Defence stock to buy in 2026: Analysts see upto 30% potential

The Indian stock market is always changing and always full of surprises. Defence stocks in India, however, consistently remain a strong investment option. This is largely due to government support in the industry and the rising global tensions. Due to rapidly changing global conditions, the Indian defence industry is expected to undergo great change in the coming years. 

Analysts predict large movements in the stock prices of key players in the sector. This article discusses the key players in the industry and the potential they hold. Defence orders are a key driver of stock prices in this industry. This article will focus on government orders, market trends, and the stock prices in defence and aerospace equities in the upcoming years.

The self-reliant military and defence capabilities move by the government will be accompanied by a larger budget for the Indian defence sector. Under such conditions, defence stocks will be a great investment option. Now, let's begin to understand which defence stocks analysts predict will yield the 30% upside and why!

 

 

The Booming Defence Sector 2026: An Overview

Over the past couple of years, the Indian defence sector has experienced rapid growth due to changing geopolitical conditions and new developments within the country. Reports suggest that the Indian defence sector predicts an 8-10% annual growth, as the nation focuses on modernising and securing its defence systems internally. 

Following the 2025 budget, the Indian defence sector has experienced considerable growth, as some defence stocks have increased by as much as 68%, and the Nifty India Defence Index also increased by 22.289% between January and February 2025.  

For the past couple of years, increased border tensions have resulted in a greater number of government orders for defence stocks in India. The Indian government has recently increased its Defence Acquisition Council orders funded by 79,000 crore to cover additional missiles, electronics, ships, and aviation. 

This has also resulted in an increased belief that the Indian market will improve for defence stocks, as analysts from several companies, including Motilal Oswal and Jefferies, have also increased their projections due to the improved execution and capacity orders.

The sector is likely to be positively impacted by missile systems, naval modernisation, and advanced electronics by 2026. Since India aims to export Rs 50,000 crore worth of defence equipment by 2028-29, companies operating in these areas will likely experience consistent revenue growth. 

The defence sector in 2026 is, for the investor looking for long-term gains, a combination of stability and high-growth opportunities, making it one of the top sectors in the overall stock market in India.

Most Important Factors Accelerating Defence Stocks in India

The most important factors of macroeconomic and policy support contributing to the growth of defence sector stocks are government defence contracts. These provide companies with revenue visibility and stability. By the end of 2025, substantial contracts for frigates, patrol vessels, and survey ships were awarded, which is beneficial to both shipbuilders and the companies operating in the electronics sector. 

The remainder of the defence sector in 2026 will continue along the same lines, with budgetary allocations skewed towards procurement and the R&D portion of the defence budget.

The most basic justification for these changes is the government-imposed economic embargo of over 4,000 defence articles, which have to be produced locally. Although it decreases foreign currency spending, it opens the country’s domestic market and within the systems of India, it increases the level of technology and reduces foreign currency expenditures.

Increases in technological sophistication along with the capacity to produce sophisticated systems, will improve the position of India within the international defence marketplace. Moreover, the defence export growth story is remarkable. India’s defence exports crossed Rs 21,000 crore in FY25 while bettering those numbers targeted for 2026. Firms with good global connectivity, especially those with alliances with global giants such as Lockheed Martin, Boeing, etc., might benefit.

The other economic indicators are equally positive. India’s GDP, projected to grow at 6.5-7% in 2026 coupled with an increase in capex on infrastructure and defence, will positively impact the associated stocks. However, investors will need to contend with the volatility in global commodity prices, supply chain disruptions and their impact on margins.

 

 

Best Defence Stock to Buy

Bharat Electronics Ltd (BEL) is at the top of the chart when it comes to defence stocks to buy, with analysts reasonably expecting an upside of 30% and BEL being the best performer in defence electronics. BEL has been a steady performer with a 47% jump in the shares since February 2025. Analysts remain bullish, with the price target being Rs 393 - 415 and an upside of 27-30% despite a potential miss in the earnings for Q3 due to supply chain disruptions.

(Source: ventura securities, toi, trade brains).

Why BEL? The company has an order book of more than 7500 crores, largely based on government defence contracts for radars, communications, and electronic warfare systems. Motilal Oswal has pegged BEL's target price at 500 rupees, suggesting a 27% price surge. Jefferies also has a buy rating on BEL, with a price target of 565 rupees, indicating a larger price potential. BEL's focus on indigenisation and their new Southeast Asia and Middle East contracts also helps.

In the defence sector 2026, BEL is positioned well for missile guidance systems and surveillance systems. 25% of BEL's debt makes it a safe and stable selection for the stock market in India. Analysts cite the execution track of higher budgets relative to the prevailing track record of the systems as the primary reasons for the optimistic sentiment, despite the prevailing short funding.

Other Defence Stocks in India for 2026

In addition to BEL, there are other notable defence stocks in India. Hindustan Aeronautics Ltd (HAL) is another analyst favourite. With an order book exceeding one lakh rupees, HAL's prospects are enhanced by government contracts for Tejas fighters and engine upgrades.

Mazagon Dock Shipbuilders is notable in shipbuilding as its shares are rising with new naval contracts. Analysts believe there is a growth potential of 20-25% with submarine and destroyer projects in the sector in 2026.

Focusing on the missile segment, Bharat Dynamics Ltd (BDL) has a pipeline expansion post DAC approvals. With targets set, BDL is estimated to have a 25% upside, making it a decent stock in the defence sector.

Solar Industries India, also an explosive and propulsion manufacturer and exporter with strong fundamentals, has been recommended by Anand Rathi with 38% returns in the past, along with other recommended stocks.

In 2025, due to precision engineering and space and defence, MTAR Technologies is estimated to have the highest gains at 51%. It is recommended by Axis Securities for 2026 as there are high margins and good visibility of orders, hence it is a good pick.

Considering the warship segment, expertise with notable stock for budget-sensitive investors, Garden Reach Shipbuilders & Engineers (GRSE), has estimated potential returns of 20-30% and has, gained 43% and is gaining more.

These stocks are diverse in the segments of defence stocks in India.

Increasing modernisation of defence aviation also augments the growth prospects of the sub-sector.

HAL is retained as the market leader with the Light Combat Aircraft programme and MRO services for helicopters.

Another important aerospace stock is MTAR Technologies, which provides parts to both ISRO and other global players. Its 68% stock turnover in 2025 shows high potential.  

Paras Defence and Space Technologies is a more specialised player in optics and space systems with 30% turnaround potential. Orders from the government defence for drones and surveillance systems improve its outlook.  

Astra Microwave Products is another emerging player with a focus on radar and other microwave components relevant to aerospace. With almost 33% stock turnover, it is also seen as a star in the making.  

Aerospace stock investments touch both the defence and commercial aviation sectors, offering significant stock market investment resilience for India.  

Risks and Considerations in the Defence Sector 2026

Although these anticipations may seem unfounded, the most glaring risk is a drop in defence spending urgency due to geopolitical calm. An outlook of supply chain disruptions, such as those exhibited in BEL’s Q3 report, may also influence overall earnings. With high-value stock prices and multiples in the 40s and 50s, a market correction becomes a possibility.  

 

 

Conclusion

Changes in regulations and lack of budgets to support adopted strategies are other risks, in addition to just growth potential, and the focus of strategies to support such growth. Continuous tracking of quarterly results, diversification, and consideration of risks with finances should be given due focus when investing.