Defence Stocks in Focus: Why BDL and HAL Remain on Brokerage Radar

India’s defence sector continues to attract attention from investors as rising government spending, domestic manufacturing and a growing pipeline of military orders create a favourable long-term backdrop for listed defence companies. A recent report by Bajaj Broking has retained a positive view on key players including Bharat Dynamics Limited (BDL) and Hindustan Aeronautics Limited (HAL), pointing to structural changes taking place across the industry.

The brokerage’s optimism comes at a time when India is placing greater emphasis on strengthening its indigenous defence manufacturing capabilities. Alongside higher spending, policies encouraging local procurement and the expansion of the domestic defence ecosystem are creating opportunities across aircraft, missiles, naval equipment, air-defence systems, electronics and unmanned technologies.

Defence spending provides a long-term foundation

India’s defence budget has increased substantially over the past decade. According to figures cited in the brokerage report, the allocation rose from Rs 2.53 lakh crore in FY14 to Rs 6.81 lakh crore in FY26.

The increase reflects the country’s focus on military modernisation and reducing dependence on overseas suppliers. Measures such as the Atmanirbhar Bharat initiative, the Defence Acquisition Procedure, positive indigenisation lists and defence industrial corridors have supported the development of local manufacturing capabilities.

The government has also liberalised foreign direct investment rules in the sector, while private companies, smaller manufacturers and startups are becoming increasingly important parts of the defence supply chain.

Production and exports reach new highs

The growth story is not limited to government allocations. India’s defence production reached a record Rs 1.78 lakh crore in FY26, representing 15.6% year-on-year growth. Production has more than doubled compared with FY21, according to the figures highlighted by Bajaj Broking.

Defence exports have also expanded sharply. Exports reached Rs 38,424 crore, with Indian defence products being supplied to more than 80 countries. This expansion indicates that domestic defence manufacturers are increasingly participating in international markets rather than depending solely on orders from Indian armed forces.

Emerging technologies could provide another layer of growth. Drones, autonomous systems, loitering munitions, artificial intelligence, electronic warfare, cybersecurity and space-based surveillance are among the areas expected to gain importance as defence requirements evolve.

BDL benefits from a large order pipeline

Bharat Dynamics is one of the companies attracting particular attention from the brokerage. The company is a major Indian manufacturer of guided missile systems, underwater weapons and related defence equipment.

BDL experienced a difficult FY26, but its performance improved significantly in the first quarter of FY27. Revenue increased 145% year-on-year during the quarter, suggesting that some of the execution difficulties experienced previously may be easing.

According to Bajaj Broking, improved availability of missile components helped support the stronger quarterly performance. However, the brokerage has cautioned that investors should watch another quarter before assuming that all execution issues have been completely resolved.

BDL continues to have exposure to imported components, making supply-chain conditions and geopolitical developments important factors for the company. At the same time, its order pipeline remains substantial.

The company’s existing order backlog was equivalent to around 10.8 times its FY26 revenue, according to the brokerage. This provides significant revenue visibility over the next one to two years. Larger recent orders are expected to make a more meaningful contribution from FY29 onward.

Bajaj Broking has maintained an ‘Add’ rating on BDL and suggested gradual accumulation while investors keep an eye on global developments.

HAL faces an execution test

Hindustan Aeronautics is another major beneficiary of India’s push toward defence indigenisation. The company occupies a central position in the country’s aerospace manufacturing ecosystem and has developed multiple aircraft platforms while also producing several aircraft under licence.

HAL’s investment case is supported by an exceptionally large order book. Bajaj Broking puts the company’s order book at approximately Rs 2.54 lakh crore, providing revenue visibility for roughly seven to eight years.

With demand visibility relatively strong, the key question for investors is increasingly about execution. HAL needs to scale production and deliver aircraft and other platforms on schedule to convert its sizeable order pipeline into revenue and earnings.

The growing share of indigenous platforms in defence procurement could further strengthen HAL’s position. Import substitution remains an important policy objective, creating a supportive environment for companies involved in domestic aerospace production.

Bajaj Broking therefore continues to maintain an ‘Add’ rating on HAL, viewing the company as a multi-year opportunity while emphasising the importance of execution.

A structural opportunity, but not without risks

The broader defence theme has several favourable drivers: rising government spending, localisation, strong domestic procurement, expanding exports and increasing private-sector participation. These factors could provide Indian defence manufacturers with a long runway for growth.

However, investors also need to distinguish between long-term industry prospects and individual stock performance. Companies remain exposed to execution delays, supply-chain constraints, geopolitical developments and the timing of defence orders.

For BDL, imported components and geopolitical uncertainty remain areas to monitor. For HAL, the focus is increasingly on production ramp-up and timely deliveries.

The brokerage’s stance suggests that the defence story remains intact, but returns will ultimately depend on companies converting their order books into sustained revenue and earnings growth.

For investors, therefore, the sector’s appeal lies less in short-term momentum and more in the possibility of a multi-year expansion in India’s defence manufacturing ecosystem.