The recent military conflict between India and Pakistan has triggered a surge of investor interest in defence stocks, reflecting a broader trend of increased confidence in the sector's growth potential. This heightened interest stems from a combination of factors, including the conflict itself, government initiatives promoting indigenous defence manufacturing, and a growing recognition of India's strategic importance in the Indo-Pacific region.
The conflict, triggered by a terrorist attack in Indian-administered Kashmir on April 22, 2025, and the subsequent "Operation Sindoor" by India, led to a spike in defence stocks as investors anticipated increased procurement and long-term gains for the sector. Companies like Paras Defence, Bharat Dynamics, Bharat Forge, Hindustan Aeronautics Ltd (HAL), and Bharat Electronics Ltd (BEL) witnessed significant gains during this period. This pattern mirrors historical trends, where Indian defence stocks have rallied following military actions. For example, shares of BEL soared over 50% within six months after the 2016 surgical strikes, and HAL jumped nearly 25% following the 2019 Balakot airstrikes.
However, the surge in defence stocks wasn't uniform. On May 7, 2025, some Indian defence stocks traded flat or even declined despite heightened tensions, indicating a "wait-and-watch" approach from some investors due to geopolitical risks. Conversely, Chinese defence stocks, initially buoyed by the prospect of increased arms exports to Pakistan, tumbled after the ceasefire, highlighting the complex interplay of geopolitical events and market sentiment.
Prime Minister Modi's renewed emphasis on "Made in India" defence equipment following the cessation of hostilities further fueled investor optimism. This aligns with the government's broader "Atmanirbhar Bharat" (self-reliant India) initiative, which has been a key driver of growth in the defence sector. The initiative includes reserving 75% of procurement budgets for domestic manufacturers and has led to a significant increase in indigenous defence production.
India's defence sector has undergone a significant transformation since 2014, shifting from import dependence to strategic autonomy. The government allocated ₹6.81 lakh crore (USD 78.3 billion) to defence in the 2025–26 budget, a 9.5% year-on-year increase. Indigenous defence production has skyrocketed, and defence exports have surged from ₹686 crore (USD 81 million) in 2013–14 to USD 2.51 billion in 2023–24, with a target of USD 5.95 billion by 2029. The Nifty India Defence Index, launched in November 2024, has outperformed the benchmark Nifty 50, delivering an impressive 18% gain in the past month compared to the Nifty's 8% rise.
Several factors suggest that the increased investor interest in Indian defence stocks is more than just a short-term reaction to geopolitical events. India's rising defence budget, increasing focus on indigenous manufacturing, and growing strategic importance in the Indo-Pacific region all point to long-term growth potential. The government has set ambitious targets for defence exports, aiming to increase them to ₹1.5 lakh crore by 2047. This commitment is also reflected in the allocation of USD 19.64 billion for purchasing new military equipment and platforms and USD 2.79 billion in defence technology research and development.
Companies like HAL, BEL, Bharat Dynamics, and Mazagon Dock Shipbuilders are well-positioned to benefit from these trends. These firms are involved in manufacturing aircraft, missiles, naval vessels, and other advanced defence systems, aligning with the increasing global demand for defence technology.
However, investing in defence stocks also carries inherent risks. Policy shifts, execution delays, and valuation concerns can impact the sector's performance. Therefore, investors should adopt a disciplined approach, focusing on companies with strong fundamentals and long-term growth prospects.
Overall, the surge in investor interest in Indian defence stocks amidst the India-Pakistan military conflict reflects a confluence of factors, including geopolitical tensions, government support for indigenous manufacturing, and the sector's long-term growth potential. While short-term market fluctuations are inevitable, the underlying trends suggest that the Indian defence sector is poised for continued expansion in the years to come.
