Rising geopolitical tensions, including the escalating conflict involving the United States and Iran, are strengthening the long-term outlook for defence companies as governments accelerate military spending and modernisation programs.
According to HDFC Securities, global defence spending has entered a structural upcycle, creating significant long-term opportunities for companies involved in electronics, advanced warfare technologies, missile systems and aerospace platforms.
HDFC Securities said that the current geopolitical landscape has fundamentally altered defence spending priorities worldwide. Countries are rapidly investing in advanced technologies such as drones, electronic warfare systems, radar networks and space-based defence capabilities, all of which are expected to drive long-term order inflows for defence companies.
“The global defence sector has entered a structurally elevated growth phase, driven by persistent geopolitical conflicts, rapid technological modernization of weapons, and a multi-domain warfare environment where countries are accelerating investments across missile defence, UAVs, space systems and electronic warfare.” said HDFC Securities.
According to HDFC Securities, India is increasingly positioned at the centre of the global defence growth story. India currently ranks as the fourth-largest defence spender globally, and government policies focused on indigenisation are expected to drive long-term growth for domestic defence manufacturers.
“Geopolitical conflicts have made defence spending structural rather than cyclical, and India’s policy push along with rapid development of the defence industrial ecosystem enables Indian defence companies to participate in a multi-year growth cycle.” said HDFC Securities.
As US-Iran conflict increases military preparedness globally, HDFC Securities believes defence companies with strong technological capabilities and electronics exposure are likely to benefit the most.
Defence stocks today
Paras Defence was the top loser, down 5.2% followed by Mazagon Dock Shipbuilders, which she 5%. Meanwhile, Astra Microwave, Apollo Micro Systems, Bharat Dynamics, Bharat Electronics and Data Patterns fell between 4-4.5% each. Hindustan Aeronautics was declined 2.4%.
HDFC Securities initiates coverage
HDFC Securities believes that the expected sector growth trajectory offers a multi-year compounding story, combining sustained order inflows and efficient execution.
“We maintain a positive outlook on the sector and initiate coverage on eight companies. We prefer electronics value chain players and companies with proven technological capabilities to transition to a full solutions provider level from a subsystem manufacturer,” it stated.
Hindustan Aeronautics — Target price: ₹3,265 (Reduce)
HDFC Securities has assigned a Reduce rating on Hindustan Aeronautics with a target price of ₹3,265. The brokerage believes the company remains a strategic player in India’s aerospace manufacturing ecosystem, benefiting from large programs such as LCA Tejas and other aircraft platforms. However, HDFC Securities believes the current valuation already reflects much of the growth potential, limiting upside despite steady order visibility from defence modernization programs.
Bharat Electronics — Target price: ₹490 (Add): HDFC Securities has an Add rating on Bharat Electronics with a target price of ₹490. The brokerage believes the company is well positioned to benefit from India’s push for defence indigenisation, particularly in radar systems, electronic warfare equipment and communication technologies. According to HDFC Securities, Bharat Electronics’ strong order book and long-term government contracts provide stable revenue visibility.
Bharat Dynamics — Target price: ₹1,120 (Reduce): HDFC Securities has a Reduce rating on Bharat Dynamics with a target price of ₹1,120. The brokerage noted that while Bharat Dynamics plays a critical role in missile manufacturing and defence systems, the current valuation already factors in expected growth. HDFC Securities believes upside may remain limited despite strong participation in missile programs and rising defence procurement in India.
Mazagon Dock Shipbuilders — Target price: ₹2,950 (Add): HDFC Securities maintains an Add rating on Mazagon Dock Shipbuilders with a target price of ₹2,950. The brokerage believes the company stands to benefit from India’s naval modernisation and submarine programs. According to HDFC Securities, strong order visibility from warship and submarine construction projects could support steady earnings growth in the coming years.
Apollo Micro Systems — Target price: ₹280 (Buy): HDFC Securities has a Buy rating on Apollo Micro Systems with a target price of ₹280. The brokerage expects the company to deliver strong earnings growth driven by rising demand for defence electronics, embedded systems and avionics. According to HDFC Securities, Apollo Micro Systems is well positioned to benefit from increasing localisation of defence components.
Data Patterns — Target price: ₹3,770 (Buy): HDFC Securities has a Buy rating on Data Patterns with a target price of ₹3,770. The brokerage believes the company’s expertise in defence electronics, radar subsystems and avionics positions it well to benefit from rising investments in surveillance and electronic warfare technologies. According to HDFC Securities, strong technological capabilities and increasing defence procurement could drive long-term growth.
Astra Microwave — Target price: ₹1,130 (Add): HDFC Securities has an Add rating on Astra Microwave with a target price of ₹1,130. The brokerage noted that the company plays a key role in supplying microwave and RF components used in radar, missile and communication systems. According to HDFC Securities, increasing domestic defence manufacturing and rising demand for electronic warfare technologies could support growth.
Paras Defence and Space Technologies — Target price: ₹665 (Reduce): HDFC Securities has assigned a Reduce rating on Paras Defence and Space Technologies with a target price of ₹665. The brokerage noted that while the company operates in specialised defence optics, space and defence engineering segments, the current valuation already captures much of the expected growth potential in these areas.
Disclaimer: 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.
