HAL, Data Patterns, BEL Are Jefferies' Top Picks As Strong Order Book, Earnings Push Bullish Defence Outlook

Jefferies remained constructive on India's defence theme, citing a robust order book and strong earnings visibility over the next five years. Hindustan Aeronautics Ltd. and Data Patterns Ltd. are Jefferies' top picks in the sector, followed by Bharat Electronics Ltd.

India's defence sector is experiencing strong momentum, the brokerage highlighted in it's latest 'India Defence Monthly' report. The country's defence spending surged 25% year-on-year in March 2025, helping meet the financial year 2025 revised target of 3% growth.

The start to fiscal 2026 has been even more impressive, with a 122% year-on-year increase in defence capital expenditure in April—well ahead of the budgeted 13% growth, Jefferies said.

Following Operation Sindoor in May 2025, the government has sharpened its focus on showcasing indigenously developed defence equipment for global exports. So far, India has achieved 10% of its Rs 30,000 crore fiscal 2026 export target.

Global Tailwinds Boost Export Potential

The export push aligns with rising global defence expenditure. NATO has proposed increasing defence spending to 3.5% of GDP, with an additional 1.5% allocated to related sectors. This could add an estimated $530 billion annually—equivalent to 20% of 2024's global defence spend. Sixteen EU nations are also planning budget exemptions for defence investments through 2028, the brokerage noted.

India is seizing the opportunity. The government aims to more than double defence exports to Rs 50,000 crore by financial year 2030 from Rs 23,600 crore in financial year 2025.

Indigenous systems like BrahMos missiles, Akashteer, and Sukhoi jets, used in Operation Sindoor, are being actively promoted abroad. A $700 million missile export deal with Vietnam is reportedly under negotiation, while smaller Indian firms like Sunita Tools and NIBE have secured overseas orders, it said.

PSUs To Lead, Private Participation Growing

Public sector units are expected to remain dominant due to their R&D strength, but the private sector's share of defence revenues has risen from 9% in fiscal 2022 to 14% in financial year 2025, according to Jefferies. The Ministry of Defence has encouraged private participation, including in marquee projects like the AMCA fighter jet.