Brokerage sees higher Budget allocation supporting defence plays; HAL, BEML among top picks

India's defence sector is expected to remain on a strong growth path, supported by a sustained increase in budgetary allocation and a continued policy focus on modernisation and self-reliance, according to brokerage Nirmal Bang.

In a sector note, Nirmal Bang said India's defence allocation has been on a steady upward trajectory and is expected to rise further in the upcoming Union Budget 2026. The brokerage attributed this trend to heightened strategic security requirements, learnings from recent operations and the government's focus on strengthening indigenous defence capabilities. Defence capital outlays and procurement spending continue to be the key growth drivers, aiding force capability enhancement and domestic manufacturing.

In the Budget for FY25–26, the Ministry of Defence was allocated Rs 6.81 lakh crore, up from Rs 6.22 lakh crore in the previous fiscal year. Nirmal Bang said the year-on-year (YoY) increase reinforces the government's commitment to defence preparedness and accelerated domestic defence production.

The brokerage expects companies under its coverage to benefit meaningfully from recent approvals, with Hindustan Aeronautics Ltd (HAL), Bharat Electronics Ltd (BEL) and Bharat Dynamics Ltd (BDL) positioned as key integrators. While HAL has faced challenges due to delays in the supply of GE404-IN engines for the LCA Tejas programme, Nirmal Bang believes the impact can be offset through deliveries of AL-31FP and RD-33 engines for the existing Su-30 MKI and MiG-29 fleets.

Nirmal Bang also reiterated a positive stance on defence electronics players such as BEL, Astra Microwave Products and Data Patterns, citing their significant role in major defence platforms. BEL continues to be viewed as the key integrator, while Astra Microwave and Data Patterns are seen as subsystem suppliers gradually moving up the value chain. Following approvals, QRSAM orders are expected in the fourth quarter of FY26, with BEL, BDL and Astra Microwave among the key beneficiaries.

From a sectoral perspective, Nirmal Bang said it remains structurally positive on defence. Its top picks -- HAL, BEML, Data Patterns and Solar Industries -- are expected to deliver strong performance in the second half of FY26, with robust financial numbers anticipated across the sector.