- Nemish Shah’s 5‑stock portfolio now leans heavily on two defence‑linked names.
- Elgi Equipments recently clinched a joint‑venture with the Indian Navy, hinting at a multi‑year order pipeline.
- LMW is a Tier‑1 supplier for HAL, positioned to capture outsourced structural work as the aerospace sector scales.
- Both stocks have delivered >150% five‑year returns, yet they face short‑term price pressure.
- Sector‑wide defence spending is projected to grow >10% YoY through 2028, creating tailwinds for suppliers.
You missed the warning sign that could double your exposure to India’s defence boom.
Elgi Equipments: Defence Order Catalyst from the 2026 Budget
Elgi Equipments (ELGI) has moved from a niche compressor maker to a strategic defence supplier after its joint venture with JP Sauer & Sohn. The partnership indigenises high‑pressure compressors for naval divers and engine starters, making the product line indispensable to the Indian Navy. The Union Budget 2026 earmarked an additional ₹45 billion for naval modernisation, with a clear preference for domestically sourced components. That fiscal signal translates into a probable multi‑year contract backlog for ELGI, potentially adding 5‑10% to its top line each year.
LMW: Tier‑1 Supplier Positioned for HAL’s Expansion
Lakshmi Machine Works (LMW) sits at the heart of India’s aerospace supply chain as a Tier‑1 partner for Hindustan Aeronautics Ltd (HAL). A Tier‑1 supplier delivers fully engineered, flight‑worthy parts directly to the OEM, a status that commands premium pricing and long‑term contracts. HAL’s 2026 roadmap includes the production ramp‑up of the Tejas Mk 2 and the indigenous fighter‑jet programme, both of which require extensive structural manufacturing. LMW’s current 5.36% stake by Nemish Shah signals confidence that the company will absorb a sizable share of the outsourced work, potentially boosting its EBIT margins by 150‑200 basis points.
Nemish Shah’s Concentrated Bet: What a 5‑Stock Portfolio Means
Nemish Shah, often likened to India’s Warren Buffett, has distilled his ₹3,238‑crore net‑worth portfolio to just five equities. Holding 1.69% of ELGI and 5.36% of LMW, Shah’s weightings are modest in absolute terms but carry symbolic weight for the market. A concentrated portfolio suggests high conviction; when a seasoned investor places capital in a security, it usually signals an asymmetric risk‑reward outlook. For retail investors, mirroring Shah’s positions can be a shortcut to exposure, but it also demands a clear understanding of the underlying catalysts and valuation levels.
Sector Outlook: Indian Defence Manufacturing Trends
India’s defence budget is on a steep upward trajectory, with the 2026 Union Budget allocating a record 2.5% of GDP to defence spending. The “Make in India” policy pushes for at least 70% localisation of defence equipment by 2030, creating a massive pipeline for domestic manufacturers. Compressor technology, structural aerospace components, and precision engineering are among the high‑growth sub‑sectors. Companies that have already secured defence contracts, like ELGI and LMW, are poised to benefit disproportionately as the government accelerates indigenisation.
Competitor Landscape: How Tata & Adani Are Responding
Industry giants Tata Defence and Adani Defence have announced joint ventures with foreign OEMs to capture the same budget‑driven wave. Tata’s partnership with Boeing for aerospace components and Adani’s for missile systems illustrate a broader shift toward collaborative defence manufacturing. However, both groups are still in the early stages of supply‑chain integration, whereas ELGI and LMW already have operational contracts and proven delivery records. This first‑mover advantage could translate into higher near‑term earnings growth for the latter.
Historical Parallel: Defence‑Linked Rallies After Past Budgets
Looking back at the 2014 and 2019 Union Budgets, defence‑linked stocks outperformed the broader NIFTY index by 12% and 15% respectively over the subsequent 12‑month window. In both cases, companies that already supplied the armed forces saw their share price multiples expand as order books filled. The pattern suggests that fiscal announcements, when coupled with existing contracts, can act as a catalyst for price appreciation.
Technical Snapshot: Valuation Metrics Explained
ELGI trades at a forward P/E of ~13x, comfortably below the sector average of 17x, reflecting a discount for recent price weakness. Its price‑to‑book (P/B) stands at 2.2x, indicating room for upside as assets are re‑valued post‑contract wins. LMW’s forward P/E hovers around 14x with a P/B of 2.5x, also below peers like Bharat Forge (P/E ~18x). Both stocks exhibit a 50‑day moving average that is now above their 200‑day average, a classic “golden cross” signal suggesting momentum is turning bullish.
Investor Playbook: Bull vs. Bear Cases
Bull Case: Continued government spending, successful execution of naval compressor contracts, and HAL’s production ramp‑up drive earnings growth. Valuation gaps relative to peers provide upside of 25‑35% over the next 12 months.
Bear Case: Execution risk on large defence projects, potential budget overruns, or policy shifts favoring foreign suppliers could compress margins. A corrective move could see ELGI and LMW retreat 10‑15% from current levels.
For investors seeking exposure to India’s defence renaissance, aligning with Nemish Shah’s focused bets on ELGI and LMW offers a high‑conviction entry point—provided you stay mindful of execution timelines and valuation discipline.