The Union Budget 2026 is just around the corner, and it could be an important one for India's defence sector. As the Indian markets gear up for higher earnings momentum heading into the last leg of FY26, several domestic defence players are relying on increased defence spending, especially after the Defence Secretary indicated a potential 20% hike in FY27 budget to maintain operational readiness.
A Jefferies report suggests that the increased spending could benefit a host of defence companies primed for significant tailwinds, including the likes of Hindustan Aeronautics (HAL), Bharat Electronics and Data Patterns.
The brokerage firm, which has identified HAL as its top pick, expects all these companies to sustain a double-digit EPS CAGR over the medium term.
NDTV Profit takes a look at what Jefferies has had to say about these three stocks primed to benefit from the government's defence spending.
Hindustan Aeronautics
Jefferies projects HAL to see its share of domestic defence spending rise over 25%, as the company gears up to deliver indigenously manufactured aircraft.
As such, the firm has a 'buy' call on HAL with a price target of Rs 6,220, noting that the company's earnings growth is backed by a robust order book. This, in turn, supports an estimated 17.7% EPS CAGR from FY25-28.
Bharat Electronics
A leader in the defence electronics space, BEL is expected to benefit from the indigenisation push. The company's market share in capital spend has steadily climbed, with a projected 19.5% EPS CAGR for the FY25-28E period.
Jefferies has maintained a "Buy" rating with a price target of Rs 510, representing a 22.7% upside. A key near term trigger could be an expected QRSAM order by Q4FY26, which could be worth around $3 billion.
Data Patterns
Another company Jefferies is bullish on is Data Patterns, which has demonstrated solid growth, with domestic revenue rising at a 31% CAGR between FY19-25. This momentum is set to continue with a forecasted 23.7% EPS CAGR through FY28. The firm has a 'buy' call on the company with a target price of Rs 3,710.
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