4 Smallcap Defence Stocks to Add to Your 2026 Watchlist

The current global geopolitical climate, with ongoing conflicts and rising tensions, has emphasised the need for national security and military preparedness.

This global trend is leading to increased defence spending worldwide, and India is no exception.

This creates a favourable backdrop for the defence sector, which is often seen as a defensive bet during times of economic uncertainty.

The defence budget has seen a consistent and significant increase, with a substantial portion earmarked for capital expenditure. A large part of this capital budget is now mandated for procurement from domestic sources.

Several smallcap defence stocks are expected to benefit from the move.

Here are 4 smallcap defence stocks that you can add to your 2026 watchlist.

#1 MTAR Technologies

First on our list is MTAR Technologies.

MTAR Technologies has a presence in defence and aerospace, clean energy, and hydropower.

In defence and aero-space, the company manufactures specialised components and assemblies for missile programs, defence equipment, and aerospace systems.

MTAR Technologies is a key supplier to Defence Research and Development Organisation (DRDO) and has partnerships with global giants like Elbit and Rafael from Israel.

The company also produces components for critical assemblies for the Indian Space Research Organisation (ISRO), including liquid propulsion engines for GSLV and PSLV missions.

Coming to financials of the company, in Q1 FY26 the company reported consolidated net sales of Rs 1,566 million (m) against Rs 1,283 m in the corresponding period of last year. Net profits for Q1 FY26 jumped a solid 145% YoY to Rs 108 m from Rs 44 m.

The company has reported a 3-year average CAGR sales growth of 28% and 3-year average net profit CAGR growth of -4.6%.

Moving ahead, for FY26, MTAR Technologies anticipates a 25% growth in revenues, accompanied by EBITDA margins of 21%, with an expected fluctuation of ±1%.

Moving ahead, as production volumes ramp up over the next 2-3 years, MTAR Technologies expects to achieve operating leverage, leading to a reduction in fixed costs.

Additionally, initiatives in supply chain optimisation and operational efficiencies are projected to further enhance the company's margins.

In the MNC defence and aerospace segment, MTAR Technologies looks forward to at least 45-50% YoY growth due to a ramp up in volumes with new MNC customers and addition of new products.

How Shares of MTAR Technologies have Performed

In the last 5 days, MTAR Technologies shares have gained to Rs 1,681 from Rs 1,408, a jump of 19%. On 12th September the stock jumped nearly 10%.

Over the last one month, the share price is about 9%. In the last one year, the shares have lost 5%.

The stock touched its 52-week high of Rs 1,840.95 on 10 October 2024 and its 52-week low of Rs 1,152 on 7 April 2025.

To know more check MTAR Technologies fact sheet and latest quarterly results.

#2 Data Patterns (India)

Second on our list is Data Patterns (India).

The company is a vertically integrated defence and aerospace electronics solutions provider. It develops and manufactures high-reliability electronic systems and products primarily for the defence and aerospace sectors.

The company's expertise includes radars, electronic warfare systems, rugged displays, fire control systems, launch vehicle check-outs, satellite and launch vehicle subsystems, and automatic test equipment.

Coming to the financials of the company, Data Patterns (India) reported consolidated net sales of Rs 993 m for Q1 FY26, which was lower than Rs 1,041 m YoY.

Net profits for Q1 FY26 came in at Rs 255 m from Rs 328 m in the corresponding period of last year. The company has reported a 3-year average CAGR sales growth of 31.6% and 3-year average net profit CAGR growth of 33.2%.

Moving ahead, the company has an order book of Rs 7,300 m as at the end of FY25, with traction across domestic and global opportunities. The company sees strong demand in areas such as radars, electronic warfare, avionics, seekers, fire control systems, and communication systems.

Data Patterns (India) expects FY26 to be a year of continued momentum, with a targeted revenue growth of 20-25%, while maintaining EBITDA margins in the range of 35-40%.

The company's priorities include deepening customer engagements, scaling high-value product platforms, and unlocking operating leverage across its facilities.

How Shares of Data Patterns (India) have Performed

In the past five days, shares of Data Patterns (India) have moved higher by about 7%. The stock was up more than 5% in trade on 12 September 2025.

In the last one month, the share price has gained about 5%. In the last one year, the share price is almost flat.

