With the government focussed on making India a global manufacturing hub, the defence sector is one key segment that could see a significant increase in allocation. According to a recent HDFC Securities report, the defence budget is expected to see a considerable increase in capital expenditures, allowing for the introduction of new defence projects.
Here are some of the key stocks in the defence sector that could see heightened action on the day of the Budget.
HAL
Hindustan Aeronautics Limited (HAL) was elevated to the status of a Maharatna Central Public Sector Enterprise (CPSE) lasy year in October. Despite the higher valuations, analysts remain optimistic on the stock due to its healthy order book and opportunities for growth. In a December 2024 report, analysts at PhilipCapital noted that as India’s defence sector grows and moves towards modernisation, HAL as the leading player in the defence and aerospace sector will be the first to benefit from the opportunities. On valuations, the brokerage assigned a P/E of 40x (December 2026 EPS). The stock has gained around 30 percent over the last one year and is currently trading at Rs 3935.
Data Patterns (DPIL) Analysts at Aashika Institutional Research are of the view that the company is strategically positioned to cash in on the long-term growth potential in defence electronics, aided by focus on local procurement, indigenisation and rising adoption of electronics in defence applications. This comes on the back of the company’s R&D capabilities and domain knowledge in segments like electronic warfare, communication systems, avionics, satellites and test equipment. The brokerage has assigned a valuation of 45x ( FY2027 EPS). The stock has gained around 14.73 percent over the last one year and is currently trading at Rs 2,195.
Mazagaon Dock Shipbuilders Ltd (MDL)
MDL recently said that the Ministry of Defence has found its joint bid — along with Thyssenkrupp Marine Systems (TKMS) – compliant for the construction of six conventional submarines under Project 75 (India) (P75(I)). The P75 (I) project, a key component of India’s naval modernisation initiative, requires a significant level of local content in submarine production, aligning with the government’s goal of strengthening indigenous defence manufacturing. MDL is currently valued at around 22x (FY27E). The stock has gained around 115 percent over the last one year and is currently trading at Rs 2,464.
Bharat Dynamics is a leading missile manufacturer, specialising in Surface-to-Air Missiles (SAMs), Anti-Tank Guided Missiles (ATGMs), and other strategic weapon systems. Ministry of Defence (MoD) recently signed a contract with BDL for the supply of Medium-Range Surface-to-Air Missiles (MRSAM) for the Indian Navy at a cost of approximately Rs 2,960 crore. Analysts at PhilipCapital recently valued the stock at 55x (EPS December 2026E). The stock has gained around xx over the last one year and is currently trading at Rs 1,316.
BEML
BEML has played an active role in the country’s Integrated Guided Missile Development Project by supplying ground support vehicles. Most analysts estimate that BEML with its market leadership position in the mobility segment (metro coaches, mining equipment, and defence mobility vehicles) is well placed to tap into upcoming business opportunities in the Railway & Metro and Defence sectors, which should help the company deliver a revenue CAGR of 18 percent and an earnings CAGR of 37 percent over FY24-27E. BEML is currently valued at 22.5 (FY2026E). The stock has gained around 54.17 over the last one year and is currently trading at Rs 3,812.
