The spike in the Indian defence stocks in the aftermath of the Indo-Pak war has evoked wide discussion and debate. There have been some concerns about whether the rally in the defence stocks on May 14, 2025, was a flash in the pan or was sustainable over the long haul.
The war unmistakably demonstrated the massive might of the Indian military, powered by home-grown weapons and cutting-edge domestic technologies. Propelled by a distinct showcasing of India’s indigenous military strength and effective deployment of indigenous systems, India’s defence stocks, viz. Cochin Shipyard, Paras Defence, Mazagon Dock Shipbuilders, Bharat Dynamics, Bharat Electronics and Hindustan Aeronautics rose steeply up to 11% post Operation Sindoor.
This seamless integration of indigenous hi-tech systems into overall national defence across the development spectrum, e.g., drone warfare, layered air defence, electronic warfare, etc., was done in a telling manner- a manner that has been driven home effectively in the Indian sub-continent and internationally. And the rest is history.
Defense sector stocks: Fairly valued?
The global growth is muted, and the Indian economy has emerged as an outperformer and a bright spot in the global economy. While the stock market oscillations are a function of multiple forces and factors, macroeconomic factors, such as sustained economic growth, low and stable inflation, buoyant forex reserves of over $ 688 billion, manageable Current Account Deficit (CAD), glide path of the fiscal deficit, corporate earnings, valuations and continuity and stability in policymaking and the Government play an important role.
A stock market forecast is always fraught with uncertainties because of a slew of global cues and domestic factors, firm performance, industry and the macroeconomy and prospects. To my mind, the defence stocks are fairly valued because the capability and competence of the Indian defence products are clearly established and, therefore, defence stocks are set to move higher and onwards in “the new normal”- a normal, where patience cannot be mistaken for weakness, retribution and catastrophic revenge are inevitable in India’s new war doctrine at a date, time and place of India’s choosing.
Crystal Ball gazing: Defence space forecast
Let me begin with this classic observation of Lord J M Keynes, “In the long run, we are all dead”. On a serious note, Russian, French, Israeli and Indian military equipment provided the teeth to India’s fierce assault. Accordingly, the rally in India’s defence stocks is here to stay. Why? No rocket science here. Historically, the “military-industrial complex” has been an important driver of American economic development for the last few decades. With a clear demonstration of the stellar quality and lethal destructive power of India’s defence systems, a similar pattern of the military-industrial complex is now emerging in India. This new economic calculus pattern, this inflection point and extensive dissemination of this information are likely to set in motion a virtuous and mutually reinforcing cycle of economic development and military muscle heft.
Choice of defence stocks
India’s major defence stocks, viz. Cochin Shipyard, Paras Defence, Mazagon Dock Shipbuilders, Bharat Dynamics, Bharat Electronics and Hindustan Aeronautics are likely to do well. But the rise in these stocks will be a function of various factors. Hence, it’s difficult to quantify the rise in these scrips.
Where do we go from here?
Considered in a proper historical and comparative perspective, India’s defence exports zoomed 34-fold from just Rs. 686 crore in 2013–14 to Rs. 23,622 crore in 2024–25. Shri Rajnath Singh, India’s Defence Minister stressed that this extraordinary rise demonstrates the growing strength of India’s defence sector, fuelled by the vision of “Atmanirbhar Bharat” (self-reliant India) and strategic policy interventions, such as the Make in India initiative and Production-Linked Incentive (PLI) schemes. These contextually significant initiatives have attempted to enhance the global competitiveness of Indian manufacturers, boost exports, attract foreign investments, and reduce dependency on imports. Consequently, surging defence production led to hefty returns for investors in public sector undertakings (PSUs) engaged in defence manufacturing.
With the establishment of multiple defence hubs and increased collaboration with global players, India’s defence and aerospace ecosystem is also expanding rapidly. The Ministry of Defence (MoD) revealed that India exported a wide array of defence items, including ammunition, weapons, systems/subsystems, and components—to nearly 80 countries in FY 25. In a concerted attempt to consolidate India’s footprint in the global defence market and raise the bar, the government has now set an ambitious target of achieving annual defence exports of Rs.50,000 crore by 2029. The Nifty India Defence Index has surged by over 30% in the past three months, reflecting rising investor confidence strengthened by the effective performance of indigenously developed defence systems. The strategic and commercial value of self-reliance in defence manufacturing is self-evident and, therefore, India is certain to go full steam ahead in this crucial area.
Transforming ground realities, changing equations
Global defence purchase of arms and ammunition is a huge and growing market. With India’s weaponry acquiring a “critical mass”, we see greater collaboration in defence production between Russia, France, Israel and India as partners in development because of a confluence and convergence of these countries' strategic, economic and defence interests. It has been held, and justifiably so, that India is all set to garner a larger share of the global arms market in conformity with its rising economic ascendancy, technological development and knowledge of the ecosystem of weapons.
(The author is Chief Economist, Infomerics Ratings. The views are personal)