Goldman Sachs turns bullish on India's aerospace, defense sector

Goldman Sachs has turned bullish on India's aerospace, defense sector and prefers private players over their public sector (PSU) peers as the country ramps up its defense export target to Rs 50,000 crore by fiscal 2028-29 (FY29) as compared to Rs 23,600 crore last year.

 

Among individual stocks, Solar Industries, Bharat Electronics, Data Patterns and PTC Industries are Goldman Sachs’ top buy ideas, while Bharat Dynamics has been rated Sell'.

 

At the bourses, meanwhile, Nifty Defense index has outperformed the Nifty 50 with a gain of nearly 23 per cent thus far in calendar year 2025 (CY25) as compared to a rise of 5 per cent in the benchmark index.

 

Bharat Electronics, Bharat Dynamics, Paras Defence and Astra Microwave have been among the top gainers in CY25 that rallied up to 38 per cent during this period, ACE Equity data shows.

Spending landscape

 

Despite India being the world's fifth-largest spender (FY25: $80 billion) and second-largest importer of defense equipment (after Ukraine), markets, Goldman Sachs said, have largely focused on public-sector undertakings.

 

Shifting spending landscape, with the recently released Technology Perspective and Capability Roadmap (TPCR)-2025, and focus on new technologies (AI-enabled systems, electronic warfare and UAVs etc.), analysts at Goldman Sachs wrote in a recent report, makes private-sector players better off than their PSU counterparts.  

 

Superior earnings per share (EPS) growth (FY25-FY28E): 32 per cent CAGR for private-sector players versus 13 per cent for public-sector players; and higher beneficiaries from the rise in global defense spending are the other two key reasons why Goldman Sachs has placed private players in India's aerospace, defense sector above their PSU peers.  

 

“While Defence Public Sector Undertakings (DPSUs) generally get an advance on orders from the government, resulting in a better cash position, private players usually have high working capital and execution uncertainty. Furthermore, they have to invest constantly in business to pursue growth. That said, private defense players in India are better tied in to global supply chains than DPSUs and have better earnings trajectory. It is important to think about balancing earnings growth with superior cash position,” the report said. 

Stock selection

 

The key stocks to play the aerospace and defense theme in India, it said, are beneficiaries of three key themes. First, the increase in domestic defense Total Addressable Market (TAM), by more than six-fold, in comparison to financial year 2025 over the next 20 years to over Rs 10 trillion. Second is the indigenisation scope at the bottom of the tech pyramid, and third is the higher defense export target.

 

Solar Industries (36 per cent upside) and PTC Industries (58 per cent) – both private sector players – are Goldman Sachs’ key 'Buys'. Solar Industries, it believes, has a unique moat in high energetic materials, while PTC Industries is establishing itself as one of the world's leading aerospace grade Ti and superalloy players. 

 

“We initiate Bharat Dynamics at Sell mainly on contracting margins and unattractive valuations versus earnings growth. We also initiate Astra Microwave, Data Patterns, Azad Engineering, Bharat Electronics as 'Buy'; Hindustan Aeronautics at Neutral,” wrote Amit Dixit and Kumari Rishika of Goldman Sachs in a recent note.

 

Shift in capital allocation by the government to other sectors from defense, delay in companies' product development, and global OEMs shifting focus to other regions for sourcing, Goldman Sachs said, are among the key risks to their stock calls.