HAL, BEL to Bharat Dynamics: Which defence stocks to buy amid Trump tariff tension?

Defence stocks in India are reeling under pressure after months of excessive buying, with the Nifty India Defence index down nearly 5% in August after a 12% fall in July.

Defence stocks have declined up to 12% in just one month, with Bharat Dynamics emerging as the worst-performing index constituent. Mishra Dhatu has seen over 10.5% decline, while stocks like Hindustan Aeronautics and Bharat Electronics have shed 4%.

This correction comes on the back of a stellar four-month rally as investors book profits. Meanwhile, a dampened Indian stock market sentiment following the imposition of tariffs by US President Donald Trump of 50% also weighed down on all corners of the markets, including defence.

However, geopolitical risks and a possible ten-year framework for the India–US Major Defence Partnership could reignite interest in the defence stocks, believe analysts.

According to Vaqarjaved Khan, CFA, Senior Fundamental Analyst, Angel One, the possible India-US Defence Partnership could open the door for Indian companies to move up the value chain from being component suppliers to full system integrators.

"This leads to a strategic pivot away from Russian dependence towards US, European and indigenous vendors and creates multiyear growth visibility for Indian defence manufacturers," opined Khan.

Analysts also believe that amid elevated geopolitical tensions and sustained Indo-Pacific focus, the medium-term setup points to continued collaboration between countries in co-production, technology transfer, interoperability, logistics, and training.

"The key is to track how these policy signals translate into program milestones, order visibility, export licenses, and budgeted procurement timelines," said Attributed to Om Ghawalkar, Market Analyst, Share.Market.

Commenting on the growth outlook for the PSU, Angel One's Khan said that defence PSUs' revenue is expected to grow at 12-15% CAGR over FY25-27 and private players are expected to grow 18-20% in the same time frame with stable to improving margins backed by higher operating leverage, higher localisation and export growth opportunities.

The Ministry of Defence (MoD) placed contracts worth over ₹2.1 lakh crore in FY25 (2x YoY), underpinning the analysts' confidence of strong growth in defence counters.

HAL (27%) and BEL (28%) surprised positively on profitability, while Solar Industries (25%) maintained strong defence-led growth, said PL Capital in its Q1 FY26 defence review. BDL saw execution delays, but a recovery is expected from Q2.

Shipbuilders like Mazagon Dock, Cochin Shipyard and GRSE posted solid revenue growth on strong execution and robust order books, gearing up for submarine, corvette, and frigate programmes, the brokerage added.

PL Capital believes that FY26 is poised to be another strong year for defence companies, driven by large project awards worth ₹1.5-2 trillion over the next 18-24 months.

Driven by record indigenous output, rising exports, higher FY26 budget allocation, and India-US plans for a 10-year defence framework, support multi-year demand, Ghawalkar finds the near-term outlook as structurally strong.

Event-driven share moves can be frequent around announcements, but sustained impact tends to follow concrete orders, clear funding, and execution progress, he added.

Commenting on the best defence stocks to buy, Khan recommended HAL and BEL.

"HAL has strong execution visibility and order book in excess of ₹95,000 crore, which is 3.5x of its FY25 revenue. It is a market leader in aircraft, helicopters and engine manufacturing. BEL also looks good with an order book in excess of ₹75,000 crore, and it is dominant in radars, electronic warfare and missile systems. Revenue over the next two years for BEL is expected to grow at 16-17% with EBITDA margins of around 27% for FY26 and ROE in excess of 20% making it a compelling bet," Khan said while sharing his rationale.

According to PL Capital, companies with scale, proven execution, and strong institutional linkages like HAL, BEL, Data Patterns, BDL and Solar remain best placed to capture the next leg of defence modernisation with their resilient margins and robust order books in the age of accelerating reforms.

Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.

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