Defence stocks fall amid stock market crash; Analysts bullish on HAL, BEL, Bharat Dynamics and others. Here’s why

Defence stocks in India traded mostly lower on Friday, with the Nifty India Defence index declining nearly 1%, in line with weakness across the broader market.

Unimech Aerospace and Manufacturing emerged as the top loser in the index, plunging nearly 10%. Mishra Dhatu Nigam, Zen Technologies, Astra Microwave Products, Garden Reach Shipbuilders & Engineers, and Dynamatic Technologies, were other laggards, falling in the range of 2–4%.

On the positive side, Hindustan Aeronautics (HAL), Bharat Forge, and MTAR Technologies were the only constituents to trade in the green.

The decline in defence stocks came amid a broader stock market crash, with the benchmark indices Sensex and Nifty 50 dropping more than 1% each.

Despite the near-term pressure, defence stocks remain in focus following a significant development on the policy front. The Defence Acquisition Council (DAC), chaired by Defence Minister Rajnath Singh, approved capital acquisition proposals worth ₹3.60 lakh crore to address key requirements of the Indian Air Force (IAF), Indian Army, Indian Navy, and Indian Coast Guard.

The ‘Acceptance of Necessity’ (AoN) was granted for the procurement of 114 Rafale fighter jets, combat missiles, Air-Ship Based High Altitude Pseudo Satellite (AS-HAPS) systems, P-8I aircraft, Vibhav anti-tank mines, among other platforms.

The proposal envisages manufacturing a majority of the Multi-Role Fighter Aircraft (MRFA) contract in India, which analysts expect to significantly benefit the domestic defence ecosystem through localization, technology transfer, and supply chain participation.

The defence budget for FY26-27 has been pegged at ₹7.8 lakh crore, accounting for 15% of the Union Budget, marking a 15% YoY increase over 2025-26BE. Of this, ₹2.19 lakh crore is allocated for capital acquisitions.

Defence Stocks to buy

With project approvals worth ₹6.9 lakh crore in FY26 YTD, Antique Stock Broking believes defence companies have strong growth opportunities in the foreseeable timeframe. Hence, it maintained a ‘Buy’ rating on Mazagon Dock Shipbuilders, Hindustan Aeronautics (HAL), Bharat Electronics (BEL), Bharat Dynamics (BDL), Zen Technologies, Solar Industries India, and PTC Industries.

Sunny Agrawal, Head of Fundamental Research at SBI Securities noted that the bulk of the spending to happen towards 114 Rafale jets as majority of these are expected to be produced in India boosting domestic defence production with 60-80% indigenization.

“Tata Advance Aerospace Ltd, HAL, BEL, BDL, Mahindra and Dynamatic technologies are likely to be part of the broader supply chain. For Advanced Armoured Recovery Vehicles (ARVs) - BEML, L&T, Mahindra Defence would be key beneficiaries. For Anti-Tank mines- BDL and government owned ordnance factories would be playing a key role. Infantry Combat Vehicle - L&T, Tata Advance, Mahindra Defence and Bharat Forge would be key beneficiaries,” said Agarwal.

Overall, he believes it is a positive development for defence and aerospace sector, and companies having presence in radar, electronic warfare, avionics, equipment making, engine & propulsion, software, assemblers (weapon integration), sensor, safety systems are likely to be beneficiaries.

Krishna Doshi, Defence Analyst at Ashika Institutional Research said that the sharp surge in AoN approvals in FY26 provides strong visibility on the medium-term procurement pipeline, significantly reducing order flow uncertainty for defence contractors.

“As a result, leading defence players are well positioned to benefit from sustained execution momentum, improved operating leverage, and multi-year growth tailwinds driven by a structurally expanding capital outlay cycle. Key beneficiaries include - Bharat Dynamics, Data Patterns (India), BEL, Astra Microwave and PTC Industries,” said Dohsi.

According to Balaji Rao Mudili, Research Analyst at Bonanza, public sector giants i.e. HAL, BEL and Bharat Dynamics are expected to be the beneficiaries, while on the private sector front, Astra Microwave, which is a “pure play” on the digitalization of Indian defence and Solar Industries, the leader in explosives and munitions, are also expected to benefit.

“The outlook for the Indian defence sector seems positive backed by record budgets, fundamental shift in the role of private industry and significant export push. Despite the momentum, execution will be a key factor to keep a track on,” said Rao.

Defence Sector Outlook

Mohit Gulati, CIO and Managing Partner of ITI Growth Opportunities Fund believes that the Indian defense sector entered 2026-27 with a positive outlook, but the path ahead is filled with unmet expectations. The government has been generous with promises: emergency procurement rules have been used five times in five years, large letters of intent (LOIs) have been offered, and Aatmanirbhar Bharat has provided political support.

“However, actual payments in the last two quarters did not materialize. LOIs do not equal revenue, and good intentions do not make a financial statement. The future of the sector depends solely on one factor in 2026-27: whether the government honors its contractual commitments or lets bureaucratic issues derail its political goals. The opportunity is real, the order book is full, but until actual payments are made, investors are left relying on promises,” said Gulati.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.