Investment expert Mayuresh Joshi, Head of Equity Research at William O’Neil India, has outlined his top three defence stock bets, highlighting Bharat Electronics Ltd (BEL), Data Patterns, and Solar Industries. Joshi's analysis suggests a structural shift in India's defence investment narrative, moving beyond traditional Public Sector Undertakings (PSUs) towards select private sector players and shipbuilders.
Shifting Focus: Private Sector and Shipbuilders
Joshi notes a clear market shift from PSU defence plays to the private sector, driven by a hunt for earnings visibility and scalable order pipelines. He views defence as a multi-year investment theme, urging investors to adopt a structural lens rather than focusing solely on volatile quarterly numbers. This distinction is crucial, as defence manufacturing, particularly large projects, often involves uneven revenue recognition, milestone-based execution, and extended payment cycles, which can make quarterly earnings appear inconsistent even when the underlying business trajectory is strong.
Within the sector, shipbuilders stand out as a particularly compelling long-term story. This segment combines strategic spending, domestic manufacturing capabilities, and long-gestation order books, positioning it as a patience-driven investment rather than a tactical trade.
Key Picks: Large-Cap and Mid-Cap Opportunities
For large-cap defence exposure, Joshi prefers Bharat Electronics Ltd (BEL). He points to BEL's robust order book as a key strength, indicating continued strong performance. The emphasis on backlog strength is critical in a sector where revenue conversion is heavily dependent on project flow and government procurement cycles.
In the mid-cap space, Joshi highlights Solar Industries and Data Patterns as companies poised for continued growth. This preference aligns with a broader market trend where investors are increasingly backing niche, earnings-led mid-cap stories across emerging growth sectors like defence, aerospace, and industrial manufacturing.
Navigating Volatility and Risks
Despite the strong structural case for the defence sector, Joshi cautions investors to anticipate intermittent disappointments. He predicts that at least one quarter each year may present challenges due to execution risks, perceived misses, or working-capital delays linked to payments from authorities. Consequently, stock reactions around earnings releases may remain sharp, even when the broader business fundamentals are healthy. For defence investors, the takeaway is clear: while short-term volatility is likely, the sector's long-term structural drivers remain firmly in place.