HAL, BEL, BDL, Data Patterns, Apollo Micro: Check top picks and targets for defence stocks

Choice Institutional Equities has reiterated its positive outlook on India's defence sector, highlighting continued growth opportunities despite ongoing geopolitical tensions in the Middle East. It said, "We continue to maintain a positive outlook on the defence sector and do not foresee any changes to our current assumptions. Consequently, we reiterate our existing recommendations on the companies under our coverage".

Rising tensions around the Strait of Hormuz are seen as a catalyst for accelerated defence procurement across Gulf nations, which collectively account for 30–35 per cent of global arms imports. Choice notes that India's defence exports have grown to approximately Rs 23,600 crore ($2.8 billion) in FY25, with a government target of Rs 50,000 crore by FY29E, reflecting strong export growth momentum.

Historically, countries such as Saudi Arabia, UAE, Qatar, and Bahrain have increased defence spending during periods of instability. According to Choice, a 10–15 per cent increase in regional procurement budgets could generate an incremental export opportunity of $3–5 billion (Rs 25,000–40,000 crore) for emerging suppliers like India.

India's defence industry is undergoing a structural transition, moving from being a supplier of components and subsystems to exporting complete platforms such as BrahMos, Akash, Pinaka, torpedoes, and anti-drone systems. Choice emphasises that this transition considerably expands India's addressable export market and enhances its competitiveness.

Modern warfare, marked by the rising use of cost-effective technologies such as loitering munitions, is driving global demand for affordable counter-drone systems, layered air defence, and electronic warfare capabilities. Choice points out that Indian companies are gradually building expertise in these areas.

From a corporate perspective, Choice identifies Bharat Electronics Limited (radar and electronic warfare), Bharat Dynamics Limited (missile systems), Data Patterns (India) Limited (mission-critical electronics), and Zen Technologies (counter-drone systems) as particularly well positioned to benefit from emerging export opportunities.

Choice also highlights that, unlike sectors such as automotive or chemicals, the defence sector is less vulnerable to supply chain disruption. Defence manufacturers generally maintain the ability to supply equipment to partner or allied nations even during periods of geopolitical conflict, aided by government-to-government contracts and secure logistics corridors.

While order books across several Indian defence companies remain robust and inflows appear promising, Choice cautions that execution risk persists. The ability to deliver on schedule, manage supply chains, and integrate platforms will be critical factors for Indian firms as they move towards larger, more complex export contracts.

Choice Institutional Equities has picked Bharat Electronics (Target Price: Rs 550), Bharat Dynamics (Target Price: Rs 1,965) and Data Patterns (Target Price: Rs 3,600) as its top picks from the defence space. All these stocks have a 'buy' rating from the brokerage firm.

Besides, them Choice has a 'buy' ratings on Zen Technologies (Target Price: Rs 2,150), Apollo Micro Systems (Target Price: Rs 300), Azad Engineering (Target Price: Rs 1,900), Centum Electronics (Target Price: Rs 3,000) and Hindustan Aeronautics (Target Price: Rs 4,780). It has an 'add' rating on Astra Microwave (Target Price: Rs 1,030) and 'reduce' tag for DCX Systems (Target Price: Rs 170).