Best Defence Stocks to Watch in 2026 and How to Invest in Them

#2 Bharat Electronics

Next on the list is Bharat Electronics.

Bharat Electronics operates in the defence electronics segment, a space that has become increasingly critical as modern warfare relies heavily on surveillance, communication, and electronic intelligence systems.

The company designs and manufactures radars, electronic warfare systems, missile electronics, sonar systems, secure communication networks, and command-and-control infrastructure.

Its products are deployed across all armed forces and multiple paramilitary and homeland security agencies.

The company's business is less capital-intensive and benefits from shorter execution cycles. Defence electronics systems require frequent upgrades and replacements, allowing Bharat Electronics to generate repeat orders and faster revenue conversion.

Over time, the company has also diversified into non-defence segments such as space electronics, railways, smart cities, and civilian radars, providing incremental growth avenues while maintaining defence as its core focus.

Coming to its financials, Bharat Electronics sales and net profit have grown at a CAGR of 13% and 24%, respectively over the past 5 years.

Its ROE and ROCE have averaged 22% and 30% during the same period.

Successful scaling of indigenous platforms and timely delivery will be critical to sustaining earnings momentum. Growth catalysts include demand for advanced radars, electronic warfare systems, network-centric warfare solutions, and defence upgrades.

For more details, check out its financial factsheet.

#3 Premier Explosives

Third on the list is Premier Explosives.

Premier Explosives is engaged in manufacturing industrial explosives and detonators.

The company serves the defence sector and manufactures propellants for tactical and strategic missiles like BrahMos, Astra, Akash, LRSAM, and Agni.

Premier Explosives also plays a vital role in the BrahMos missile program by contributing to the production and integration of rocket motors for the BrahMos missile.

The company manufactures specialised propellant grains and pyrotechnic devices that are essential for the missile booster and stage separation mechanisms.

Coming to its financials, the company's sales and net profit have grown at a CAGR of 28% and 77%, over the past 3 years.

During the same period, its ROE and ROCE have averaged 9% and 17%, respectively.

At present, Premier Explosives is the only Indian company qualified to manufacture countermeasures and specialises in exporting fully assembled rocket motors.

Going forward, the company plans to enhance the production capacity of high-explosive raw materials to meet the increased demand.

With the Ministry of Defence promoting domestic production and reducing imports, this policy supports the company's growth.

For more details, check out its financial factsheet.

#4 Avantel

Fourth on the list is Avantel.

Avantel designs, develops and maintains wireless and satellite communication products, defence electronics, radar systems and more.

The company has established itself in India's satellite and space sector, specialising in satellite communication and advanced space technologies.

It develops customised solutions for GSAT-based mobile satellite services, offering advanced microwaves, digital wireless communications, and signal processing products.

Avantel is capable of delivering multi-frequency SDR solutions tailored for tactical and airborne applications, customised to specific defence requirements. It's also engaged in developing wireless and Satcom systems, RF design, embedded solutions, and signal processing.

It supplies satellite communication products to the Indian defence and maritime sectors and has partnered with Safran Space to boost ground segment capabilities by developing multi-band antennas.

Coming to its financials, Avantel's sales and net profit have grown at a CAGR of 38% and 39% respectively, over the past 5 years.

The ROE and ROCE have averaged 26% and 36%, over the same period.

Going forward, the company plans to broaden its product development efforts.

With a growing focus on indigenous, secure communication systems and niche defence offerings, Avantel is well-positioned for growth in 2026.

#5 Hindustan Aeronautics (HAL)

Last on the list is HAL, which needs no mention.

Hindustan Aeronautics is India's largest aerospace and defence manufacturing company and the backbone of the country's military aviation capability.

It's involved in the design, development, manufacture, and maintenance of fighter aircraft, helicopters, aero-engines, and associated systems for the Indian Air Force, Navy, and Army.

The company's flagship platforms include the Su-30MKI fighter aircraft, the indigenous Light Combat Aircraft (Tejas), the Advanced Light Helicopter (Dhruv), the Light Combat Helicopter (LCH), and the Light Utility Helicopter (LUH).

HAL also undertakes licensed manufacturing and extensive maintenance, repair, and overhaul (MRO) services, which provide recurring revenues over the lifecycle of defence platforms.

Coming to its financials, HAL's sales and net profit have grown at a CAGR of 8% and 24%, over the past 5 years.

Its return on equity and return on capital employed have averaged 24% and 30%, during the same period.

HAL has a massive order book exceeding Rs 1,300 bn. The order book is dominated by large aircraft and helicopter contracts, such as Tejas Mk-1A and helicopter platforms.

The next 12 months' order accretion is estimated at Rs 1,650 bn, including the orders for Su-30 Upgrade, Indian Multi-Role Helicopter design and development (IMRH D&D) sanction and regular repair and overhaul (ROH) Orders.

These contracts provide long-term visibility but are susceptible to execution delays.

However, one should note that sales to the Indian defence forces account for more than 90% of the company's operating revenue, indicating a substantial reliance on a single client.

Although the company is attempting to diversify its revenue base by increasing the proportion of orders from other clients and exports, the contribution to a single customer is still high.

For more details, check out its financial factsheet.

Conclusion

It can be appealing to invest in defence stocks, given the sector's strong growth potential. India's rising defence budget, driven by security concerns and geopolitical challenges, is creating more opportunities for companies in the space.

With the ongoing government push and rising geopolitical tensions, these companies are in a sweet spot but it's also important to exercise caution.

However, investors should carefully check a company's order book, revenue visibility, and policy dependence before investing.

Also evaluate their fundamentals, corporate governance, and valuations as key factors when conducting due diligence before making investment decisions.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...