HSBC has initiated coverage with a “buy” rating on Hindustan Aeronautics (HAL) and Bharat Electronics (BEL) with target prices of ₹6,350 and ₹525, each, indicating an upside of 35.3% and 37.1%, respectively.
The brokerage has “hold” recommendations on Bharat Dynamics with a target price of ₹1,370, on Astra Microwave Products with a target price of ₹1,800 — indicating an upside of 20% and 13% each — and on Data Patterns and Solar Industriesas well with price targets of ₹2,860 and ₹22,753 per share, indicating a downside of 34.4% and an upside of 18.2%, respectively.
It has also initiated coverage with a “reduce” recommendation on Mazagon Dock Shipbuilderswith a target price of ₹1,860 per share, indicating a downside of 16.8% from its previous close.
The brokerage said India’s highly profitable defence industry is expanding its industrial base by increasing domestic production and procurement. It forecasts strong growth in orders as the Centre’s spending rises sharply over the next decade and exports boom.
Compelling growth story
HSBC said India’s defence sector, once dominated by state-owned firms and dependent on imported hardware and technology, is now becoming an export-oriented manufacturing hub with a thriving private sector.
It said the domestic defence output has reached record levels and 75% of defence capital spending is now sourced domestically.
Overall, the brokerage said it expects multi-year growth driven by higher spending, greater domestic procurement and surging exports.
Multi-year growth outlook
HSBC said that given the aggressive focus on domestic procurement and building a large manufacturing base across aerospace, defence electronics, missiles, missile defence, unmanned systems and naval platforms, it expects the order books to continue to expand and allow Indian defence companies to remain among the most profitable globally. It is taking a 10-year view on what it sees as a compelling investment case.
The brokerage estimates capital spending on defence in FY27 to be 2.8 times to 3.9 times the FY27 level, rising sharply between $65 billion and $91 billion from $23 billion in FY27. Short term growth is strong too, it added.
HSBC expects orders to focus on fighter jets, missiles, submarines, missile defence and drones.
Surging exports
HSBC said India’s defence exports increased from ₹680 crore in FY14 to ₹38,400 crore in FY26, a compound annual growth rate (CAGR) of 40%. The government has set an export target of ₹50,000 crore by 2029. HSBC said increased participation by the private sector is key, as listed state-owned enterprises (SOEs) accounted for 82% of government spending on defence in FY26, it said.
Downside risks
The brokerage said that winning orders doesn’t immediately lead to the same pace of revenue and profit growth because of the time lag between receiving and delivering an order.
Given higher global defence spending, supply chains are stretched which creates a risk to imports of key components, potentially delaying near-term order execution, it said.
Combnied with a rally in stock prices this year, so far, — the Nifty Defence has outperformed the domestic market as well the European and US defence indices — rich valuations create elevated earnings growth expectations, leaving little room for any execution missteps/earnings disappoints, it added.
Round-up of brokerage views on the seven stocks
| Stock | Buy | Hold | Sell |
| Hindustan Aeronautics | 25 | 2 | 4 |
| Bharat Electronics | 35 | 0 | 2 |
| Bharat Dynamics | 8 | 6 | 5 |
| Astra Microwave Products | 7 | 5 | 2 |
| Data Patterns India | 7 | 5 | 2 |
| Solar Industries India | 15 | 3 | 1 |
| Mazagon Dock Shipbuilders | 8 | 2 | 5 |
Stock Reactions
Shares of Hindustan Aeronautics are trading 0.3% lower on Wednesday at ₹4,680. The stock is down 7.5% in the last one month, thereby trimming its year-to-date advance to 6.4%.
BEL shares are trading 1.6% higher on Wednesday at ₹389. The stock is down 6% in the last one month and as a result, has also turned negative on a year-to-date basis.
Shares of Bharat Dynamics are trading 0.4% lower at ₹1,130.8. The stock is down 18% in the last one month, extending its year-to-date loss to 24%.
Shares of Astra Microwave Products are trading 1.8% higher on Wednesday at ₹1,623.1. The stock has outperformed most of its peers this year, rising 65%.
Shares of Data Patterns were down 0.6% at ₹4,334.8 on Wednesday. The stock has fallen 4.3% in the past month but is up 66.6% this year, so far.
Shares of Solar Industries India were trading 1.7% lower at ₹18,930 apiece. The stock has declined 5.4% in the past month but is up 55.5% this year, so far.
Mazagon Dock Shipbuilders shares were down 0.4% at ₹2,226.6 apiece on Wednesday. The stock has declined 13.3% in the past month and is down 10.1% this year, so far.
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