The defence sector stocks are in focus after the DAC approved the mega procurement proposal.The Defence Acquisition Council gave the go-ahead for proposals worth around Rs 1.1 trillion. That takes the value of DAC approvals to around Rs 1.62 lakh crore so far in FY27. Between FY25 to FY27 so far, approvals have reached about Rs 13 lakh crore.
The key question now is – which defence companies could benefit as these approvals turn into actual orders? According to the domestic brokerage house Motilal Oswal, the sector’s order-flow outlook is improving, with Bharat Electronics (BEL) remaining its preferred pick.
Here is a detailed analysis of the investment rationale and the key picks.
The latest DAC clearances cover a wide range of military equipment. The Army has received approvals for chemical, biological, radiological and nuclear (CBRN) reconnaissance vehicles, high-mobility vehicles, mechanical mine layers, advanced light helicopters, trawl tanks and bridge systems.
For the Navy, the approvals include Arudhra radars, marine gas turbines and warship propulsion systems.
The Air Force has also received clearances for equipment aimed at improving the capabilities of fighter aircraft, transport aircraft and helicopters. Ground-based multi-purpose jammers and the Defence Forces Secure Access Card system are also part of the latest approvals.
The brokerage said, “These initiatives improve order inflow visibility for the defense sector.”
Motilal Oswal has maintained a positive view on the defence sector and continues to prefer Bharat Electronics.
The brokerage believes the increasing size of the domestic procurement opportunity should improve visibility for companies that supply radar, electronic warfare, communication and other defence systems.
It said, “We reiterate our positive stance on the sector and maintain Bharat Electronics as our preferred pick.”
BEL could benefit as more of the newly approved equipment is sourced from domestic manufacturers. The latest approvals are also part of the government’s broader push to reduce dependence on foreign suppliers.
For BEL, Motilal Oswal maintained its estimates and reiterated a ‘Buy’ rating with an unchanged target price of Rs 530. The brokerage said the stock is currently trading at 42.2x, 36.2x and 32.2x FY27E, FY28E and FY29E earnings, respectively, and is valued at 45x two-year forward earnings.
On HAL, the brokerage retained its ‘Buy’ rating and target price of Rs 5,800, valuing the stock at the average of DCF and 30x two-year forward earnings. “We maintain our estimates and reiterate our BUY rating,” Motilal Oswal said.
For BDL, Motilal Oswal retained its Neutral rating with an unchanged target price of Rs 1,270, citing a valuation of 42x two-year forward earnings.
The brokerage also maintained a ‘Buy’ rating on Astra Microwave, with a target price of Rs 1,900, based on 42x two-year forward earnings. “We maintain our estimates and reiterate our BUY rating,” it said.
For Zen Technologies, Motilal Oswal retained its Neutral rating and target price of Rs 1,600, valuing the stock at 30x two-year forward earnings.
The defence opportunity is no longer limited to government-owned companies.
Motilal Oswal report noted that the government has approved the transfer of technologies developed by the DRDO for conventional missile systems to Indian defence companies for domestic production.
The government is also making exports easier by simplifying approval procedures and expanding the scope of the Open General Export Licence (OGEL).
The validity of an OGEL has been increased from two years to three years, while its coverage has expanded from 41 countries to most global markets.
That could create another growth avenue for Indian defence manufacturers.
The government is pushing defence public sector undertakings (PSUs) to become more competitive globally.
At its September 1 annual review, the government said PSUs accounted for around Rs 1.3 lakh crore of India’s Rs 1.8 lakh crore defence production in FY26.
Hindustan Aeronautics (HAL) has also received a dedicated roadmap for modernisation and greater domestic production.
Motilal Oswal said, “The approvals focus on battlefield mobility, mine warfare, CBRN protection, electronic warfare, surveillance and naval propulsion, with 98% of total AoNs earmarked for the Indian industry.”
For defence stocks, approvals are only the beginning. The next stage is the conversion of these clearances into tenders, contract awards and actual deliveries.
Motilal Oswal said, “In the near to medium term, finalisation of large tenders for defence PSUs should be keenly watched out for.”