Emkay Global has initiated coverage on the Indian defence sector, citing growth from increased indigenous production and rising exports. With domestic output reaching ₹1.8 trillion in FY26, the report highlights firms like Hindustan Aeronautics and Bharat Electronics. Investors should track order book execution and valuation trends as the sector transitions from a net importer to a global supplier.
Emkay Global has initiated coverage on the Indian defence sector, pointing to long-term growth driven by structural policy changes and a shift toward local manufacturing. This report comes as the domestic defence industry reached a record production value of ₹1.8 trillion in FY26, reflecting a compound annual growth rate of 18 percent since FY21.
The brokerage has identified Hindustan Aeronautics (HAL) and Bharat Electronics (BEL) as primary picks within the space, alongside BEML and Bharat Dynamics. These companies are viewed as beneficiaries of the government's current procurement strategy, which favors indigenous capabilities over imports. The report highlights that India’s export momentum has also accelerated, with figures growing from ₹6.9 billion in FY14 to ₹380 billion in FY26, supported by the nation’s push to become a key player in global security and manufacturing.
While the sector outlook remains positive due to policy tailwinds and public sector order books, the market reaction has been uneven. During 2026, there has been a divergence in stock performance, with some players like MTAR Technologies and Paras Defence outperforming peers, while others, such as Cochin Shipyard, have faced correction after significant runs in previous periods. This variation suggests that stock-specific factors, such as order execution efficiency and current valuation, are as important as the sector's overall growth potential.
For investors, understanding the nature of these companies is crucial. Defence businesses often operate with long project timelines, meaning revenue growth is tied directly to the speed and efficiency with which they execute their order books. Investors may monitor whether these firms can maintain their profit margins while scaling up production to meet the government’s ambitious target of ₹3 trillion in annual production by 2029. Additionally, high valuations in the defence space require careful attention, as any delay in project commissioning or execution could impact future earnings and stock performance. The next steps for investors involve tracking quarterly order inflows, the actual pace of project delivery, and the sustainability of export orders, which remain a key component of the long-term growth story.