India’s defence sector is entering one of its strongest upcycles yet. According to Nuvama Institutional Equities’ Q2FY26 preview report, the industry is riding a high-growth wave, backed by a Rs 10 lakh crore pipeline across Defence Public Sector Undertakings (DPSUs). The momentum is supported by higher capital allocations particularly toward the Air Force and Navy and an intensified push for indigenisation.
Defence Ministry’s 15-year roadmap a big boost
The Ministry of Defence’s new 15-year roadmap has added further thrust, laying out plans for nuclear-powered warships, hypersonic missiles, stealth UCAVs, directed-energy weapons, and advanced AI and space-warfare capabilities.
But as the brokerage cautioned, while the structural outlook is robust, near-term growth remains “selective amid seasonality.” Execution strength, not backlog size, will decide winners in the coming quarters.
Nuvama on defence order pipeline: Massive but not evenly distributed
The report pegs the opportunity pipeline for Defence PSUs at around Rs 8.5–9 lakh crore. They believe that it is likely to unfold over the next five to seven years. Among the state-owned majors, Hindustan Aeronautics (HAL) leads with roughly Rs 4.7 lakh crore in potential orders, followed by Bharat Electronics (BEL) with about Rs 1 lakh crore, and the major shipbuilders Mazagon Dock (MDL) and Cochin Shipyard (CSL) together accounting for over Rs 4.6 lakh crore.
Over FY25–FY30, Nuvama expects India’s defence capital outlay to rise at a 14% CAGR, far ahead of most global averages. Historical spending trends underline the shift: India’s defence expenditure climbed from $51 billion in 2014 to $86 billion in 2024, a 5.4% CAGR one of the fastest among large economies.
The brokerage noted that this sustained investment is reshaping India’s defence-industrial base from a procurement-led model to a full-spectrum manufacturing ecosystem.
Nuvama on BEL: Dependable outperformer
Bharat Electronics (BEL) remains Nuvama’s preferred structural pick. The brokerage expects Q2FY26 revenue at Rs 52,767 crore, up 15% year-on-year, with EBITDA of Rs 14,775 crore and Rs 11,636 crore profit. Margins are projected around 28%, backed by a Rs 7.5 lakh crore order backlog.
Nuvama noted that BEL has consistently outperformed both Street expectations and its own guidance. The company reported an operating margin of 28.1% in Q1FY26 against a 27% guidance, aided by higher localisation and operational efficiency.
The firm also pointed to the Quick Reaction Surface-to-Air Missile (QRSAM) contract valued at nearly Rs 3 lakh crore as a potential re-rating trigger. “Given the Indian Army’s tender rollout, QRSAM ordering could materialise anytime now,” the report said, noting that it would likely push BEL’s margins further upward.
With an estimated 16% EPS CAGR over FY25–28 and a return on equity near 26%, BEL remains the sector’s most dependable performer.
Nuvama on HAL: Scale without speed
HAL continues to lead the sector in backlog, but the brokerage report expressed concern over the pace of execution. The company’s pending orders exceed Rs 2 lakh crore, yet deliveries under key programs, including the Tejas Light Combat Aircraft, remain delayed. Of the 12 Tejas units targeted for FY26, only seven are expected to be delivered, contributing around 13% to annual revenue.
The brokerage noted that HAL is in the midst of a heavy capex phase of about Rs 1.5 lakh crore over four to five years, which will weigh on near-term profitability. Nuvama foresee a higher product mix roughly 60% in FY27 versus 23% in FY25 but warned that “execution ramp-up of large-scale programs remains critical.”
Despite these challenges, Nuvama described HAL’s decade-long opportunity pipeline as “formidable,” underpinned by strong demand for aircraft, engines, and upgrade programs.
Nuvama on Solar Industries: Explosive compounder
In contrast to HAL’s measured pace, Solar Industries India continues to deliver growth at full throttle. The brokerage expects Q2FY26 revenue of Rs 22,700 crore, up 32.3% year-on-year, supported by a robust backlog exceeding Rs 16,800 crore.
