Defence stocks to buy: BEL, Mazagon, HAL, BEML are Nirmal Bang's top picks

India’s annual defence output surpassed Rs 1.27 lakh crore and is projected to reach Rs 1.75 lakh crore by FY29, according to Nirmal Bang Institutional Equities, which continued to remain positive on Indian defence space. The Ministry of Defence has signed 193 contracts in FY25 alone, valued at over Rs 2.1 lakh crore, with 92 per cent awarded to Indian companies.

Defence exports have risen by 12 per cent year-on-year to Rs 23,620 crore, with DPSUs contributing Rs 83.9 billion, marking a 43 per cent increase, and the private sector providing Rs 15,230 crore in systems to 80 countries. Export authorisations increased by 16.9 per cent year-on-year, setting a target of Rs 50,000 crore by FY29.

In the first quarter of FY26, tensions with Pakistan led to Operation Sindoor, highlighting the strategic significance of UAVs and missile defence. Emergency procurement orders worth Rs 300-350 billion are expected to enhance critical capabilities. The DRDO has successfully tested a scramjet combustor, advancing India’s hypersonic missile programme, according to Nirmal Bang.

"The Ministry of Defence concluded 13 contracts of key procurements include integrated drone detection and interdiction systems (IDDIS), low level lightweight radars (LLLR), VSHORADS launchers and missiles, remotely piloted aerial vehicles (RPAVs), loitering munitions (including VTOL systems), various drones, bulletproof jackets, ballistic helmets, quick reaction fighting vehicles (QRFVs), and night sights for rifles) under the emergency procurement mechanism (Rs 19,800 crore). The Ministry also cleared 10 major capital acquisition proposals worth Rs 1.1 lakh crore including QR-SAM systems, EW systems, unmanned submersibles, Mine Counter-Measure Vessels, and moored sea mines to secure the coastal waters along with super rapid gun mounts to boost firepower and surveillance," stated Nirmal Bang.

The commissioning of INS Tamal, the eighth Talwar-class frigate built by Russia, signifies a transition as the Indian Navy shifts towards indigenous designs. This development marks a turning point for the Navy, as noted by the brokerage firm.

The outlook for the sector is structurally positive, driven by indigenisation, a strong order pipeline, and policy support, according to Nirmal Bang. Top picks in the defence sector include Hindustan Aeronautics, Bharat Electronics, BEML, and Data Patterns.

While stocks under coverage have seen a 15 per cent correction after reaching earlier targets, H1FY26 is expected to be lumpy, with further price consolidation anticipated. The brokerage has marginally increased it target price (TP) on Hindustan Aeronautics, but trimmed its target price on Mazagon Dock Shipbuilders.

Nirmal Bang has a 'buy' rating on Hindustan Aeronautics (TP: Rs 6,147), Mazagon Dock (TP: Rs 3,897), Bharat Electronics (TP: Rs 478), BEML (TP: Rs 5,000), Data Patterns (TP: Rs 3,401), Paras Defence (TP: Rs 939). It has suggested to 'hold' Solar Industries (TP: Rs 16,651), Bharat Dynamics (TP: Rs 1,788) and Astra Microwave Products (TP: Rs 1,139).