Defence stocks are emerging as a pocket of stability at a time when earnings pressure continues to weigh on large parts of the market. According to a recent report by Motilal Oswal, while small cap companies continue to face downgrades averaging 5.5%, certain large cap sectors, especially the defence sector stocks are seeing positive revisions.
“Our analysis of recent earnings revisions for the Motilal Oswal universe reveals that the past trend of easing earnings cuts’ intensity has gradually given way to earnings raises,” the report noted, highlighting the resilience of bigger companies amid broader market pressures.
Let’s take a look at what is driving this divergence and why defence stocks are standing out in the latest earnings cycle –
Defence picks leading the charge
Among the top large-cap defence picks, Bharat Electronics (BEL) and Hindustan Aeronautics (HAL) are standing out.
Furthermore, the brokerage house report noted that large-cap companies, as a group, saw aggregate earnings upgrades of around 2% in the three months ending the second quarter of FY26, while mid-caps posted 3.1% gains.
In contrast, small caps remained under pressure, due to ongoing challenges in liquidity and sector-specific performance.
Sectoral trends and earnings
Among sectors, defence and related large cap companies received positive revisions alongside oil and gas, telecommunications, public sector banks, and insurance. Utilities and certain consumer sectors were among the laggards.
According to the brokerage house report, “Within large-cap stocks, sectors with greater than 1% aggregate earnings raise equaled those with earnings cut of less than minus 1% by a ratio of 7:7, with PSU banks, Insurance, Oil & Gas, Telecom, and Autos posting meaningful upgrades.” This indicated that even amid uneven trends, the defence sector remains relatively resilient.
Why slower GDP growth may not hurt earnings
One common investor concern is whether corporate earnings can grow when nominal gross domestic product growth stays below 10%.
Motilal Oswal believes this worry is overstated. “There is modest explanatory power of nominal GDP growth for the broader MOFSL universe’s annual profit after tax growth,” the report added. Even for large-cap stocks such as the Nifty 50 index, nominal GDP growth explains only about 20% of profit growth.
Motilal Oswal’s 2026 earnings forecast
Motilal Oswal forecasts FY26-FY27 earnings growth of 12-15% for their coverage universe and 15-16% for the Nifty index.
The brokerage added, “The backdrop for earnings has improved versus last year, engineered by a series of stimulative fiscal and monetary measures.”
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.