ICICI Securities sees defence as a long-term play; HAL among top picks

Amid rising geopolitical tensions and a visible shift towards air and electronic warfare, Vikash Singh, VP of ICICI Securities believes India’s defence sector is entering a strong growth phase, with select companies well placed to benefit from higher capital expenditure and export momentum.

Singh highlights Hindustan Aeronautics Limited (HAL) as one of his top bets in the space, supported by improving valuations and a strong long-term order pipeline. After correcting from peak valuation levels of around 45x earnings, HAL now trades closer to 23–25x forward earnings, making it more attractive.

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He expects earnings visibility to improve, driven by aircraft demand, helicopter programs, and potential upgrades such as the Sukhoi fleet.

The broader investment thesis is anchored around evolving warfare dynamics, where air combat, radar systems, missiles, and electronic warfare are becoming increasingly critical. In this context, Singh prefers companies with exposure to these segments.

Among listed names, Bharat Electronics Limited (BEL) and Bharat Dynamics Limited (BDL) stand out due to their strong positioning in missiles, radars, and avionics. These segments are expected to see growth as modern warfare becomes more technology-driven.

Singh also points to opportunities emerging across the defence manufacturing ecosystem. Companies involved in precision engineering and materials—such as PTC Industries and Mishra Dhatu Nigam—could benefit from localisation efforts, especially in high-end materials like titanium and superalloys.

Similarly, niche players such as Azad Engineering may gain from increasing outsourcing and component manufacturing.

While India has built strong capabilities in missiles and interceptors, Singh notes that aerospace—particularly engine manufacturing—remains a key gap. This opens up opportunities for partnerships and domestic ecosystem development, which could further benefit ancillary players.

On the macro front, India’s defence capital expenditure is witnessing steady growth, and exports have scaled sharply from ₹600 crore a decade ago to ₹23,000 crore, with a target of ₹50,000 crore over the next few years. This provides an additional growth lever beyond domestic government spending.

Despite concerns around government dependence, Singh views it as a “double-edged sword”—while order flows may see timing delays, the government also ensures a stable and long-term revenue pipeline. Increasing exports and civil aviation opportunities are expected to gradually diversify revenue streams.

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