The Indian stock market has witnessed a steady rally in recent sessions, supported by improved investor sentiment on expectations of a potential India–US trade deal. Such an agreement is seen as a relief for India’s export-oriented sectors, currently facing the burden of high US tariffs.
Defence stocks, in particular, have been in the spotlight, driven by multiple order wins, the government’s continued push for self-reliance, and optimism around domestic manufacturing.
In August 2025, the Defence Acquisition Council (DAC) approved 10 proposals worth ₹67,000 crore, while the Cabinet Committee on Security (CCS) cleared the procurement of 97 Tejas Mk1A fighter jets and 6 Netra Mk2 aircraft. These developments reinforced the government’s intent to accelerate indigenisation in the defence sector.
India-US Trade Deal: Implications for Defence
Analysts believe that progress in India–US trade talks could be structurally positive for the defence industry. The deal is expected to facilitate technology transfer, improve supply chain resilience, and ease issues around the import of critical equipment such as jet engines.
“We see the US–India trade deal as structurally positive for the Indian defence sector over the medium to long term, with a likely acceleration in co-production and technology transfer. The framework is expected to incentivize or mandate greater local manufacturing, assembly, and MRO presence by foreign OEMs, which should improve supply-chain resilience, said Krishna Doshi, Defence Analyst at Ashika Institution Research.
For Hindustan Aeronautics Ltd (HAL) and private manufacturers aligned with the Make in India program, these developments could translate into reduced bottlenecks and better predictability in sourcing engines and avionics.
“HAL stands to be the key beneficiary, given its dependence on imported engines and the potential easing of these constraints, which could materially support execution and growth visibility relative to peers,” Doshi said.
However, some experts remain cautious about drawing a direct correlation.
“Defence stocks had run up too much too fast in the exuberance triggered by higher defence outlays and the potential for further fast growth in the sector for many years to come. Now, after the correction in defence stock prices, they are more reasonably valued, particularly HAL, Bharat Electronics, Mazagon Dock Shipbuilders and Garden Reach Shipbuilders & Engineers,” said Dr VK Vijayakumar, Chief Investment Strategist, Geojit Investments Ltd.
According to Prashanth Tapse, Research Analyst, Senior Vice President of Research at Mehta Equities, the impact of a potential India–US trade deal on the defence sector may not be outright transformational, given India’s strong emphasis on self-reliance (Make in India) and technology transfer.
Instead of large-scale, off-the-shelf imports, he noted India is expected to pursue a hybrid strategy, combining co-production and joint ventures with US firms to build local capabilities while hedging business risks.
“The effects of an expanded trade deal or BTA with a defence dimension are therefore likely to be mixed — positive in terms of technology access, supply chain resilience, and export opportunities, but constrained by strategic autonomy concerns and execution challenges,” said Tapse.
From an investment standpoint, he believes the focus should be on companies with established US linkages: HAL and BEL, both of which have meaningful relationships with Boeing and GE Aviation.
“Among private / niche players, Data Patterns India (a supplier to US primes under joint programs) and MTAR Technologies (a precision engineering partner to global OEMs with growing US exposure) could see significant upside if the BTA opens wider access to US supply chains,” Tapse added.
Defence Sector Q1 Results
India’s defence sector posted mixed results in the first quarter of FY26. While Defence PSUs reported moderate year-on-year (YoY) growth, they saw a sharp sequential decline. In contrast, private players demonstrated stronger YoY momentum, albeit on a smaller base.
The overall sector posted 9.9% YoY revenue growth, while EBITDA rose 32.2% YoY, expanding margin by 423 bps to 25.2%.
Brokerages remain upbeat about the sector’s long-term outlook.
“India’s defence sector is at an inflection point, poised for a structural growth cycle. We expect production to nearly triple from ₹94,845 crore in FY22 to ~ ₹3 lakh crore by FY29E (18% CAGR), driven by indigenisation, supportive procurement policies, and greater private-sector participation,” Choice Broking said in a report.
The firm expects private players’ ~23% market share to rise significantly as system integration and advanced technology solutions gain scale.
Defence Stocks to Buy
Hindustan Aeronautics | Buy | Target Price: ₹5,570
Choice Broking remains constructive on HAL’s medium-term growth trajectory. It revised estimates and maintained HAL share price target price of ₹5,570, and upgraded its rating to ‘Buy’, valuing the stock at 35x of the average of FY27/28E EPS.
Bharat Electronics | Buy | Target Price: ₹500
Supported by a robust order book and healthy pipeline, BEL continues to enjoy strong long-term growth visibility. Choice Broking has a Buy rating with a target of ₹500, valuing the stock at 40x FY27/28E EPS.
Azad Engineering | Buy | Target Price: ₹1,900
Azad Engineering is well positioned in high-margin, mission-critical components, enjoying a 20–45% cost advantage versus global peers. The company’s transition towards higher-value assemblies supports its long-term prospects. The brokerage firm has upgraded the defence stock to ‘Buy’, raising its target price to ₹1,900, and expects PEG to improve from 1.49x in FY26E to 0.82x by FY28E.
Bharat Dynamics | Buy | Target Price: ₹1,965
With a strong order book and robust project pipeline, BDL remains well placed for long-term growth. Choice Broking has upgraded the stock to ‘Buy’ and raised Bharat Dynamics share price target to ₹1,965 apiece, valuing the stock at 35x of the average of FY27/28E EPS.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
