- India’s defence capex is slated to climb >10% YoY, unlocking fresh growth for domestic manufacturers.
- HAL, BEL and Data Patterns are flagged as the top beneficiaries of the budget‑driven surge.
- Export targets are being fast‑tracked, with a FY30 goal of $6.8bn (≈₹500bn) – a 2× lift from FY25.
- Orders worth $23bn already booked this FY, providing near‑term revenue visibility.
- Analysts forecast double‑digit earnings CAGR for the trio, backed by strong ROE and ROCE.
You missed the early warning signs, and now the budget window is closing.
Why HAL Is Poised to Capture a Bigger Slice of India’s Defence Capex
Hindustan Aeronautics Ltd (HAL) commands roughly a quarter of the nation’s defence capital spend, and that share is set to rise. The FY26 budget allocated ₹1.8 trillion for defence, with 62% already disbursed by November 2025—far ahead of the 41‑54% pace of earlier cycles. The Ministry of Defence has hinted at a 20% uplift for FY27, plus a 17‑18% compound annual growth rate (CAGR) over the next few years. That trajectory translates into an incremental ₹300‑400 billion of spend that will flow directly into aircraft platforms, engine upgrades and indigenous fighter programmes—areas where HAL is the undisputed supplier.
Technical note: Capital expenditure (Capex) is the money a government or firm spends on long‑term assets like aircraft, ships or factories. A higher Capex rate usually signals expanding capacity and future revenue streams.
Historically, each 5% rise in defence Capex has lifted HAL’s top‑line by about 3%‑4% in the subsequent fiscal year, thanks to the lag between order signing and delivery. The current order book—anchored by the Tejas Mk 1A and the upcoming AMCA stealth fighter—provides a runway that could sustain double‑digit earnings growth through FY30.
BEL’s Electronics‑Led Growth in the Indigenisation Wave
Bharat Electronics Ltd (BEL) sits at the intersection of hardware and software, supplying radars, missile fire‑control systems and the QRSAM surface‑to‑air missile. The brokerage notes a forthcoming $3 billion QRSAM order slated for Q4 FY26, which alone would lift BEL’s revenue by roughly 12%.
Indigenisation—India’s push to replace imported defence components with domestic ones—has turned electronics into a growth engine. BEL’s share of defence Capex has risen steadily, now approaching 8% of the total spend. The company’s strong return on equity (ROE) above 15% and return on capital employed (ROCE) near 14% underscore its efficiency in converting spend into profit.
For context, during the 2014‑2016 budget cycle, BEL’s earnings grew at a 9% CAGR, aligning with a 7%‑8% rise in overall defence outlays. This time, the spending acceleration is sharper, setting the stage for a higher earnings trajectory.
Data Patterns: A High‑Growth Play in Defence Software
Data Patterns (India) is the under‑the‑radar software specialist that has ridden a 31% CAGR from FY19‑FY25, far outpacing the broader defence spending growth of roughly 12% per annum. Its niche lies in AI‑driven command‑and‑control platforms, cyber‑defence suites and simulation tools—products that are becoming mandatory under the new “Make in India” defence procurement rules.
Because software contracts are typically high‑margin and have low capital intensity, Data Patterns can deliver double‑digit earnings growth without the heavy asset base that characterises HAL or BEL. Its recent win of a multi‑year contract for a naval simulation system—valued at $120 million—adds a recurring‑revenue stream that analysts see as a catalyst for stock appreciation.
Definition: CAGR (Compound Annual Growth Rate) measures the mean annual growth rate of an investment over a specified period longer than one year, smoothing out volatility.
Export Momentum: How Global Demand Amplifies the Bullish Thesis
India’s defence export pipeline is now at 87% of its FY26 target of $3.3 billion, a level that would have seemed aspirational a year ago. The government’s ambition to hit $6.8 billion (≈₹500 billion) by FY30 is being driven by strategic ties—most notably a prospective India‑EU Security and Defence Partnership that could unlock participation in the EU’s €150 billion SAFE programme.
Key product winners include the BrahMos supersonic cruise missile, Akash surface‑to‑air system and Pinaka rocket artillery. Interest from the UAE, Japan, Italy and the United Kingdom has already materialised into letters of intent worth over $1 billion. For HAL, each export contract typically carries a 30%‑plus contribution margin, while BEL and Data Patterns enjoy even higher software‑related margins.
Historically, export surges have acted as a tailwind for Indian defence stocks. After the 2018 export‑driven upswing, HAL’s share price outperformed the Nifty Defence Index by 6% over the subsequent 12 months.
Investor Playbook: Bull vs. Bear Cases
Bull Case: The FY27 budget delivers the projected 20% uplift, translating into an additional ₹300‑400 billion of Capex. HAL captures >25% of aircraft spend, BEL secures the QRSAM order, and Data Patterns locks in multiple software contracts. Export revenues accelerate, pushing overall earnings CAGR to 12‑15% through FY30. Valuation expands as price‑to‑earnings (P/E) multiples rise from 12x to 16x, delivering a 30%‑40% upside from current levels.
Bear Case: Budgetary delays or geopolitical shocks curb the planned Capex growth to below 5% YoY. HAL faces delivery delays on the AMCA programme, BEL’s QRSAM order is postponed, and Data Patterns loses a key software tender to a foreign competitor. Export targets fall short, limiting top‑line growth to single digits. In this scenario, earnings multiples compress, and the stocks could underperform the broader market by 10%‑15%.
Given the current order backlog—$23 billion in FY25 contracts, 87% of which are already realized—most analysts assign a higher probability to the bull scenario. Positioning a modest allocation (5%‑10% of a defence‑focused portfolio) in HAL, BEL and Data Patterns could capture upside while limiting downside through diversification across air, electronics and software segments.