HAL offers the best risk-reward among defence stocks despite expensive valuations, says Equirus

India’s defence stocks have rallied sharply over the past few years, pushing sector valuations well above historical averages. But Harshit Patel, Director at Equirus Securities, believes Hindustan Aeronautics Limited (HAL) still stands out as the best investment opportunity, backed by a strong earnings outlook over the next few years.

Patel said that while defence valuations are now “one or two standard deviations above the last 10-year mean,” HAL remains attractively valued. He expects 2026-27 (FY27) to be an “occasional year,” but said the company should see “very strong earnings growth both in 2027-28 (FY28) and 2028-29 (FY29) because a lot of large programmes… will be under execution simultaneously.” With programmes such as LCA Mk1A, HTT-40 and Light Combat Helicopter (LCH) moving into execution, he believes HAL’s current valuation of around 25-30 times FY28 earnings offers “an extremely favourable” risk-reward.

The latest ₹52,000-crore Defence Acquisition Council (DAC) approvals further strengthen the Bharat Dynamics. Patel expects Bharat Electronics (BDL) to be among the biggest beneficiaries, with opportunities across man-portable anti-tank guided missiles (ATGMs), the Vishwavara programme and naval mine systems, where it could partner with Adani Defence & Aerospace.

Beyond the latest approvals, Patel believes defence electronics will be one of the biggest long-term growth themes as warfare becomes increasingly network centric. He said “the strongest play on electronics content increasing in all these platforms” is Data Patterns (India) (BEL), which is evolving from a product supplier into a system integrator. He also sees private companies such as Apollo Micro Systems, Astra Microwave Products and Astra Microwave Products benefiting as they take on larger integration projects rather than supplying only components.

Patel also highlighted the strength of India’s defence spending, noting that the country awarded contracts worth more than ₹6.5 lakh crore in 2025-26 (FY26), the highest ever. He said, “the approvals over the last four to five years have been pretty strong” and expects many of them to translate into confirmed orders over the coming months, benefiting suppliers across the Army, Navy and Air Force.

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According to Patel, while defence stocks have become expensive after their sharp rally, companies with strong execution visibility, growing electronics content and large indigenous programmes are likely to remain the biggest long-term winners.

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