The stock touched its 52-week high of Rs 3,267.2 on 6 June 2025 and its 52-week low of Rs 1,350.5 on 3 March 2025.

To know more check the Data Patterns (India) fact sheet and latest quarterly results.

#3 Zen Technologies

Third on our list is Zen Technologies.

Zen Technologies is a company that designs, develops, and manufactures state-of-the-art combat training solutions and counter-drone systems primarily for defence and security forces worldwide.

The company offers over 40 indigenously developed products including simulators for live fire, virtual, instrumented, and constructive training for both individual and collective training scenarios. Zen Technologies is also a leader in providing counter-drone solutions to protect borders and critical infrastructure.

Coming to the financials of the company, Zen Technologies reported consolidated net sales of Rs 1,582 m for Q1 FY26, which was lower than Rs 2,546 m YoY.

Net profits for Q1 FY26 came in at Rs 536 m, against Rs 795 m YoY, a decline of 33%. The company has reported a 3-year average CAGR sales growth of 140.8% and 3-year average net profit CAGR growth of 385.9%.

Moving ahead, the company is doubling down on R&D, with plans to expand its Hyderabad centre with a Rs 700 m investment. This will allow the company to compress development cycles and respond faster to emerging threats.

The company says that it is committed to achieving cumulative revenue of Rs 60 bn across FY26, FY27, and FY28, reflecting its confidence in the strength of its technologies, the maturity of its pipeline, and the accelerating momentum in defence modernisation

The management sees exports becoming a meaningful share of its revenue in the years ahead.

How Shares of Zen Technologies have Performed

In the past 5 days, shares of Zen Technologies have moved marginally higher to Rs 1,482 from Rs 1,469. In the last one month, the share price has gained about 4%. In the last one year, the shares have lost about 13%.

The stock touched its 52-week high of Rs 2,627.95 on 24 December 2024 and its 52-week low of Rs 946.65 on 19 February 2025.

To know more check the Zen Technologies fact sheet and latest quarterly results.

#4 Apollo Micro Systems

Next on out list is Apollo Micro Systems.

The company is a pioneer in the design, development, assembly, and testing of custom-built electronic and electro-mechanical solutions, primarily serving aerospace, defence, and space sectors.

Apollo Micro Systems product range includes embedded systems, circuit boards, sensors, guidance modules, and avionics used in aircraft, land, sea, and underwater defence technologies.

Coming to the financials of the company, Apollo Micro Systems reported consolidated net sales of Rs 1,336 m for Q1 FY26, which was much better than Rs 912 m YoY.

Net profits for Q1 FY26 came in at Rs 177m, against Rs 84 m in the corresponding period of last year. The company has reported a 3-year average CAGR sales growth of 32.2% and 3-year average net profit CAGR growth of 56.8%.

Looking ahead, Apollo Micro Systems has expanded from being a defence subcontractor to aiming to become a fully integrated Tier-1 defence original equipment manufacturer (OEM).

It recently acquired IDL Explosives, marking its entry into ammunition manufacturing and broadening its defence solutions portfolio.

The company remains optimistic about maintaining its growth trajectory. Apollo Micro Systems anticipates revenue to grow at a CAGR of 45-50% over the next two years, excluding the incremental contribution from IDL Explosives, which will be consolidated into its financials starting Q2 FY26.

Additionally, the company expects continued improvement in operating margins and a reduction in its working capital cycle by 100-120 days from FY27, as a larger share of order book transitions into serial production mode.

How Shares of Apollo Micro Systems have Performed

In the past five days, shares of Apollo Micro Systems have surged by almost 20%.

In the last one month, the share price has gained a solid 68%. In the last one year, the shares have tripled in price.

The stock touched its 52-week high of Rs 327.2 on 12 September 2025 and its 52-week low of Rs 88.1 on 23 October 2024.

To know more check the Apollo Micro Systems fact sheet and latest quarterly results.

Conclusion

Indian defence stocks are expected to remain in the limelight and show strong growth potential in the coming years.

The sector is poised for robust expansion driven by India's focus on self-reliance in defence manufacturing under the "Make in India" initiative, rising government defence budgets, and growing export opportunities.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Investors should evaluate the company's fundamentals, corporate governance, and valuations of the stock 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...