HAL, BEL to Bharat Dynamics: Which Defence Stocks to Buy Amid Trump Tariff Tension

Indian defence stocks are experiencing a correction after months of significant gains, with the Nifty India Defence index falling nearly 5% in August following a 12% decline in July. Bharat Dynamics has emerged as the worst-performing stock, while Mishra Dhatu declined over 10.5%, and Hindustan Aeronautics (HAL) and Bharat Electronics (BEL) dropped around 4%.

This pullback follows a strong four-month rally as investors booked profits. Additionally, concerns over US President Donald Trump's 50% tariff imposition contributed to subdued market sentiment, impacting the defence sector.

Analysts, however, see potential opportunities due to geopolitical risks and a possible ten-year framework for the India–US Major Defence Partnership.

Defence Sector Outlook

Vaqarjaved Khan, CFA and Senior Fundamental Analyst at Angel One, suggests that the India–US Defence Partnership could enable Indian companies to move up the value chain from component suppliers to full system integrators. This shift would reduce dependence on Russian equipment and create multiyear growth visibility for Indian defence manufacturers.

Analysts highlight that geopolitical tensions and the Indo-Pacific focus may drive collaboration across co-production, technology transfer, interoperability, logistics, and training. Tracking policy signals against program milestones, order visibility, export licenses, and procurement timelines is crucial for investors, notes Om Ghawalkar, Market Analyst at Share.Market.

Defence PSUs are expected to see revenue growth of 12-15% CAGR over FY25–27, while private players may grow 18-20% with improving margins supported by higher operating leverage, localisation, and export opportunities. The Ministry of Defence placed contracts worth over ₹2.1 lakh crore in FY25, doubling year-on-year, reinforcing optimism for defence counters.

HAL (27%) and BEL (28%) reported positive profitability, while Solar Industries (25%) maintained strong defence-led growth. Bharat Dynamics experienced execution delays but is expected to recover from Q2. Shipbuilders such as Mazagon Dock, Cochin Shipyard, and GRSE demonstrated solid revenue growth, driven by robust order books for submarines, corvettes, and frigates.

Which Defence Stocks Should Investors Consider?

PL Capital projects FY26 as a strong year for defence companies, with large project awards worth ₹1.5–2 trillion over the next 18–24 months. Factors such as record indigenous output, rising exports, higher budget allocations, and India-US plans for a ten-year defence framework are expected to sustain multi-year demand.

Vaqarjaved Khan recommends HAL and BEL as top picks. HAL boasts an order book exceeding ₹95,000 crore (3.5x FY25 revenue) and leadership in aircraft, helicopters, and engine manufacturing. BEL has an order book above ₹75,000 crore, dominance in radars, electronic warfare, and missile systems, with projected revenue growth of 16–17% over the next two years, EBITDA margins around 27%, and ROE above 20%.

According to PL Capital, companies with scale, proven execution, and strong institutional linkages—including HAL, BEL, Data Patterns, BDL, and Solar Industries—are best positioned to benefit from ongoing defence modernisation, supported by resilient margins and robust order books.