BEL, BDL shares: Choice's top two defence stock picks; here's why

Choice Institutional Equities has reiterated a positive outlook on India's defence sector, naming Bharat Electronics Ltd (BEL) and Bharat Dynamics Ltd (BDL) as its preferred stock picks as the segment moves into a phase marked by stronger execution and improving visibility.

In its Q3 FY26 defence sector results preview, the brokerage said the sector is transitioning from a policy-led induction phase to a more structural execution phase. According to Choice, defence programmes are increasingly moving beyond development into scaled execution, a shift that is expected to shorten procurement cycles and support more predictable repeat orders, particularly for spares, upgrades, ammunition and subsystems.

The brokerage noted that the evolving nature of orders is likely to result in smoother revenue profiles for defence companies. Choice also highlighted export momentum as an important medium-term driver.

India's defence exports are targeted to reach Rs 50,000 crore by FY29, supported by growing global validation of indigenous platforms and increased integration into global supply chains. The brokerage said this trend could enhance order visibility and support repeat business over time.

Within this broader sectoral framework, Choice said BEL and BDL remain its preferred names, citing their positioning across priority defence segments and improving medium-term visibility. The brokerage added that interim volatility in defence stocks should be viewed in the context of the sector's longer-term structural opportunity.

Looking ahead, Choice expects Q3 FY26 to mark the beginning of the annual ordering and execution upcycle for the defence sector. Historically, procurement activity accelerates during the third quarter as budgeted allocations convert into orders, approvals reach final stages and execution milestones are achieved.

The brokerage believes this seasonality, combined with elevated order backlogs and improved vendor readiness following supply-chain normalisation, could support execution momentum during the quarter.

On the demand side, geopolitical developments continue to reinforce requirements for air defence systems, missiles, counter-unmanned aerial systems and surveillance solutions. While quarterly performance may still remain lumpy, Choice expects management commentary across the sector to turn more confident on second-half execution visibility.

The brokerage, however, flagged risks such as possible delays in customer acceptance and the inherent lumpiness in order finalisation timelines, noting that dependence on select large programmes could make near-term earnings sensitive to execution sequencing.