Defence stocks to buy: Aditya Birla Money picks HAL, BEL as top picks; check fresh targets

Defence manufacturing gathers pace
Aditya Birla Money said India’s defence sector was entering a sustained growth phase, supported by higher budgetary allocations, stronger localisation, rising research and development spending and greater private-sector participation. Domestic companies were also taking on larger roles in product development and systems integration instead of remaining component suppliers.

The government has set FY29 targets of Rs 3 lakh crore in defence production and Rs 50,000 crore in exports. Defence production reached Rs 1.8 lakh crore in FY26, while exports increased to Rs 38,400 crore, supported by higher domestic procurement, greater private-sector participation and improving manufacturing capabilities.

However, the brokerage said a larger defence budget alone would not drive earnings. Companies’ ability to convert orders into revenue, increase local content, expand manufacturing capacity and deliver programmes on schedule would be the key differentiators. Rising exports and investment in critical technologies were expected to deepen domestic capabilities.

Technology-led warfare drives demand
The report said warfare was becoming increasingly network-centric, with sensors, communication and response capabilities gaining importance alongside military platforms. Recent conflicts had highlighted the role of drones, electronic warfare, advanced sensors, artificial intelligence and autonomous systems.

India was moving in the same direction, with the Defence Research and Development Organisation’s FY26 allocation rising 12.4% year-on-year to Rs 26,800 crore. The brokerage expects electronics and software to account for a larger share of defence procurement, driving spending on surveillance, secure communications, electronic warfare, unmanned systems and battlefield networks.

HAL and BEL positioned to benefit
HAL offered a long growth runway through design ownership of key aircraft platforms, research and development intensity of about 8.4 per cent, a long-term order pipeline and recurring lifecycle-support revenue, it said. BEL offered exposure across radars, electronic warfare and air defence, backed by margins of about 29 per cent and an expanding role as a lead systems integrator.

Aditya Birla Money said HAL provided longer-duration platform visibility, while BEL offered faster order conversion and a broader revenue base. At current valuations, the brokerage prefers HAL, while retaining BEL as its long-term defence pick. It expects both companies to benefit from large procurement programmes, localisation, technology upgrades and defence exports.