With the peace deal expected to bring the war in West Asia to an end, the near-term beneficiaries would be exporters as countries enhance their defence budgets and scramble to boost their arms inventory. Analysts Vikash Singh and Pritish Urumkar of ICICI Securities say the geopolitical backdrop continues to provide a structural tailwind, as the conflict in West Asia has reinforced the urgency around defence budgets across the Gulf region.
Indian original equipment manufacturers with established export track records or memoranda of understanding are likely to benefit disproportionately, especially in missiles, drones, aerospace, defence electronics, and radars, they add.
Motilal Oswal Research too is positive on defence exports. With a resolution of the West Asia crisis in sight, the focus would now shift towards replenishment of ammunition, missiles, and critical inventories, alongside the acquisition and upgrade of various platforms, says the brokerage.
Analysts Teena Virmani and Prerit Jain of the brokerage expect this to open up export markets for defence players, apart from domestic defence ordering. Focus would also shift towards drones, anti-drones, electronic warfare, air defence control systems, and active protection systems in both domestic and international markets, they add.
In addition to the export segment, the performance of major players in the domestic market and order inflows will be key areas to track. In the fourth quarter (January-March/Q4) of FY26, private defence players outperformed their public-sector peers. Analysts at HDFC Securities, led by Varun Lohchab, point out that revenue growth of private companies was better than that of public-sector undertakings, led by short-cycle orders, a lower base, and rising indigenisation, which also helped them command better margins. Margin expansion and a low base also aided their net profit growth.
Growth rates for private-sector companies are expected to remain healthy in the current year as well. Crisil Ratings expects private-sector revenues to grow 15-16 per cent this financial year (FY27), similar to last financial year (FY26), supported by a healthy order book of ₹50,000 crore.
Jayashree Nandakumar, director, Crisil Ratings, points out that private-sector companies have moved from offset-fulfilment obligations and sub-assembly (mainly forging) supplies to becoming system integrators. This shift in their order-book profile, improvement in operational capability, and built-in price escalation clauses for key raw materials will underpin continued healthy operating profit margins of 18-19 per cent in FY27, similar to FY26, and up 400 basis points since 2019-20, she adds.
Going ahead, ICICI Securities maintains its positive stance on the Indian defence sector. It points out that government policies remain firmly supportive, given the defence ministry’s ₹3 trillion capital outlay target by calendar year 2029. This support implies sustained double-digit annual growth in defence capital expenditure. Given that Defence Acquisition Council approvals were at an all-time high in FY26, it expects the pace of order awards to pick up in FY27/2027-28 (FY28). Its preferred stocks in the sector are Hindustan Aeronautics, Solar Industries, Astra Microwave Products, and Bharat Electronics (BEL).
Motilal Oswal Research believes growth in FY27 and FY28 will be driven by higher execution levels, given the healthy order book position and the number of large contracts expected to be awarded over the near to medium term. In the near term, the brokerage will watch for the easing of supply-chain issues and the finalisation of large orders for select players. BEL remains its top pick in the sector.
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