Heavy monsoons hurt domestic mining and infrastructure activity, but strong overseas execution offset much of the drag. Operating margins are projected above 25%.
The report described Solar as a “high-quality structural story”, with a projected 30% YoY revenue growth for the quarter. The company’s defence business now contributes about 20% of total revenue up from 2% in FY18 and could reach 50% by FY28.
Nuvama on Data Patterns: Small base, sharp edge
Data Patterns (DPIL), though smaller in scale, continues to demonstrate strong operating leverage. For Q2FY26, the brokerage expects revenue of Rs 1,169 crore (up 28.5% YoY), EBITDA of Rs 415 crore, and PAT of Rs 315 crore.
Order inflows are estimated at Rs 180 crore for the quarter, backed by a full-year pipeline of Rs 1,000 crore. The company’s margin profile remains among the sector’s best gross margin around 80% and operating margin above 32%.
The brokerage noted that DPIL is in a high-capex phase to expand capacity, which could weigh on near-term return ratios but strengthen its position in high-value electronics. Its total addressable opportunity stands between Rs 2,000–Rs 4,000 crore over the next 18–24 months, largely in avionics, radar integration, and mission systems.
“As defence electronics grows at 1.5–2x the overall capital outlay, DPIL is well placed to capture the next wave of high-value orders,” the report observed.
Nuvama on Bharat Dynamics: Catching up after disruption
Bharat Dynamics (BDL), the missile systems manufacturer, is finally emerging from two years of disruption. The brokerage said supply bottlenecks from war-affected regions such as Russia and Israel are easing, paving the way for smoother execution.
Q2FY26 revenue is estimated at Rs 6,537 crore, up 20% year-on-year, with PAT expected at Rs 1,381 crore. Margins are likely to hover around 18%. The order backlog of Rs 22,800 crore supports a revenue CAGR of nearly 50% over FY25–28, but competition in missile systems remains intense.
Nuvama cautioned that OPMs may stay below 20% amid rising private participation, even as execution normalises. Key growth drivers include Astra, Nag/Helina, and QRSAM programmes, collectively worth over Rs 42,800 crore in near-term opportunities.
Zen Technologies: Waiting for the next order cycle
For Zen Technologies, momentum remains subdued. Management guided for Rs 650 crore in Q2FY26 order inflows, but the brokerage expects slower topline growth due to weak order momentum.
Even so, the company’s margins remain resilient around 34% driven by high-margin simulation projects. The brokerage believe earnings may bottom out in FY26, with recovery expected only from H2FY27, contingent on fresh Ministry of Defence orders.
The report added that defence and exports are set to comprise 75–80% of Zen’s revenue mix within the next two years, compared with 60–65% now.
Capital allocation with purpose
Over the last two years, the Ministry of Defence has cleared Rs 8.6 lakh crore in capital acquisitions across aircraft, warships, missiles, and electronic systems. Major beneficiaries included BEL, HAL, BDL, L&T, and Solar Industries.
The brokerage said these decisions underscore a structural pivot toward self-reliance “a deliberate move to localise production and reduce exposure to import-heavy supply chains.”
What it means for investors
Nuvama Institutional Equities remains “structurally positive” on India’s defence space, but identifies defence electronics as the key outperformer. The segment is expected to grow 1.5–2x faster than the overall capital outlay, implying a 14–15% CAGR through FY30.
The report reiterated BEL as its top pick for execution strength and margin visibility, Solar Industries as a multi-year compounder, and Data Patterns as a niche player with high-growth optionality.
HAL and BDL, it said, remained attractive over the long term but face short-term execution risks, while Zen Technologies sits in a tactical wait zone pending order recovery.
In sum, India’s defence upgrade cycle is not a passing phase, it’s a Rs 10 lakh crore transformation in motion. The firms that can execute, localise, and sustain margins will define the decade. BEL is already doing it. Solar and Data Patterns are getting there, as per the brokerage. The rest still have something to prove.