Goldman Sachs on Dr Reddy’s and Defence Stocks: Neutral on Pharma, Bullish on Defence
About Goldman Sachs’ Q2FY26 Outlook
Goldman Sachs has released its sector commentary for Q2FY26, maintaining a neutral stance on Dr Reddy’s Laboratories while expressing strong optimism toward India’s growing defence sector. The firm believes recent government approvals and capex visibility could support a multi-year earnings upcycle for defence OEMs and component manufacturers.
Dr Reddy’s Laboratories: Stable Growth, Near-Term Margin Risks
Goldman Sachs reiterated its Neutral rating on Dr Reddy’s Laboratories, revising the target price slightly downward to ₹1,225 from ₹1,250. The Q2FY26 performance remained in line with expectations but reflected early signs of the Revlimid cliff impacting the generics portfolio.
The India formulation business continued to post double-digit growth, supported by strong chronic therapy traction. European markets also delivered robust performance. However, Canada’s Semaglutide approval is awaited, and management commentary suggests limited near-term upside from this molecule. EPS estimates for FY26–28 have been cut by 2% to reflect lower Canada sales and cost normalization.
Overall, Goldman Sachs expects steady revenue growth but limited valuation upside in the near term, given global generic pricing pressure and an unfavourable product mix shift post-Revlimid.
Defence Sector: Policy Push Strengthens Multi-Year Visibility
Goldman Sachs turned constructive on the Indian defence sector following the Defence Acquisition Council’s (DAC) approval of ₹79,000 crore worth of new procurement proposals on October 23. The total FY26 authorisations of necessity (AoNs) have reached ₹2.5 lakh crore, surpassing FY25’s ₹2.3 lakh crore, reflecting accelerating capital outlay momentum.
The approvals are aligned with the Technology Perspective and Capability Roadmap (TPCR-25), indicating enhanced transparency and alignment with long-term capability planning. This supports earnings visibility and capacity utilisation across naval systems, land combat platforms, missiles, and aerospace electronics.
Goldman Sachs highlighted that the Navy received the largest allocation, followed by meaningful proposals for the Army and Air Force. The brokerage believes the strong project pipeline could sustain earnings growth for both state-owned and private defence companies through FY26–28E.
Top Picks and Sector Preferences
Goldman Sachs’ preferred defence stocks include:
- ✅ Solar Industries – Target Price ₹18,215 (+30%) – expected to benefit from explosive ordnance and missile segment demand.
- ✅ PTC Industries – Target Price ₹24,725 (+46%) – a key private player in precision castings for aerospace and naval platforms.
- 💡 Other Buys: Astra Microwave, Data Patterns, Azad Engineering, Bharat Electronics (BEL)
- ⚠️ Neutral: Hindustan Aeronautics (HAL)
- 🔻 Sell: Bharat Dynamics (BDL) – weak margins and rich valuations cited as concerns.
The brokerage expects defence manufacturing to remain a strategic growth driver for India over the next decade, supported by indigenous capability development and import substitution policies. Private-sector OEMs are likely to benefit disproportionately as indigenisation levels rise.
Investors tracking defence and manufacturing themes can leverage medium-term accumulation strategies as the policy and order flow outlook improves. Meanwhile, Dr Reddy’s continues to offer stable but capped upside amid evolving global dynamics in pharmaceuticals.
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Investor Takeaway
Goldman Sachs’ contrasting sector views underline a shift in market leadership — from traditional exporters like pharma toward capital-heavy, government-backed defence manufacturing plays. Investors may view Solar Industries and PTC Industries as structural beneficiaries of policy-led growth. Explore comprehensive research updates at Indian-Share-Tips.com, which is a SEBI Registered Advisory Services.
SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
