Goldman Sachs is bullish about Indian aerospace and defence, preferring private companies over public sector units (PSUs) as the country ramps up its export target for the sector to Rs 50,000 crore by FY29 from Rs 23,600 crore last year.
The American investment bank’s top ‘buy’ recommendations include Solar Industries, Bharat Electronics, Data Patterns and PTC Industries, while Bharat Dynamics is rated ‘sell’.
Nifty India Defence index has outperformed Nifty 50 by gaining nearly 23 per cent in calendar year 2025 (CY25), compared to the benchmark index rising 5 per cent.
Bharat Electronics, Bharat Dynamics, Paras Defence and Astra Microwave are among top gainers by rallying up to 38 per cent in CY25, according to data from ACE Equity.
Despite India being the world's fifth-largest spender on defence ($80 billion in FY25) and the second-largest importer of equipment (after Ukraine), markets have largely focused on PSUs, Goldman Sachs said.
Private firms are better off than their PSU counterparts, amid a “shifting spending landscape” marked by the defence ministry recently releasing its Technology Perspective and Capability Roadmap (TPCR)-2025 and focus on new technologies like AI-enabled systems and electronic warfare, said analysts at Goldman Sachs in a report.
Superior earnings per share growth (FY25-FY28 estimated) based on 32 per cent compound annual growth rate for private-sector players and 13 per cent for public-sector firms, and increased global defence spending are two other key reasons Goldman Sachs has placed private aerospace and defence companies ahead.
"While Defence Public Sector Undertakings (DPSUs) generally get an advance on orders from the government, resulting in a better cash position, private players usually have high working capital and execution uncertainty.
"Furthermore, they have to invest constantly in business to pursue growth. That said, private defence players in India are better tied into global supply chains than DPSUs and have a better earnings trajectory.
"It is important to think about balancing earnings growth with a superior cash position,” the report said.
Stock selection
Key stocks benefit from three key themes: domestic defense total addressable market (TAM) increasing more than six-fold over the next 20 years to over Rs 10 trillion, indigenisation scope at the bottom of the technology pyramid, and higher defence export target.
Solar Industries (36 per cent upside) and PTC Industries (58 per cent) are Goldman Sachs’ key ‘buys’ among private companies.
Solar Industries has a “unique moat” in high energetic materials, while PTC Industries is one of the world’s leading aerospace grade Ti and superalloy companies.
“We initiate Bharat Dynamics at ‘sell’, mainly on contracting margins and unattractive valuations versus earnings growth.
"We also initiate Astra Microwave, Data Patterns, Azad Engineering, Bharat Electronics as 'buy'; Hindustan Aeronautics at ‘neutral’,” wrote Goldman Sachs analysts Amit Dixit and Kumari Rishika in a recent note.
The government shifting capital allocation from defence to other sectors, companies delaying product development, and global manufacturers picking other regions for sourcing are among the key risks to stock calls, Goldman Sachs said.
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