Defence sector stocks are in focus as rising order inflows, strong government focus on domestic manufacturing and improving execution continue to drive interest in the space. 

Brokerage house Nuvama has maintained a positive stance on select defence companies and believes a few stocks could offer around 15% upside potential from current levels.

According to the brokerage report, companies with strong order books, improving execution visibility and expanding margins may continue to remain in focus over the next few years. 

Among the brokerage’s preferred picks are Solar Industries India, Hindustan Aeronautics and Data Patterns (India).

Solar Industries: Nuvama rates ‘Buy’ 

Nuvama has maintained a ‘Buy’ rating on Solar Industries India and raised its target price to Rs 20,000 from Rs 15,800 earlier. The revised target implies an upside potential of nearly 15% from the current market price.

The brokerage said, “Maintain ‘Buy’ on Solar Industries as our sector top pick, building in FY26–28 revenue/PAT of 35%/39% annually on a compounded basis with 30%+ ROE.”

As per the report, the company delivered a strong March quarter performance helped by higher defence execution and better operating margins. Revenue during the quarter rose over 40% year-on-year to around Rs 3,050 crore, while defence revenue jumped sharply by more than 130% to nearly Rs 1,000 crore.

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The brokerage highlighted that Solar Industries currently has a total order backlog of over Rs 21,000 crore, out of which nearly Rs 18,000 crore comes from defence-related orders. According to Nuvama, this provides strong long-term revenue visibility for the company.

The report also noted that the company plans capital expenditure of around Rs 2,050 crore in FY27 to support expansion across defence and international businesses.

Nuvama further said, “FY27 execution guidance of Rs 14,000 crore (+40% YoY) led by defence revenue of Rs 4,500 crore (+70% YoY).”

Hindustan Aeronautics: Nuvama rates ‘Buy’ 

Nuvama has also retained its ‘Buy’ rating on Hindustan Aeronautics (HAL) and increased the target price to Rs 5,040 from Rs 4,800 earlier. According to the brokerage report, this indicates an upside potential of around 15% from the current market price.

According to Nuvama, the stock’s current valuation already factors in delays related to aircraft deliveries and execution challenges.

The brokerage report stated, “Maintain ‘Buy’ given inexpensive valuations at 26x FY28 EPS, while improvement in execution/new ordering could drive re-rating.”

HAL reported relatively slower revenue growth during FY26 because of delays in Light Combat Aircraft (LCA) Tejas and HTT-40 deliveries. Revenue for FY26 stood at around Rs 33,100 crore, up nearly 7% year-on-year.

Despite execution delays, the company’s order book remains strong at around Rs 2.54 lakh crore as of March 2026, which is nearly eight times its FY26 revenue.

According to the brokerage report, HAL expects revenue growth of 10-12% in FY27 while operating margins are likely to remain stable.

Nuvama added, “Order inflows of Rs 90,000 crore are anticipated over next two years.”

The brokerage also said that deliveries of LCA Tejas aircraft from the second half of FY27 and progress in Sukhoi upgrade programmes remain key factors to monitor over the next few quarters.

Data Patterns: Nuvama rates ‘Buy’ 

Another defence stock highlighted by Nuvama is Data Patterns (India). The brokerage has maintained a ‘Buy’ rating and raised the target price to Rs 4,500 from Rs 3,570 earlier. The revised target implies an upside potential of around 15%.

According to the report, the company reported healthy profitability during the March quarter despite a decline in quarterly revenue due to a high base effect. Gross margins improved sharply because of increased execution of fully in-house developed systems.

Data Patterns reported FY26 revenue of around Rs 920 crore, up more than 30% year-on-year. Profit after tax for the full year increased nearly 24%.

The brokerage highlighted that the company’s order inflows surged significantly during FY26, while potential order visibility currently stands at over Rs 2,060 crore.

Nuvama stated, “Data Patterns remains well placed to capitalise on its strong negotiated/repeat order pipeline.”

According to the report, future growth will depend on timely order conversion, execution of programmes such as BrahMos seeker systems and continued improvement in working capital efficiency.

Disclaimer: The investment targets and stock ratings mentioned in this article are sourced from a third-party institutional brokerage report and do not constitute an offer, solicitation, or direct investment advice by this publication. Defence sector investments carry inherent market, regulatory, and execution risks; equity markets are subject to volatility, and past performance is not indicative of future returns. Readers are advised to consult a SEBI-registered investment advisor before making any financial decisions based on these projections.

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