The domestic brokerage house Nuvama has turned selective on India’s defence space. It has identified a set of stocks where it sees stronger earnings visibility and better execution trends.
As the broader defence sector continues to benefit from long-term government spending, the brokerage believes the next phase will be more about execution quality rather than just order inflows.
According to the report, allocation trends are shifting toward high-technology and fast-cycle segments such as electronics and ammunition systems.
Let’s take a look at the stock the brokerage is bullish on and what the rationale behind them.
Top picks: What are Nuvama’s top bets now
Nuvama has highlighted Bharat Electronics, Data Patterns (India) and Solar Industries India as its preferred “top picks” in the defence universe.
The brokerage has assigned a target price of Rs 525 for Bharat Electronics, implying an upside of 19.3%.
Solar Industries India has a target of Rs 15,800, suggesting an upside of 13.4%, while Bharat Dynamics is placed at Rs 1,900, indicating the highest upside of 43.3%.
Hindustan Aeronautics is seen at Rs 4,800, implying a 19% upside, and Data Patterns (India) has a target of Rs 3,570, suggesting a 6% upside from current levels.
“We continue to prefer defence electronics/subsystem players (BEL, DPIL) and consumable-linked plays (SOIL), given faster execution cycles, lower import dependence and superior margin profile,” the brokerage said. It also added, “Top picks: Bharat Electronics, Data Patterns India and Solar Industries India.”
Nuvama on Defence sector: What is changing in the defence sector?
The brokerage noted that India’s defence sector is entering a more balanced phase after a strong run of order inflows. While demand visibility remains strong, the pace of new large orders may slow down. This will shift the focus toward execution and cash flow performance.
A key structural shift highlighted in the report is in government spending. “The ~60% YoY jump in the ‘other equipment’ bucket within the FY27 Rs 2.2 trillion defence budget reinforces the shift towards modernisation and high-tech systems.”
This category includes missiles, radars, electronic warfare systems, avionics and other advanced defence equipment.
According to the brokerage, this shift clearly benefits electronics and consumable-focused companies more than large system integrators.
It also pointed out that spending is now tilting toward short-cycle, technology-heavy segments such as electronics, EW (Electronic Warfare), radars, missiles and ammunition.
Nuvama on Defence sector: Execution becomes the key driver
Even though the order pipeline remains strong, execution is expected to vary across companies.
The brokerage noted that “we believe we are entering a more calibrated phase of the defence upcycle, where incremental ordering pace shall moderate and the focus shifts to execution quality, spending mix and cash flow delivery.”
It also highlighted risks in the system, including import dependence, integration challenges, and delays in certification and approvals.
Nuvama further in its report pointed that “execution risks remain elevated, driven by import dependence, integration complexity and certification timelines alongside administrative and funding friction.”
Nuvama on Defence sector: Quarterly trends and near-term outlook
For the ongoing quarter, the brokerage expects mixed performance across companies. Some players like Data Patterns India and Solar Industries India may show relatively stronger execution, while others could see delays in delivery or project ramp-ups.
It also noted that “BEL and HAL reported weaker-than-expected execution with BEL affected by supply chain constraints and HAL reporting delays in key platform deliveries.” At the same time, “BDL may also report a slight miss given continued execution volatility.”
Conclusion
The defence sector remains supported by strong order backlogs and steady government focus on modernisation. However, the brokerage indicates that stock performance will now depend more on execution efficiency rather than just order wins.
Disclaimer: The investment analysis and target prices mentioned above are based on a report by Nuvama and do not constitute an offer or solicitation by this publication. Investors are advised to consult with a SEBI-registered investment advisor before making any financial decisions, as market performance involves inherent risks and past results do not guarantee future returns.
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