India's defence stocks rally on FY25 order surge, FY26 bullish outlook

India's defence sector ends FY25 with record orders as exports, reforms, and robust pipelines fuel bullish outlook for FY26 and beyond, driving strong gains in top defence stocks

Defence stocks have been on a tear, with the Nifty India Defence index hitting all-time highs. Over the past week, the index jumped around 7 per cent, far outpacing the flat performance of the Nifty 50. Over the past month, its 12 per cent gain has trebled the benchmark’s return. Alongside rising tensions between India and Pakistan, the sector’s bullish outlook is underpinned by a strong order backlog, large inflows expected in 2025–26 (FY26) after a record 2024–25 (FY25), and tailwinds from exports.

 

The sector wrapped up FY25 on a firm footing as the Ministry of Defence (MoD) signed 193 contracts worth ₹2.1 trillion, the highest on record. Of these, 177 contracts (92 per cent), valued at ₹1.6 trillion, went to domestic companies. Orders surged in February and March, accounting for nearly half of FY25’s total, or ₹1 trillion, issued in just those two months. FY25’s order value is double the previous record.

 

In March, the MoD cleared capital procurement proposals worth ₹54,000 crore, spanning a wide range of assets — from BrahMos missiles and Netra airborne early warning and control aircraft to upgraded Russian engines for T-90 tanks, naval anti-aircraft missiles, and torpedoes. The share of domestic procurement has now climbed to 75 per cent, up sharply from 54 per cent pre-pandemic, according to Sharekhan Research.

 

Analysts Dhirendra Tiwari and Amit Shah of Antique Stock Broking believe the order pipeline for FY26 and 2026–27 (FY27) remains healthy, as India targets ₹3 trillion in defence production, up from ₹1.3 trillion in 2023–24 (FY24). Exports are also a key lever, with volumes expected to rise to ₹50,000 crore by 2028–29, from ₹21,000 crore in FY24. Their top picks include Hindustan Aeronautics (HAL), Bharat Electronics (BEL), Mazagon Dock Shipbuilders, PTC Industries, and Bharat Dynamics. 

 

Within the broader sector, analysts at Nuvama Research, led by Vijay Bhasin, prefer the defence electronics segment, which is projected to grow 1.5–2x faster than the defence budget (7–8 per cent annual growth over the next five years). The segment is expected to benefit from ongoing modernisation, major reforms expected in 2025, and large-scale programmes in the pipeline for the Air Force and Navy. Nuvama expects private defence firms to post annual earnings growth of 25–40 per cent, well ahead of the 15–18 per cent estimated for public-sector players. Their top picks are BEL and Data Patterns (India).

 

The immediate trigger for the sector is the fourth-quarter (Q4) results. Among the top five listed players by market capitalisation, Bharat Dynamics is expected to double its revenue over the year-ago quarter, while Solar Industries India may report a 30 per cent rise. HAL and BEL, the two largest firms, may report a modest year-on-year (Y-o-Y) decline, but are likely to see robust sequential growth of 88 per cent and 44 per cent, respectively. Others like Data Patterns (India) could double revenue Y-o-Y, while Astra Microwave Products may clock 35 per cent growth.

 

Among smaller firms that have already reported, Paras Defence & Space Technologies stood out. Its Q4 and FY25 revenue growth ranged between 35 and 44 per cent, with operating and net profit for both periods rising over 90 per cent.

 

Nirmal Bang Research expects Paras Defence to grow both revenue and profit by 25–26 per cent annually over FY25–27. The company has guided for 40–50 per cent revenue growth and better margins, helping the stock rally 26 per cent over the past five trading sessions.

 

Given the strong outlook, valuations remain steep. Most top defence players are trading at above 40x FY26 earnings. HAL (35x) and Mazagon Dock (24.5x) are the exceptions. PTC Industries is the costliest, at 133x, followed by Paras Defence, Solar Industries, and Azad Engineering, all in the 70–77x range.