09 |
| Source: MOSL | |||
BEL, HAL and BDL have secured YTD capital contracts worth ₹20600 crore, ₹69400 crore and ₹5400 crore, respectively. Astra Microwave’s inflows for the defence segment have been steady over the years, with orders worth ₹290 crore received in Q3FY26.
According to MOSL’s estimates, HAL shares have the highest upside of 38% as against the last close, with a target price set at ₹5500. Meanwhile, Bharat Dynamics’ stock price could rally 35% to ₹1800, the brokerage opined.
Lastly, Astra Microwave and BEL shares are expected to gain 14% each.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
