Jyoti Gupta, from Nirmal Bang Institutional in an interview to ET Now, highlighted the growth trajectory, noting, “So, well 20% to 25%, it is a bit high, but yes, the outlook looks remain expansionary with FY26 allocations of around 6.8 trillion, which is around 9.5%. We expect forming the base for an expected increase of 10% to 15%. 20-25% would be a great number and as spending trends towards around 2% of the GDP amid heightened geopolitical risk, in fact capital outlay which is roughly around 1.8 trillion we expect this to become 2.1 to 2.3 trillion. So, potentially lifting its share to 30% which is currently at around 26%. So, definitely it is structurally very positive for the industry and in fact the recent rally also that we saw yesterday reflects fundamental strength emanating from government spending, policy reforms, earnings beats because while third quarter could be a mixed bag but fourth quarter would be very-very strong for the entire industry and anticipated budget support that we are seeing right now. So, the long-term outlook definitely looks remains supportive, but near-term valuations are stretched and therefore selective profit booking or tactical entry on dips may be prudent.”
While the proposed growth is promising, analysts caution that it is important to consider the challenges that remain. Gupta emphasized, “Yes, could be, but then we have to see the major challenges which are currently there in the industry as well. What is important is we need to see the working capital for the companies, the private players, the stretched working capital, then execution would be the key and of course the technology developments especially R&D in terms of AI in defence and supersonic technology, so we need a lot of research and development. So, I think my focus would be to see more of allocation in terms of research and development rather than we do have enough order books and the key would be earnings going forward emanating from execution.”
On the subject of Hindustan Aeronautics Limited (HAL) and its possible foray into civil aviation, Gupta remarked, “I do not see HAL. HAL does do some civil aviation part, but I do not see it venturing significantly, like 10% to 20% moving into civil aviation as of now. We have a very critical platform Tejas which needs to be executed. See, yes, first of all, I want to see HAL delivering seven aircrafts by fourth quarter of FY26 and maybe another at least 12 in FY27 before it actually ventures into civil aviation.”
For Bharat Electronics Limited (BEL), the outlook appears robust. Gupta stated, “BEL definitely I am very positive for the next five years, I see one, the order book is not peaking at any point of time and BEL has sustained that revenue trajectory and I think that 15% guidance that the company gives they are going to surpass the guidance in FY26 and going forward in the subsequent years as well. On the execution side, BEL is one company which is aligning with standards and living up to our expectations. But as far as Garden Reach is concerned, I believe the trajectory that they are currently in now, they should be able to sustain it. But any surprises going forward, possibly difficult to see at this point of time.”
Execution capabilities across the sector are also receiving attention. “See, execution, one needs to understand that the pace of execution right now has already picked up. What needs to happen is sustainability and that should be a function of their working capital requirements. They should get enough support from the government on that side. Scaling up for some companies despite good order books could be a challenge going forward. I mean, I think the large ones will continue to do well. The companies which have that threshold of scaling up should do well going forward, but smaller players will face some sort of challenges in the next couple of quarters,” Gupta noted.On margins, particularly for defence PSUs, Gupta observed, “First of all, we need to understand that any defence company with long duration order visibility, deep indigenisation, exposure to capital intensive platform, strong margins and credible export optionality is a preferred stock. Now why? Well else you should avoid any players which are dependent on single programmes or low tech commoditised supply. Now within that yes, if you increase indigenisation, your margins should expand and for BEL I believe the guidance that they have given of 27% is conservative and that should improve but I think that should happen by end of FY27, maybe from FY28 while I feel that they will surprise my expectation of FY28. BEL should see a margin expansions of by 1% maybe in the next financial year itself.”With government spending trends, policy reforms, and execution capabilities aligning, the defence sector appears well-positioned for sustained growth, though analysts advise careful monitoring of working capital and technology investments to ensure long-term stability.
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