The Indian defense sector has delivered several multi-baggers over the past three years, with stock prices surging 3-4x to as much as 8-10x between September 2022 and July 2024, before correcting from their peaks in July 2024. The NSE Defence Index has since declined 21% from its high.

Brokerage firm Antique Research says that the Indian defence story has not diminished; rather, the outlook has further improved offering significant earnings visibility.

The brokerage notes that current valuations, given the earnings trajectory, are not unreasonable. Moreover, the recent correction provides a meaningful opportunity to accumulate defence stocks.

Its top picks include Hindustan Aeronautics, Bharat Electronics, Bharat Dynamics, Mazagon Dock Shipbuilders, and PTC Industries.
While the story of Defence Public Sector Undertakings (DPSUs) is well understood due to their size and range of technologies, the emergence of private sector companies is expected to provide huge investment opportunities.

“Importantly, there is a sizeable number of companies in the defence sector, not publically listed, with unique technologies and capabilities — the space that will be very exciting in future. We maintain Buy on HAL, BEL, BDL and Mazagaon Docks (pure play DPSUs) and PTC Industries (an emerging global player in titanium and super alloys precision engineering),” the brokerage said.

Among the large ticket items that some defence companies have seen include light combat helicopters, light combat aircraft Mk 1A, and upgradation of Su-30 MKI aircraft, cumulatively worth ₹2.2 lakh crore, which led to this sharp growth of these companies, the note said. It also notes that domestic defence production, which stood at over ₹1.3 lakh crore in FY24,  expected to rise to ₹1.8 lakh crore in FY25.

Of the 17 analysts that track HAL, 16 of them have a ‘Buy’ rating.

Of the 28 analysts who cover Bharat Electronics, 22 of them have a ‘Buy’ rating, while three have a ‘Hold’ and three have a ‘Sell’ rating.

10 analysts cover Bharat Dynamics;  seven of them have a ‘Buy’ rating, while two have a ‘Hold’ rating and one  has a ‘Sell’ rating on the counter.