India's defence sector continues to offer a compelling long-term investment opportunity, backed by a strong order pipeline, rising localisation and increased government spending on indigenous military capabilities, according to Nuvama Institutional Equities. The brokerage has retained a positive view on the sector and named Solar Industries India (SOIL) and Bharat Electronics Ltd. (BEL) as its preferred stock picks.
Nuvama believes India's defence industry has entered fiscal 2027 with solid structural visibility, supported by healthy order books, continued indigenisation and a robust procurement pipeline. However, it expects execution trends to remain mixed across companies in the June quarter, with firms having shorter execution cycles and higher localisation likely to outperform.
The brokerage said it prefers companies operating in defence electronics, subsystems and consumable-led businesses, as these offer faster execution, stronger margins and better earnings visibility. In contrast, platform integrators such as Hindustan Aeronautics Ltd. and Bharat Dynamics Ltd. continue to face longer execution cycles and supply-chain dependencies, leading to greater variability in quarterly performance.
Solar Industries
Among its top recommendations, Nuvama values Solar Industries at 48 times its fiscal year 2028 estimated earnings. Solar Industries is expected to deliver revenue growth of around 25% year-on-year, supported by strong execution of Pinaka rocket system orders and an improvement in the domestic explosives business. Margins are expected to remain robust at around 26%, aided by a higher contribution from defence and export revenues. The company currently has a defence order backlog of around Rs 18,000 crore, while expected Pinaka extended-range orders worth Rs 4,000-6,000 crore could further strengthen growth visibility beyond FY27.
BEL
For Bharat Electronics, Nuvama has assigned a valuation of 38 times fiscal year 2028 estimated earnings. The brokerage expects Bharat Electronics to report revenue growth of around 12% year-on-year in the June quarter. Its order backlog of approximately Rs 74,000 crore provides strong medium-term revenue visibility, while operating margins are likely to remain structurally healthy at around 28%, driven by operational efficiencies and increasing localisation. Nuvama also highlighted the proposed Rs 30,000 crore Quick Reaction Surface-to-Air Missile (QRSAM) programme as a potential re-rating trigger once orders are awarded.
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Data Patterns
Nuvama also remains constructive on Data Patterns, expecting revenue growth of around 22% year-on-year and healthy operating margins of nearly 34%, supported by favourable product mix and operating leverage. The brokerage estimates order inflows of around Rs 1,000 crore during the quarter, including Rs 460 crore already secured by mid-May.
HAL
On the other hand, HAL's near-term execution remains constrained as deliveries of LCA Tejas aircraft to the Indian Air Force are yet to begin despite the receipt of six GE engines. The brokerage expects only base execution from maintenance, repair and overhaul (MRO) activities and engine deliveries during the quarter, with a meaningful ramp-up likely only in the second half of FY27, subject to timely engine supplies.
Bharat Dynamics
For Bharat Dynamics, Nuvama expects modest revenue growth of around 15% year-on-year despite a healthy order backlog of Rs 26,000 crore and fiscal year 2027 order inflow guidance of Rs 15,000 crore. Margins, however, are likely to remain weak in the June quarter due to seasonality. The brokerage said execution of the existing backlog, margin recovery, production ramp-up at new facilities and progress on key missile programmes such as the Advanced Akash system will be key monitorables.
Looking at the broader sector, Nuvama noted that India's defence production reached Rs 1.78 trillion in fiscal year 2026, signalling a transition from import substitution towards the deployment of advanced defence systems. It believes the next phase of growth will be driven by indigenous capabilities in missiles, air defence systems, electronic warfare, radars, unmanned platforms and precision ammunition. The recent Rs 52,000 crore Acceptance of Necessity (AoN) approvals further reinforce this shift and strengthen the long-term outlook for companies with strong execution capabilities, high localisation and technology leadership.
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