Defence Stocks: HSBC Sees Huge Upside Potential in These 7 Stocks Despite Nifty Slowdown and Market Sell-Off
Indian defence stocks have emerged as one of the strongest pockets of the market despite broader weakness in equities. While the sharp rally has pushed valuations higher, HSBC has initiated coverage of the sector with a broadly constructive view, arguing that India’s defence spending cycle still has several years of growth ahead.
The opportunity also extends beyond large platform manufacturers. Higher capital expenditure, rising domestic procurement, stronger exports and expanding order books across aerospace, defence electronics, missiles, unmanned systems and naval platforms could support the wider defence ecosystem.
Why HSBC Sees a Multi-Year Defence Opportunity
HSBC’s positive sector view stems mainly from expected increases in defence capital spending. The brokerage estimates annual defence capex could reach between $65 billion and $91 billion by FY37, compared with $23 billion in FY27BE.
Even at the lower end, this would represent a major expansion in the addressable market for Indian defence manufacturers. At the upper end, spending would be close to four times the FY27 level, creating a long runway for platform makers, electronics suppliers and missile companies.
HSBC’s thesis is also supported by the existing order pipeline. DAC approvals rose from Rs.2.3 lakh crore in FY24 to Rs.6.73 lakh crore in FY26, showing that a much larger pool of approved defence procurement is moving through the system.
Domestic Procurement Could Keep Order Books Strong
A second pillar of the outlook is the focus on domestic procurement and manufacturing. HSBC expects this to benefit companies operating across aerospace, defence electronics, missiles and missile defence, unmanned systems and naval platforms.
The sector is also highly interconnected. Platforms produced by Hindustan Aeronautics, Bharat Dynamics and Mazagon Dock can create orders for subsystem suppliers such as Bharat Electronics, Astra Microwave Products and Data Patterns.
Therefore, higher defence procurement can flow beyond the final platform manufacturer into electronics, communication systems, components and other defence technologies. This is an important reason why higher capital spending can support growth across several parts of the sector rather than benefiting only one category of companies.
Strong Outlook, but Valuations Are No Longer Cheap
The main complication is valuation. Defence stocks have already delivered strong returns, with the Nifty Defence Index rising 25.1% YTD against a decline of more than 10% in the Nifty 50.
HSBC is therefore positive on the business outlook but selective at the stock level. It has Buy ratings on Hindustan Aeronautics and Bharat Electronics, citing their large order books and multi-year revenue and earnings visibility. HAL is also identified as India’s largest defence company.
Meanwhile, Solar Industries India, Bharat Dynamics, Astra Microwave Products and Data Patterns carry Hold ratings, even as HSBC remains positive on their underlying businesses and growth outlook. Mazagon Dock Shipbuilders has a Reduce rating because of muted near-term earnings growth.
Company
CMP (₹)
HSBC Target Price (₹)
Upside Potential (%)
Hindustan Aeronautics (HAL)
4,801
6,350
32.26
Bharat Electronics (BEL)
393.65
525
33.37
Bharat Dynamics (BDL)
1,173
1,370
16.79
Astra Microwave Products
1,646.50
1,800
9.32
Data Patterns
4,513.30
4,860
7.68
Solar Industries
18,830
23,420
24.38
Mazagon Dock Shipbuilders
2,216.85
1,860
-16.1
Why HSBC Remains Positive Despite the Market Selloff
The broader market weakness has not changed the fundamental defence-spending thesis. While the Nifty 50 is down more than 10%, defence stocks have continued to outperform as investors focus on government-backed procurement and long-duration order visibility.
HSBC’s estimates suggest this opportunity could extend for years. Even if FY37 defence capital spending reaches only the lower end of the $65–91 billion range, the sector would still operate with a significantly larger spending pool than the estimated $23 billion in FY27BE.
However, HSBC also highlights execution delays and rich valuations as key risks. After the strong rally, future stock performance may increasingly depend on how efficiently companies convert approved orders into revenue and earnings rather than simply on fresh defence-spending announcements.
What Should Investors Watch?
The defence sector currently combines strong structural demand with elevated valuations. The Rs.6.73 lakh crore of DAC approvals, expected expansion in defence capex and greater domestic manufacturing support the long-term growth case, but the 25.1% YTD rally suggests that a significant amount of optimism may already be reflected in parts of the sector.
For investors, the question is therefore not simply whether India will spend more on defence. HSBC’s estimates indicate that spending could rise materially over the next decade. The more important factor is which companies can translate this opportunity into sustained order-book growth, timely execution and stronger earnings while still maintaining reasonable valuations.