Motilal Oswal on Defence sector: Domestic procurement in FY26
India is buying more from its own manufacturers. The share of domestic procurement in the FY26 budget stands at 75%. A few years ago, it was 54%. In FY25, almost all contracts went to Indian firms. At the same time, several countries are raising defense spending and looking for new suppliers. This mix of local demand and foreign interest forms the base of the brokerage’s view, the report added.
The report also points to larger capacity plans. Aircraft lines are being expanded. Radar and electronics facilities are being upgraded. Missile plants are adding new units for propulsion and composite work. Shipyards are building more docks and space for integration. These are long jobs, but they match the scale of orders in hand.
Here are the brokerage’s key analysis and investment rationale for each stock-
Motilal Oswal on Bharat Electronics (BEL): ‘Buy’
Motilal Oswal has a ‘Buy’ rating for BEL with a target of Rs 500, indicating an upside of about 23%.
Motilal Oswal’s view is that BEL sits at the heart of India’s radar, electronic warfare, communication and avionics programs. These are not one-year projects. They run for years. New orders are expected for LCA Mk1A avionics, the Uttam radar, mountain radar systems and the QRSAM.
The brokerage expects BEL’s revenue to rise to Rs 27,667 crore in FY26. Profit is estimated at Rs 6,080 crore. Return on equity is placed at 24.2%. BEL has enough cash and a steady order book, which the report says should help the company handle the rise in working capital that comes with faster production.
BEL is also talking to buyers abroad. Countries in Southeast Asia and Africa are looking at its radar and communication systems. These discussions take time, but the need for such equipment is growing, it added.Motilal Oswal on Hindustan Aeronautics (HAL): ‘Buy’
HAL has a Buy rating from the brokerage with a target of Rs 5,800 with an upside of about 28%.
The company’s strength is its order book. It recently received an order for 97 Tejas Mk1A aircraft. Its helicopter programs continue. The upgrade work for the Su-30 MKI fleet runs in parallel. Maintenance, repair and overhaul revenue adds a steady base.
HAL’s revenue for FY26 is estimated at Rs 37,500 crore. Profit is expected at Rs 9,560 crore. Return on equity is about 22%. These numbers suggest that HAL’s earnings rest on work already secured, not on assumptions about future orders, the brokerage added.
There is also export interest. Countries in Southeast Asia, Latin America and Africa are assessing the Tejas, Dhruv and Dornier. Certification and acceptance take time, but the company is preparing for larger international demand, as per the report.
Motilal Oswal on Bharat Dynamics (BDL): ‘Buy’
BDL has a Buy call from Motilal Oswal with a target of Rs 2,000 with an upside of about 32%, the highest among the three stocks.
The company makes missiles, rockets and air-defense systems. It is expected to receive follow-on orders for QRSAM and other tactical systems. Guided rockets and emergency procurement work are also part of the near-term view, as per the report.
BDL’s revenue for FY26 is estimated at Rs 4,580 crore, with profit at Rs 1,040 crore. Return on equity is placed at 21.9%. The company is adding new capacity for propulsion units, composite work and seekers, essential parts of modern missile systems, it added.
Exports play a role here, too. The BrahMos order from the Philippines is underway. There is interest from other Southeast Asian countries, especially for lightweight torpedoes and air-defence systems. These deals take time, but the demand is firm, the brokerage explained.
Motilal Oswal on Indigenisation lifting margins across PSUs
Motilal Oswal notes that margins are improving because more parts are now made in India. When a firm depends less on imports, it faces fewer price swings and gains better control over its work. BEL benefits the most from this shift because it makes complex electronics where local capability has grown quickly.
Across PSUs, capacity building is no longer a side effort. It is the main work. HAL is adding assembly lines. BEL is widening its electronics base. BDL is upgrading its missile units. Shipyards are adding new docks and expansion yards. These steps allow firms to deliver large orders over long periods without delay.### Motilal Oswal's Top 3 Defence Sector Picks
Motilal Oswal Financial Services (MOFSL) remains bullish on India's defence sector, driven by strong order pipelines, increasing indigenisation (with domestic procurement rising to 75% in FY26 budget), capacity expansions, and emerging export opportunities in regions like Southeast Asia, Latin America, and Africa. The brokerage highlights improved margins from reduced import dependence and stable execution in key areas like aircraft, missiles, electronics, and shipbuilding. Their latest report (as of December 8, 2025) identifies **Bharat Electronics Ltd (BEL)**, **Hindustan Aeronautics Ltd (HAL)**, and **Bharat Dynamics Ltd (BDL)** as the top picks, all with 'Buy' ratings and 12-month target prices implying significant upside potential (up to 32% for BDL).
Here's the full list of their top 3 recommendations:
| Stock | Current Price (as of Dec 8, 2025) | Target Price | Upside Potential | Key Reasons |
|------------------------|----------------------------------|--------------|------------------|-------------|
| **Bharat Electronics Ltd (BEL)** | ₹386 | ₹500 | ~29% | Strong subsystem orders for next-gen corvettes, LCA Mk1A avionics, QRSAM missiles, and EW systems; benefits most from indigenisation in defence electronics; expected revenue CAGR of 15-18% with EBITDA margins at 23-25%. |
| **Hindustan Aeronautics Ltd (HAL)** | ₹4,371 | ₹5,800 | ~33% | Robust order book from Tejas, Dhruv, and Dornier platforms; capacity additions for assembly lines; RoE ~22%; growing export interest; earnings backed by secured orders. |
| **Bharat Dynamics Ltd (BDL)** | ₹1,456 | ₹2,000 | ~32% | Missile systems leadership with ₹22,700 Cr order book and ₹50,000 Cr pipeline; 35% revenue CAGR FY25-28; healthy EBITDA margins (23.8-25.5%); PAT CAGR ~51%. |
*Note: Upside percentages are approximate based on closing prices from December 8, 2025, and may vary slightly with intraday fluctuations. MOFSL also remains 'Neutral' on Zen Technologies amid broader sector momentum.*
These picks align with government initiatives like the Defence Acquisition Council's recent approvals and a push for ₹50,000 Cr in defence exports by FY29. Investors should consult the full report for risks like supply chain delays or execution timelines.
