'Buy' calls: Why Nuvama prefers BEL, Data Patterns, Solar Industries over HAL, BDL — check target prices

Nuvama Institutional Equities has reiterated a positive stance on India's defence sector, citing strong order visibility and sustained capital expenditure, while signalling a shift in market dynamics that favours select players.

In its recent report, the brokerage highlighted that robust Acceptance of Necessity (AoN) accretion over the past two to three years, along with FY27 budgeted capex of around Rs 2.2 lakh crore and defence backlogs at roughly 3–5 times revenue, continue to provide healthy visibility.

"However, we believe we are entering a more calibrated phase of the defence upcycle, where incremental ordering pace shall moderate and the focus shifts to execution quality, spending mix and cash flow delivery," Nuvama stated.

"Spending is clearly tilting towards short-cycle, technology-intensive segments such as electronics, EW, radars, missiles and ammunition, favouring electronics/consumable-linked players," it added.

"Execution risks remain elevated, driven by import dependence, integration complexity and certification timelines alongside administrative and funding friction. Consequently, earnings delivery would be increasingly execution-led with high stock-level dispersion," Nuvama also said.

"The ~60 per cent YoY jump in the 'other equipment' bucket within the FY27 Rs 2.2 lakh crore defence budget reinforces the shift towards modernisation and high-tech systems. This bucket typically captures modernisation-led spending, including missiles, electronic warfare, avionics, EW suites, radars, rockets and other high-tech systems and clearly signals where incremental capital is likely to flow in," the brokerage further said.

Against this backdrop, Nuvama reiterated its preference for Bharat Electronics Ltd (BEL), Data Patterns India Ltd (DPIL) and Solar Industries India Ltd (SOIL), while maintaining a relatively cautious stance on Hindustan Aeronautics Ltd (HAL) and Bharat Dynamics Ltd (BDL), where execution concerns have been affecting growth.

Providing a near-term outlook, the brokerage noted mixed execution trends in Q4 FY26. "India defence enters Q4 FY26 with robust order visibility, supported by sustained inflows and a healthy pipeline; backlogs are no longer a constraint. However, incremental large-ticket ordering is likely to be more measured with growth increasingly driven by repeat and replenishment orders. While visibility remains strong, the slope of OI growth shall moderate. Execution in Q4 FY26 is likely to be mixed. BEL and HAL reported weaker-than-expected execution with BEL affected by supply chain constraints (in our view, partly geopolitical) and HAL reporting delays in key platform deliveries. DPIL and SOIL shall report relatively better growth although SOIL may report some miss in defence due to delayed Pinaka commercialisation. For BDL, we reckon a slight miss given continued execution volatility," it concluded.

Despite the differentiated outlook, Nuvama has maintained 'Buy' ratings across all five stocks. It has set target prices of Rs 525 for BEL, Rs 3,570 for Data Patterns and Rs 15,800 for Solar Industries. For HAL and BDL, the brokerage has assigned target prices of Rs 4,800 and Rs 1,900, respectively.