Defence Sector Shows Impressive Growth Trajectory
India's defence sector has demonstrated remarkable performance during the second quarter of fiscal year 2026, recording substantial revenue expansion across multiple companies. The impressive growth has been primarily driven by accelerated execution in critical defence programs including missiles, avionics, and radar systems, coupled with widespread profitability enhancements throughout the industry.
Quarterly Performance Metrics Reveal Strong Momentum
According to comprehensive analysis by Choice Broking, overall revenue across defence companies within their coverage scope surged by 21.8% year-on-year and an even more impressive 40.9% quarter-on-quarter. The sector's EBITDA showed healthy growth of 10.5% YoY and 37.5% QoQ, although margins experienced some contraction due to changing product mix dynamics.
Net profit figures painted an equally optimistic picture, increasing by 16.6% year-on-year and 33.5% quarter-on-quarter. This performance indicates widespread improvement across both state-run and private defence sector players, signaling a sector-wide upswing.
Public Sector Undertakings Lead Recovery Charge
Defence Public Sector Undertakings (PSUs) staged a significant recovery during the September quarter, with Hindustan Aeronautics (HAL), Bharat Electronics (BEL), and Bharat Dynamics (BDL) emerging as standout performers. These companies demonstrated excellence in both execution capabilities and profitability metrics.
While EBITDA showed positive movement, the margin dip reflected increased production intensity and inventory adjustments in anticipation of stronger order inflows during the second half of the fiscal year. Choice Broking emphasized that the performance highlights defence PSUs' structural advantage in large defence programmes, with rapid scaling capabilities once approvals and supply chains synchronize effectively.
Private Sector Companies Show Export Strength
Private defence companies continued to outpace their PSU counterparts in growth rates, supported by strong export performance, integration of new platforms, and ongoing localization initiatives for high-value components. However, their margin profiles remain sensitive to product mix variations and execution timelines, resulting in uneven EBITDA trends across individual companies during the quarter.
The brokerage firm's analysis confirms that the defence sector remains entrenched in a multi-year structural upcycle, bolstered by expanding indigenous programmes, sustained export momentum, and strengthening domestic supply chain capabilities.
Top Defence Stock Recommendations for Long-Term Investment
Choice Broking has identified four preferred long-term investment opportunities within the defence sector:
Hindustan Aeronautics (HAL) | Buy | Target Price: ₹5,570
HAL appears well-positioned for a stronger second half in FY26, with revenue acceleration expected from multiple ongoing and new programs. The Tejas Mk1A delivery schedule remains a key monitorable for investors in the coming quarters. The brokerage maintains its Buy rating, valuing the company at 35 times projected FY27/28 earnings per share.
Bharat Electronics (BEL) | Buy | Target Price: ₹500
BEL's strategic focus on system integration and complex defence electronics is expected to drive sustained value creation. The upcoming Defence System Integration Complex in Andhra Pradesh, involving ₹1,400 crore capital expenditure, positions the company to capture high-end programs including QRSAM, Project Kusha, and NGC. The positive stance is supported by robust long-term growth visibility and a healthy orderbook.
Bharat Dynamics (BDL) | Buy | Target Price: ₹1,965
Bharat Dynamics boasts a robust orderbook representing approximately seven times FY25 revenue, complemented by an incremental pipeline of ₹50,000–60,000 crore. This provides multi-year earnings visibility and operating leverage benefits. As execution scales up, the company is expected to demonstrate strong cash generation and profitability improvement through FY28.
Data Patterns (India) | Buy | Target Price: ₹3,300
Data Patterns is projected to report over 25% revenue growth in FY26, supported by strong execution momentum, expanding system-level capabilities, and operating leverage benefits. Margins are likely to recover toward the guided 35–40% range as deliveries scale up in the second half. The recent margin compression appears to be a transient phase in an otherwise accelerating growth story.
The defence sector's Q2 FY26 performance solidifies its position as a key growth engine within India's manufacturing landscape, with both public and private players contributing to the nation's strategic capabilities and economic development.
