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India’s Defense Acquisition Council (DAC) has further given approvals for Acceptance of Necessity (AoNs) worth INR520b across the Army, Navy, and Air Force. The approvals focus on modernizing armed forces against modern drone and anti-tank threats, while also enhancing high-altitude intelligence-gathering capabilities. We expect these AoN approvals, coupled with those granted over the last two years, to increase the overall addressable market for domestic players and enhance order inflow visibility. Along with this, the fast-track procurement procedure facilitates procurements exceeding INR1.3t across drones, EW systems, and SDRs, with decisions to be made in 6-12 months. We expect the defense sector to benefit from these opportunities. Defense companies already have strong order books and can benefit incrementally from export opportunitiestoo. We maintain our positive stance on the defense sector and, within our coverage universe, Bharat Electronics remains our top pick.

DAC approval positive for indigenization too

On 3rd July 2026, the DAC granted AoN for capital procurement proposals worth around INR520b across the Indian Army, Navy, and Air Force. The Army's approvals include the AKASH TARANG Anti-UAV Electronic Warfare System for protection against enemy drones, Man Portable Anti-Tank Guided Missiles (MPATGM) to counter mechanized threats, the Medium Range Surface-to-Air Missile (MRSAM) system for stand-off aerial defence, the Very Short Range Air Defence System (VSHORADS) with multi-spectral sensing, Active Protection Systems (APS) for tanks to improve survivability, and Jet-Based Kamikaze Drone Systems offering enhanced electronic warfare capability and cost-effective lethality. For the Navy, clearances cover the Multi Influence Ground Mine (MIGM) to restrict adversary naval manoeuvre, the Naval Shipborne Unmanned Aerial System (NSUAS) for maritime surveillance and situational awareness, and a Land-Based Testing Facility (LBTF) for electric propulsion systems to validate motors for naval platforms. The Air Force's approval centers on the Fixed-Wing High Altitude Pseudo Satellite (FW-HAPS), enabling persistent ISR, telecommunications, and remote sensing capability (refer to Exhibit 1 for key beneficiaries).

Fast-track procurement to enhance procurement powers

The Ministry of Defence has recently enhanced the financial powers of the Indian Armed Forces by increasing procurement and expenditure limits at multiple levels, enabling faster acquisition of critical equipment, infrastructure, and services without prolonged approval processes. The revised framework empowers commanders with greater decision-making authority, promotes joint procurement across the Army, Navy, and Air Force, strengthens funding for indigenous defence manufacturing and research, and is expected to facilitate procurements exceeding INR1.3t through the revenue budget. A dedicated fast-track evaluation mechanism could enable contract awards within 90 days of proposal submission, with demonstration contracts issued within three months and decisions made within 6-12 months. It would focus on drones, autonomous systems, AI-enabled intelligence platforms, electronic warfare tools, software-defined weapons, and low-cost precision strike systems. The move aims to improve operational readiness, reduce bureaucratic delays, and enhance efficiency in defence spending.

Valuation and recommendation

* BHE is currently trading at 43.5x/37.0x on FY27E/FY28E EPS. We maintain our estimates and reiterate our BUY rating on the stock with an unchanged TP of INR510, based on the 45x two-year forward earnings.

* HAL is currently trading at 29.5x/24.7x on FY27E/FY28E EPS. We maintain our estimates and reiterate our BUY rating on the stock with an unchanged TP of INR5,500, based on the average of DCF and 30x two-year forward earnings.

* BDL is currently trading at 76.3x/52.1x on FY27E/FY28E EPS. We maintain our estimates and reiterate our Neutral rating on the stock with an unchanged TP of INR1,250, based on the 42x two-year forward earnings.

* AMPL is currently trading at 70.2x/53.5x on FY27E/FY28E EPS. We maintain our estimates and reiterate our BUY rating on the stock with an unchanged TP of INR1,715, based on the 42x two-year forward earnings.

* ZEN is currently trading at 52.1x/37.2x on FY27E/FY28E EPS. We maintain our estimates and reiterate our Neutral rating on the stock with an unchanged TP of INR1,600, based on the 30x two-year forward earnings.

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