The recent escalation of geopolitical tensions in the Middle East amid the Israel-Iran war, and the India-Pakistan conflict last month has renewed investors’ focus on defence stocks. India’s defence sector growth over the past decade has been driven primarily by government budgets and policies that promote domestic production.
The Ministry of Defence’s budget has roughly doubled, from ₹2.7 lakh crore in 2015–16 to ₹6.8 lakh crore in 2025–26, the highest among all ministries, accounting for 13% of the central government’s total expenditure. Defence exports rose by 13x since FY16, private sector exports rose by 67x and domestic procurement share surged to 75%, with large headroom for growth.
Analysts believe that the geopolitical tensions with China and Pakistan are expected to increase government spending in the coming years.
The government’s ‘Make in India’ initiative and policies like the Defence Acquisition Procedure 2020 prioritize domestic procurement, with approximately 75% of the modernization budget allocated to local industries.
According to InCred Equities, this focus has positioned defence PSUs as the backbone of India’s defence manufacturing ecosystem, producing everything from aircraft and electronics to naval vessels and weaponry.
Among the defence PSUs, Hindustan Aeronautics (HAL) and Bharat Electronics (BEL) stand out as the leading contributors, collectively accounting for ~50% of the total production by defence PSU companies, InCred Equities said.
HAL, a Navratna company, contributes ~27% of the production, specializing in fighter aircraft, helicopters, and avionics, including the indigenous Light Combat Aircraft Tejas and Advanced Light Helicopter Dhruv.
BEL, with a ~21% share, focuses on advanced electronics such as radars, communication systems, and electronic warfare equipment, serving both defence and non-defence sectors.
InCred Equities has initiated coverage on HAL and BEL shares with a bullish outlook. Here are the defence stock picks by the brokerage firm:
HAL | Add | Target Price: ₹6,325
Hindustan Aeronautics’ strong order book, coupled with ongoing indigenization and modernization initiatives, underpins a stable growth trajectory — EPS is forecast to rise by 16% YoY in FY26F and 18% YoY in FY27F, InCred Equities said.
The brokerage firm initiates coverage on HAL shares with a, ‘Add’ rating and target price of ₹6,325, based on a 40× P/E on Mar FY27F estimates. HAL share price target implies an upside potential of up to 26% from Monday’s closing price.
BEL | Add | Target Price: ₹459
Bharat Electricals’ robust order book, coupled with expected orders’ long-term visibility, provides strong revenue and growth confidence. The success of Operation Sindoor enhances its global standing and export potential. Aided by the government’s push for indigenization, and a trusted partnership with the Ministry of Defence, BEL is well-positioned as a key beneficiary in the defence sector, InCred Equities said.
It initiated coverage with an ‘Add’ rating. It has BEL share price target of ₹459, based on a 44×P/E applied to forecasted FY27F EPS of ₹10.4.
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.
