HAL, BEL to BDL: Why India’s defence manufacturers are suddenly in the global spotlight

According to Motilal Oswal, rising domestic procurement and increasing export opportunities, supported by the government’s push for indigenisation and a growing reputation in global arms markets, support the sector’s prospects. The Nifty Defence Index is up over 4% in the last 1 month, with a sharp upmove seen in the past 15 days. Several counters like MTAR Tech, Mazagon Dock, and Cochin Shipyard have seen a smart uptrend in the past few sessions. 

Motilal Oswal’s keystock picks from the defence sector

Motilal Oswal has carries Buy ratings on four defence stocks and a ‘Neutral’ rating on one.

Bharat Electronics is rated Buy with a target price of Rs 520 against a current market price of Rs 458, implying an upside of approximately 14%. The brokerage values the stock at 45 times two-year forward earnings. Revenue is forecast to grow from Rs 27,670 crore in FY26 to Rs 39,110 crore by FY28, with adjusted profit after tax rising from Rs 6,010 crore to Rs 8,350 crore.

Hindustan Aeronautics is rated Buy with a target price of Rs 5,500 against a current market price of Rs 3,989, implying an upside of approximately 38%, the highest in Motilal Oswal’s defence coverage.

Bharat Dynamics is rated Buy with a target price of Rs 1,800 against a current market price of Rs 1,336, implying an upside of approximately 35%.

Astra Microwave Products is rated Buy with a target price of Rs 1,150 against a current market price of Rs 1,008, implying an upside of approximately 14%.

Zen Technologies is rated Neutral with a target price of Rs 1,400 against a current market price of Rs 1,443, implying a marginal downside of approximately 3%.

6 reasons India’s defence manufacturers are suddenly in the global spotlight

Here is a detailed analysis of Motilal Oswal’s investment rationale for the defence sector now- 1. The world is rearming and India is sitting at the table

Global defence spending is entering a sustained upcycle. The trigger is the ongoing Middle East conflict, but the tremors are being felt far beyond the region. Motilal Oswal’s sector note dated 9 March points to SIPRI data showing the Middle East accounted for 26% of total global arms imports in FY25. Ukraine, still actively at war, absorbed 9.7% of global arms imports. Together, two active conflict zones are consuming more than a third of all arms traded globally.

On the supply side, the United States commands 42% of global arms exports, followed by France at 9.8% and Russia at 6.8%. Germany, China, Italy, Israel, the United Kingdom, South Korea, and Spain make up the rest of the top ten. India does not feature among the top ten exporters yet, but that is precisely the gap the government’s indigenisation push is trying to close.

NATO’s standing directive asking member nations to raise defence capital expenditure allocations has added a structural dimension to what might otherwise have looked like a cyclical spike. Governments across Europe, the Middle East, and Asia-Pacific are now budgeting for higher military spending not just this year but across multi-year planning cycles, expanding the total addressable market for every credible defence manufacturer on the planet including Indian ones.

2. India is the world’s third-largest arms importer and wants to stop being one

India sits at 8.2% of global arms imports, making it the third-largest buyer of military equipment in the world, behind Ukraine and Saudi Arabia. That is not a position the Indian government is comfortable with, and it has been systematically building policy architecture to change it.

The shift from buyer to builder is the central narrative running through Motilal Oswal’s coverage of the sector. Every policy move over the past three years, from positive indigenisation lists that ban imports of specified equipment, to increased indigenous content mandates, to the updated Defence Acquisition Procedure 2026, has been aimed at forcing this transition.

“India’s defence sector is well positioned to benefit from both rising domestic procurement and increasing export opportunities, supported by the government’s push for indigenisation and a growing reputation in global arms markets,” Motilal Oswal said in its note.

Companies like Bharat Electronics Limited, Solar Industries, and Bharat Dynamics Limited are increasingly competing for international contracts that would have been unthinkable a decade ago.

3. The Union Budget increased defence capital outlay to Rs 2.2 lakh crore 

The Union Budget for FY27 increased the capital outlay for defence by 18% year-on-year to Rs 2.2 lakh crore. Motilal Oswal describes this as critical not just as a number but as a signal of sustained government commitment to funding the procurement pipeline already building up.

