What does a surge in defence approvals really mean for defence sector stocks and more importantly, who actually benefits from it?
At a time when defence stocks have seen sharp volatility, a fresh set of large government clearances has brought the spotlight back on the sector. According to a recent report by Kotak Institutional Equities, the scale of approvals this year indicate a strong intent to expand and modernise India’s defence capabilities.
However, the benefits for listed companies may not be immediate and will depend on how these approvals translate into actual orders.
Let’s take a look at what the brokerage says and its outlook –
Stocks in focus: BEL, HAL, L&T and GRSE
According to Kotak Institutional Equities report, a few domestic companies are expected to be directly linked to the approved projects.
Bharat Electronics (BEL), Hindustan Aeronautics (HAL), Larsen & Toubro (L&T) and Garden Reach Shipbuilders & Engineers (GRSE) are among the key names that could see opportunities emerge.
According to the brokerage report, “Among domestic firms, there are three to four orders in which BEL will be a key participant, with a few orders potentially for the likes of HAL, L&T and GRSE.”
Defence sector: Big approvals indicate strong push
The Defence Acquisition Council (DAC), which is responsible for clearing major procurement proposals, recently approved defence deals worth Rs 2.38 trillion. These approvals were largely driven by the Indian Air Force.
The report noted, “The Defence Acquisition Council (DAC) approved defense procurement proposals worth Rs 2.38 trillion on March 27, led by the Indian Air Force, which accounted for the majority of the outlay.”
Some of the major approvals include the S-400 long-range surface-to-air missile system and medium transport aircraft. However, a significant portion of these orders is expected to be sourced from global suppliers.
Domestic participation still in play
Even though large imports dominate the headline numbers, domestic companies are still part of several projects.
For instance, the report highlights opportunities in areas such as unmanned aircraft systems and supporting equipment.
Kotak Institutional Equities noted, “Further, we see BEL has a potential beneficiary for three to four orders, Su-30 order for HAL and potentially GRSE being a key contender for the Heavy-Duty Air Cushion Vehicles.”
In addition, Larsen & Toubro is expected to be involved in the production of the Ghatak unmanned combat aerial vehicle developed by the Defence Research and Development Organisation (DRDO).
This indicates that while the scale of domestic participation may vary, there are multiple entry points for Indian companies across projects.
Defence Sector: A sharp jump in approvals this year
One of the key highlights from the report is the sharp rise in approvals compared to last year. The pace at which these approvals are coming through reflects a broader push towards strengthening defence infrastructure.
According to the Kotak report, “With this approval, YTD FY2026 AoN clearances have surged to Rs 9.3 trillion, nearly four times of last year (Rs 2.5 trillion).”
Delays in large orders remain a concern
While approvals have picked up, the actual conversion into orders is still pending for several large projects. This is something investors need to track closely.
The report pointed out, “Order finalization of major programs such as P-75I submarine (MDL), next-generation corvette (GRSE) and QRSAM (BEL & BDL) seemed to be potentially pushed out to FY2027.”
It also added that “a couple of months delay in a large program will not impact execution timelines; however, any further delay could put some risk to out-year estimates.”
What investors should watch
The overall takeaway from the report is that while the scale of approvals is large, the real impact will depend on how quickly these projects move to the execution stage.
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.