Defence stocks: DAC approvals drive targets for 2026

Indian defence stocks are back in focus as multiple brokerage notes point to stronger order visibility after big-ticket clearances by the Defence Acquisition Council (DAC) and higher budgeted capital outlay. Reports also cite a supportive backdrop from indigenisation policies and elevated geopolitical risks, which are expected to keep procurement and exports active.

The bullish stance is not uniform across the sector, though. Some brokerages have narrowed their preferences to a handful of names with clearer execution visibility and near-term program linkages, while still flagging supply-chain risks tied to imported components.

What changed: DAC clearances and a larger procurement pipeline

Motilal Oswal linked its sector view to DAC approvals and the broader pipeline created through Acceptance of Necessity (AoN). In FY26, DAC AoN approvals were cited at a record Rs 9.28 lakh crore, creating a longer runway of tenders and contract awards over the next few years.

Separately, other reports referenced DAC approvals worth Rs 79,000 crore and Rs 2.38 lakh crore, both presented as positive triggers because they improve visibility for domestic manufacturers and their vendor ecosystem. The common thread across broker comments is that approvals tend to translate into tendering, awards, and then execution over a multi-year cycle.

Motilal Oswal’s four Buy-rated picks

Motilal Oswal reiterated Buy ratings on four defence names, projecting potential upside of up to about 38% based on cited current market prices (CMP) and targets. The brokerage highlighted order pipelines and program-specific opportunities as the key support for its calls.

Motilal Oswal also cited CMP-based examples in the note: HAL at Rs 3,989 versus Rs 5,500, BDL at Rs 1,336 versus Rs 1,800, BEL at Rs 458 versus Rs 520, and Astra Microwave at Rs 1,008 versus Rs 1,150. The brokerage added that defence companies already have strong order books and can benefit incrementally from export opportunities, while flagging near-term challenges in imported components.

ICICI Securities: Buy on PTC Industries with a Rs 21,000 target

ICICI Securities maintained a Buy rating on PTC Industries with a target price of Rs 21,000. Based on a cited closing price of Rs 15,600, the target implies about 35% potential upside.

The same report thread also referenced expectations of a sharp profit jump in Q4, framed as “100% profit jump likely in Q4,” alongside the price target discussion. ICICI Securities, however, reportedly does not include PTC Industries among its top defence picks despite the Buy rating.

Procurement themes: aerospace and ammunition in focus

ICICI Securities’ note linked opportunity to the geopolitical situation and ongoing wars, expecting procurement in aerospace to benefit most. The segments explicitly mentioned were missiles and interceptors, drones, radars, and munitions, with an additional tailwind from replenishment demand.

This framing matters because it connects listed companies to specific spending buckets rather than a generic defence upcycle. It also explains why brokerages are emphasising electronic systems, guided weapons, and related sub-systems alongside platforms.

Budget and policy signals: capital outlay and DAP 2026

Motilal Oswal cited the Union Budget increasing defence capital outlay by 18% year-on-year to Rs 2.2 lakh crore (FY27BE). The brokerage said this improves funding visibility for the pipeline created by AoN approvals, and referenced that AoNs worth over Rs 7 lakh crore have been approved year-to-date in FY26.

Another policy input in the reports was Defence Acquisition Procedure (DAP) 2026, described as shifting emphasis from “Made in India” to “Owned by India.” The updates mentioned include reducing procurement categories from five to four, and increasing minimum indigenous content in the Buy (Indian–IDDM) category from 50% to 60%.

Orders, order books, and contract momentum

The reports pointed to visible order momentum in FY26 for defence public sector units (PSUs). Capital contracts cited were Rs 20,600 crore for BEL, Rs 69,400 crore for HAL, and Rs 5,400 crore for BDL.

Private players were also mentioned. Astra Microwave reportedly received defence-segment orders worth Rs 290 crore in Q3 FY26, and Zen Technologies was cited as winning contracts worth Rs 600 crore in the same quarter.

Solar Industries: broker targets and order-book references

Solar Industries India also appeared in the coverage, with Goldman Sachs setting a target price of Rs 18,215 and stating it was among top picks after DAC cleared proposals worth Rs 79,000 crore. The report cited Solar Industries’ order book at over Rs 17,000 crore.

Other targets cited for Solar Industries included Rs 17,200 from ICICI Securities and Rs 15,900 from Philips Capital. The same thread mentioned Solar Industries hitting a record high of Rs 17,805 on June 30, 2025, and reported RSI at 47.6.

Revenue growth and valuation snapshots cited by brokerages

ICICI Securities also cited an expectation of mean revenue growth of 15% (excluding outlier), with PTC Industries (up 283% YoY), Dynamatic Technologies (up 27% YoY), Solar Industries (up 31% YoY) and Mishra Dhatu Nigam (up 34% YoY) highlighted as standouts.

On valuations, the reports cited HAL trading at 26.2x FY27E earnings and BDL at 42.5x FY27E earnings. Another note cited BEL at 46.9x FY27E and 40.0x FY28E, and Astra Microwave at 42.6x FY27E and 33.4x FY28E. These multiples were presented as reflecting high growth expectations tied to order visibility.

Risks in focus: imported components and Israel-linked supply exposure

Alongside the bullish stance, Motilal Oswal flagged near-term challenges in procurement of imported components, even as indigenisation reduces dependence over time. The reports also highlighted India’s reliance on Israel for critical components, stating Israel accounts for nearly half of India’s imports of air-defence systems and sensors.

A prolonged conflict in the Middle East was cited as a potential risk to supply chains for advanced components used in missiles, loitering ammunition, and sensors. The risk, as framed in the reports, is about timelines and production continuity rather than demand.

Conclusion

Brokerages are aligning their defence sector optimism to three data points cited across reports: large DAC and AoN approvals, a higher FY27 capital outlay, and policy pushes under DAP 2026. Near-term stock-specific calls vary, with Motilal Oswal naming four Buy-rated picks and ICICI Securities keeping a Buy on PTC Industries with a Rs 21,000 target.

The next leg of the story will hinge on how quickly approvals convert into tenders and contracts, and whether supply-chain risks from imported components remain manageable during the execution cycle.