The budget allocation matters because it provides the financial headroom to absorb the massive pipeline of approvals of necessity already cleared in FY26. So far in FY26, approvals of necessity worth over Rs 7 lakh crore have been granted across multiple platforms and systems. These approvals are the formal government green light for procurement and typically convert into tenders, contract awards, and execution over the next two to two-and-a-half years.

What that means in practice is that the order inflow cycle for Indian defence manufacturers is not dependent on what happens next month or next quarter the pipeline is already built and funded.

4. Order inflows already running hot this year

Defence public sector undertakings have entered the final stretch of FY26 with substantial contracts already secured. Hindustan Aeronauticshas locked in capital contracts worth Rs 69,400 crore, Bharat Electronics Limited has secured Rs 20,600 crore, and Bharat Dynamics has secured Rs 5,400 crore for FY26 so far.

Private sector players are also seeing improved momentum. Astra Microwave Products received defence orders worth Rs 290 crore in the third quarter of FY26. Zen Technologies saw inflows revive sharply in the same quarter, with Rs 600 crore received, followed by an additional Rs 350 crore in January 2026, with a simulator order worth Rs 600 crore still expected before the close of FY26.

Beyond the directly covered names, Garden Reach Shipbuilders and Engineers has emerged as the lowest bidder for next-generation corvettes worth approximately Rs 33,000 crore and is tracking progress on P-17 Bravo frigates worth approximately Rs 70,000 crore, landing platform docks worth approximately Rs 35,000 crore, and mine counter-measure vessels worth approximately Rs 32,000 crore. Solar Industries has reported a defence order book of approximately Rs 18,000 crore, supported by Pinaka rocket systems and ammunition supplies expected from the fourth quarter of FY26.

Management commentary across companies points to strong order finalisation visibility over the next 15 to 18 months, backed by large named programs at advanced stages of the procurement process.

5. Updated defence acquisition procedure 2026 is a structural game-changer

The government’s updated Defence Acquisition Procedure represents the most significant overhaul of India’s defence procurement architecture in years. Motilal Oswal outlines six key changes in its note.

Procurement categories have been reduced from five to four, removing a layer of procedural complexity that had slowed acquisition timelines. The minimum indigenous content requirement in the Buy Indian-IDDM category has been raised from 50% to 60%, forcing deeper localisation in every contract. An ab-initio single vendor provision has been introduced for equipment meeting certain technology readiness levels, directly benefiting Indian companies that have invested in developing homegrown platforms by removing the requirement for a competing bid where no comparable domestic alternative exists.

India will now retain critical design data, source code, and upgrade rights for platforms procured under the new framework, reducing long-term dependency on foreign original equipment manufacturers. Support for startups, MSMEs, and innovation programs like Make and iDEX has been strengthened, with assured orders for successful prototypes and financial compensation for vendors who complete trials. Finally, the Fast Track Procedure has been redefined with greater delegated financial powers to speed up the procurement of emerging technologies.

6. The Israeli supply chain dependency is the sector’s biggest blind spot

India is heavily dependent on Israel for critical defence components. Israel accounts for nearly half of India’s air defence and sensor imports. India’s purchases from Israel are concentrated in advanced components for missiles, loitering ammunition, precision strike weapons, air defence systems, radars, and optical sensors.

The same conflict that is expanding the global arms market and boosting demand for Indian-made defence equipment could simultaneously disrupt the supply chain India depends on to manufacture that equipment. A prolonged Middle East conflict creates pressure on Israel’s own production capacity and export pipelines, with direct consequences for Indian manufacturers whose execution timelines depend on Israeli subsystems.

“In the near term, we will also look out for supply chain constraints, particularly related to specialised components and imported subsystems, which could affect the execution timelines of certain defence platforms,” Motilal Oswal warned in the note.

Conclusion

India’s defence sector is not running on hope. It is running on Rs 2.2 lakh crore in budgeted capital expenditure, Rs 7 lakh crore in already-approved procurement pipelines, a rewritten acquisition framework that systematically favours domestic manufacturers, and a global arms market that is expanding because the world has become more dangerous.

The Israeli component dependency is the one variable that could disrupt execution timelines in the near term. Beyond that, Motilal Oswal’s analysis makes the case that the structural setup for Indian defence manufacturers is as strong as it has been in the sector’s modern history.