Motilal Oswal Financial Services has issued a bullish outlook on key Indian defence stocks, recommending investors buy Hindustan Aeronautics Ltd (HAL), Bharat Electronics Ltd (BEL), and Bharat Dynamics Ltd (BDL), citing robust order pipelines, government push for indigenisation, and multi-year revenue visibility amid escalating geopolitical tensions. In its latest sectoral note released on December 8, 2025, the broking highlights the trio's strong positioning to capitalise on India's Rs 6.2 lakh crore defence budget for FY26, with capital outlay at Rs 1.8 lakh crore focused on modernisation and domestic manufacturing.

HAL, BEL, and BDL are projected to deliver 20-30% upside over the next 12 months, driven by the execution of landmark contracts like HAL's Tejas Mk1A fighter jets and BDL's missile systems, even as near-term supply chain hiccups persist. The report underscores the sector's resilience, with a 15% YoY growth in Q2 FY26 orders, positioning these PSUs as core holdings for portfolios seeking exposure to Atmanirbhar Bharat initiatives.

For HAL, Motilal Oswal maintains a Buy rating with a target price of Rs 5,500, implying a 28% upside from the current level of Rs 4,290. The broking praises HAL's diversified portfolio spanning aircraft, helicopters, and engines, with a Rs 1.2 lakh crore order book providing visibility for the next five years. Key catalysts include the anticipated Rs 48,000 crore Tejas Mk1A deal and export potential to friendly nations, offsetting delays in Su-30MKI upgrades. HAL's Q2 FY26 EBITDA margins expanded to 18.5% on cost efficiencies, and the firm forecasts 22% revenue CAGR through FY28, bolstered by the company's monopoly in fixed-wing platforms and improving working capital cycles.

BEL emerges as another top pick, with a Buy recommendation and a Rs 450 target price, signalling 15% potential gains from Rs 392.70. As a leader in radars, communication systems, and electronic warfare, BEL's Rs 76,000 crore order backlog—up 25% YoY—ensures steady inflows, particularly from the Akashteer and QRSAM programmes. Motilal Oswal notes BEL's edge in R&D spending at 7% of revenues, enabling quick pivots to hypersonic and drone tech amid border threats. Despite a 3.44% dip in the stock on December 8, the broking projects 18% EPS growth for FY26, with ROE sustained above 22%, making it a defensive play in volatile markets.

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Bharat Dynamics Ltd (BDL) receives a buy call with the highest upside at 35%, targeting Rs 2,200 from Rs 1,452.95, fuelled by its niche in guided missiles and a Rs 22,000 crore order book swollen by Akash-NG and BrahMos exports. The report flags BDL's recent Rs 5,000 crore QRSAM contract as a game-changer, alongside joint ventures with Israel and Russia for next-gen munitions. Trading 3.84% lower today, BDL's fundamentals remain solid, with Motilal Oswal eyeing 25% revenue growth in FY26 on export ramps and indigenisation mandates, projecting margins at 24% and a PE multiple expansion to 45x.

In a contrasting note, Motilal Oswal remains neutral on Zen Technologies, with an Rs 1,800 target price implying flat returns from current levels around Rs 1,780. The simulation and training systems provider faces headwinds from lumpy order execution and competition from global majors like CAE, despite a Rs 1,500 crore backlog. While Zen's anti-drone tech shows promise, the broking cites valuation premiums at 60x FY26 PE as overstretched, advising a wait-and-watch for Q3 order inflows amid slower defence capex absorption.

Overall, Motilal Oswal views the defence sector as a structural bull market, with PSUs like HAL, BEL, and BDL benefiting from policy tailwinds such as 75% domestic procurement norms and FDI hikes to 74%. Risks include execution delays and US export curbs on tech transfers, but the firm's top-down thesis—projecting 12-15% sectoral CAGR to FY30—positions these stocks as resilient bets in a portfolio, especially with the upcoming Union Budget likely to allocate more to border infrastructure. Investors are urged to accumulate on dips, with a diversified basket yielding 20%+ annualised returns.

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