Global brokerage Goldman Sachs has turned constructive on India’s aerospace and defence sector following a strong Q3FY26 earnings season. According to the firm’s assessment, sector earnings exceeded its estimates by roughly 11% on average, excluding Bharat Dynamics and PTC Industries. The earnings beat was driven by improved execution, better operating leverage and broad-based margin expansion across companies.

Most defence names under coverage reported around 20% year-on-year growth in earnings per share, signalling sustained profitability improvement rather than a one-off spike. Margin performance was described as broadly positive, suggesting that cost control and scale benefits are beginning to reflect in financial outcomes. This is notable in a sector historically characterised by lumpy execution and volatile quarterly results.

Order book visibility remains strong across the industry. Indian defence companies continue to benefit from multi-year procurement cycles and localisation mandates. However, Goldman Sachs flagged that execution challenges persist for a few players, reflecting complexities around supply chains, testing timelines and project milestones. While these issues have not materially derailed earnings momentum so far, they remain a variable to monitor.

The brokerage’s outlook is anchored in structural tailwinds. India’s defence budget has remained supportive of domestic procurement, and a sharp rise in Acceptance of Necessity approvals signals a healthy pipeline of future contracts. AoNs represent the initial clearance for capital acquisition proposals and typically precede formal tendering and contract awards. A rise in these approvals indicates that the procurement engine is active, enhancing medium-term revenue visibility for domestic manufacturers.

Within the sector, Goldman Sachs highlighted select preferred ideas. It named Solar Industries India Limited and PTC Industries Limited as preferred picks, citing strong growth visibility and positioning in high-value segments. Among defence public sector undertakings, the brokerage maintained a Buy stance on Bharat Electronics Limited, reflecting confidence in its diversified electronics portfolio and consistent order inflows.

From a broader market perspective, the note reinforces the structural re-rating narrative around India’s defence sector. Over the past few years, policy emphasis on indigenisation and import substitution has materially expanded the addressable opportunity for domestic companies. Rising capital outlays and export ambitions have further strengthened growth visibility.

Market Impact on India

The positive commentary from a global brokerage could sustain investor interest in defence stocks, many of which have already seen strong re-ratings. Continued earnings delivery combined with budgetary support strengthens the case for the sector as a structural growth theme within Indian equities.

Sector Impact

The aerospace and defence segment stands to benefit from sustained order inflows, especially as procurement shifts toward domestic manufacturers. Higher AoNs suggest that future contract announcements could remain steady, supporting revenue growth across both private players and DPSUs.

Bull vs Bear Scenario

The bullish case assumes continued earnings momentum, timely execution of large contracts and stable defence allocations in upcoming budgets. Expanding export opportunities could add another layer of growth.

The bearish case centres on execution risks and valuation concerns. Delays in project execution or moderation in order inflows could temper earnings growth. Additionally, elevated stock prices may limit upside if growth expectations are not met.

Risk Section

Key risks include project execution delays, slower-than-expected contract finalisation, and potential changes in defence capital expenditure priorities. Supply chain disruptions and margin pressure due to cost overruns also remain structural risks in complex defence manufacturing.

Overall, Goldman Sachs’ assessment underscores that India’s aerospace and defence sector continues to exhibit earnings strength supported by policy and order book tailwinds, though execution discipline will remain critical to sustaining the growth trajectory.