Motilal Oswal sector of the week: Defence; BEL, Bharat Dynamics top picks

A key growth driver for the defence sector remains the robust pipeline of Acceptance of Necessity (AoN) approvals, which typically convert into orders over the next two to three years

India’s defence sector continues to witness strong momentum, supported by rising geopolitical tensions and sustained policy focus on indigenisation. On March 27, 2026, the Defence Acquisition Council (DAC) approved projects worth ₹2.38 trillion, underscoring the government’s commitment to strengthening military capabilities across land, air, and maritime domains. These approvals span a wide range of platforms, including missile systems, transport aircraft, surveillance solutions, and coastal defence assets, providing long-term visibility for the domestic defence ecosystem. 

The current environment of heightened global conflict, particularly in the Middle East, is likely to accelerate defence spending worldwide. For India, this translates into a dual opportunity: higher domestic procurement and expanding export potential. The country has already made notable progress in reducing reliance on imports, with increasing localisation of critical systems and components. This shift is supported by policy initiatives aimed at enhancing indigenous design, development, and manufacturing capabilities, thereby improving supply chain resilience. 

 

A key growth driver for the sector remains the robust pipeline of Acceptance of Necessity (AoN) approvals, which typically convert into orders over the next two to three years. This ensures sustained order inflows and revenue visibility for defence manufacturers. Additionally, large programs such as next-generation missile systems, combat aircraft upgrades, and naval platforms are progressing toward execution, further strengthening the sector’s outlook.  

However, near-term challenges persist in the form of supply chain constraints, particularly for specialised and imported components. Dependence on certain geographies for advanced subsystems could impact execution timelines if geopolitical disruptions intensify. That said, ongoing efforts toward backward integration and domestic sourcing are expected to gradually mitigate these risks. Another notable trend is the increasing role of exports, with Indian defence products gaining traction in global markets. Growing engagement with friendly nations and competitive positioning in cost and technology are enabling domestic players to expand their international footprint.  READ | 20 stocks to buy: Elara sees solid upside as Nifty enters 'bounce zone' 

Overall, the sector remains well-positioned for medium-term growth, driven by strong policy support, a healthy order pipeline, and a structural shift toward self-reliance. While execution risks remain in the near term, the long-term investment case is underpinned by improving visibility, rising global demand, and continued indigenisation. 

Bharat Electronics: TP - ₹520

Supported by a robust ₹730 billion order book and sustained inflows, Bharat Electronics stock remains well placed to benefit from large platform programs across the Army, Navy, and Air Force. A strong addressable market underpins expectations of sustained revenue growth exceeding 15 per cent over the coming years. Strong execution during Q3FY26 drove revenues and margins above expectations, aided by disciplined cost control and operating leverage. Effective supply-chain management has insulated the company from semiconductor shortages and commodity volatility, while higher indigenisation levels continue to support better-than-expected profitability. Looking ahead, Bharat Electronics is positioned to capitalise on sizable orders, including QRSAM, Akash-NG, next-generation corvettes, and base programs. Improved margins and healthy execution underpin management’s guidance, with revenue and PAT expected to grow at 18 per cent and 16 per cent CAGR over FY25-28.

Bharat Dynamics: TP – ₹1,800

Bharat Dynamics Limited (BDL) is a critical pillar of India’s defence infrastructure, acting as the sole manufacturer of some of the country’s most sophisticated weapon systems. BDL enjoys a virtual monopoly as the prime production agency for guided missile systems and underwater weapons (torpedoes) developed by the DRDO. As of early 2026, BDL maintains a massive order book estimated at ₹25,500 Crore, providing revenue visibility for the next 3-4 years. The company is aggressively pursuing "Deep Indigenisation," moving beyond mere assembly to mastering critical subsystems like seekers and guidance electronics. Under the government’s target of ₹50,000 Crore in defence exports by 2029, BDL is emerging as a global player. There is significant international interest from friendly nations in Africa, the Middle East, and Southeast Asia. To meet its record order book, BDL is undertaking a cumulative capex of ₹2,500 - ₹3,000 Crore over the next few years. This includes upgrading its manufacturing facilities with Industry 4.0, robotics, and AI-based technologies.  (Disclaimer: This story is by Motilal Oswal Financial Services Research desk. Views expressed are his own.)