Brokerage firm Elara Capital is positive on India’s defence industry in the long term due to higher budgetary allocation and focus on self-reliance.

The brokerage firm is optimistic about the growth prospects of the sector due to the government’s focus on increasing defence production and the interest of global companies in India OEM (original equipment manufacturer) for manufacturing.

“We remain positive on India’s defence industry in the long term. In the listed space, we prefer Hindustan Aeronautics, Bharat Electronics and Bharat Dynamics on the PSU side,” said Elara Capital.

Among the private sector firms, Elara Capital prefers Zen Technologies, Data Patterns, Azad Engineering, Astra Microwave Products and Maini Precision Products. However, these companies are not under the brokerage’s firm’s rating.

The brokerage firm underscored that Defence Minister Rajnath Singh has expressed confidence in achieving the domestic defence production (DDP) target of ₹1.6 lakh crore and exports at ₹30,000 crore by FY26.

Moreover, the Union Budget 2025-26 allocated ₹6.8 lakh crore to the Ministry of Defence, which includes ₹1.8 lakh crore for capital acquisition.

Defence stocks to buy

Hindustan Aeronautics (HAL) | Buy | Previous close: ₹3,287.40 | Target price: ₹5,160 | Upside potential: 57%

According to Elara Capital, Hindustan Aeronautics’ management expects the FY26 order book to ₹2.5-2.6 lakh crore, up from ₹1.3 lakh crore as of December 2024.

This would be led by two large orders for 97 LCA Tejas Mk 1A in addition to 83 already ordered, and 156 light combat helicopters (LCH) Prachand together worth ₹1.3 lakh crore, which are likely to materialize in the next three to six months, Elara said.

Additionally, orders worth ₹35,000 crore are set to accrue for Su-30 MKI upgrade,

Indian Multi-Role Helicopter (IMRH) design and development and repairs and overhaul (ROH) orders, taking total expected inflows to nearly ₹1.7 lakh crore for FY26, the brokerage firm added.

Bharat Electronics (BEL) | Buy | Previous close: ₹256.65 | Target price: ₹370 | Upside potential: 44%

The brokerage firm pointed out that Bharat Electronics has retained order inflow guidance of ₹25,000 crore for FY25 despite year-to-date inflows of ₹11,900 crore to date.

The company expects order momentum to continue in FY26 with the receipt of a large order of quick reaction surface-to-air missiles (QRSAM) worth ₹25,000 crores.

Elara Capital expects the company’s margin to sustain around 24-25 per cent in the upcoming years, led by better margin orderbook.

“The order book currently stands at ₹71,000 crore as of January 2025. It is also increasing its presence in high-growth areas, such as arms and ammunition, AI, cyber security, unmanned systems, and rail and metro. The company targets to increase its share of non-defence in the upcoming years,” Elara Capital noted.

Bharat Dynamics | Accumulate | Previous close: ₹1,023.70 | Target price: ₹1,360 | Upside potential: 33%

Bharat Dynamics has a robust orderbook and strong order pipeline. The company looks to double its production in the upcoming three to five years and triple its production in the next 10 years, Elara Capital said.

The brokerage firm believes the company may post a 30 per cent sales CAGR during the next two to three years, aided by the execution of both domestic and export orders. The current capacity utilization is nearly 60 per cent.

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