At a time when global uncertainty and geopolitical tension are influencing market sentiment, the domestic brokerage house Motilal Oswal, in its latest report, has listed its preferred bets in the capital goods and defence space.
While volatility continues to impact sentiment, the brokerage believes that capital goods and defence remain relatively resilient. This is backed by strong order books and structural demand.
So, which stocks are in focus, and what is driving this outlook? Let’s take a look –
Motilal Oswal’s large-cap capital goods picks remain strong
Motilal Oswal continues to remain positive on large-cap industrial names such as Larsen & Toubro, Cummins India, and Siemens Energy India.
As the brokerage noted, “We reiterate our positive stance on L&T/Cummins India / Siemens Energy India in the large-cap space.”
These companies are seen as key beneficiaries of strong order inflows and their presence in high-growth segments such as infrastructure and energy.
Motilal Oswal’s mid and small caps picks across industrials
The brokerage has also highlighted opportunities in the midcap and small-cap segments, particularly Kirloskar Oil Engines and Kalpataru Projects International.
It added, “Kirloskar Oil Engines and Kalpataru Projects in the midcap and small-cap segments.”
These companies are seen as well-positioned due to their strong execution capabilities, diversified business models, and consistent order inflows. Their exposure to key areas such as infrastructure, energy, and industrial development gives them better visibility compared to peers.
Motilal Oswal’s top defence pick: BEL
In the defence space, Bharat Electronics continues to be the brokerage’s preferred choice.
The report clearly said, “Bharat Electronics continues to remain our top pick in the defence sector.”
Focus on energy transition and infrastructure
A key factor highlighted in the Motilal Oswal report is the continued focus on energy transition and infrastructure development.
The brokerage said, “The focus will continue to be on capital goods and defence, with an increasing need to invest in defense, alternative energy sources such as renewables and transmission, and the development of a domestic ecosystem to reduce dependence on other countries.”
Order flow and execution outlook
Ordering activity during the quarter remained mixed but broadly in line with expectations.
The domestic brokerage house noted, “Ordering activity was supported by power T&D, defence, metals, automobile, data centers, and B&F segments.”
Backed by a strong order pipeline, the brokerage expects stable growth going forward.
It added, “Backed by a strong backlog, we expect 12% YoY growth in execution for Q4FY26 across our coverage universe.”
Margins may see some pressure
Motilal Oswal further pointed out that while revenue growth is expected to remain steady, margins could face some pressure due to rising costs.
The brokerage highlighted, “We expect margins across our coverage universe to decline by around 160bp YoY, with EPC companies’ margins contracting around 50bp YoY and product companies’ margins contracting around 320bp YoY.”
A selective approach
The overall stance of the brokerage remains selective rather than broad-based.
It said, “We remain selective in the sector and continue to favor companies with strong execution capabilities, order book visibility, and exposure to high-growth segments such as transmission, defence, and data centers.”
What should investors track next?
Going ahead, multiple factors will influence the capital goods and defence sector stocks. These include the trajectory of global conflicts, commodity price trends, and the pace of government and private capital expenditure. Motilal Oswal highlighted a calibrated view based on the various sector and fundamental dynamics.
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.