India-Pak, Russia-Ukraine To Iran-Israel: How Rising Geopolitical Conflicts Fuelled An 80% Rally In Nifty Defence

Defence Stocks: The escalating geopolitical tensions, starting from India-Pakistan skirmishes to the ongoing Russia-Ukraine war and the recent Iran-Israel conflict, have fuelled a strong rally in domestic defence stocks. Accordingly, the Nifty India Defence, which tracks the performance of the defence sector, has surged more than 80 per cent since the start of this financial year. Investors are expecting higher order inflows and increased defence spending amid all these geopolitical tensions worldwide.

Manasvi Garg, a Sebi-registered investment advisor, CFA, founder and CEO of Moneyvesta, says that defence stocks have remained in focus for a while, largely due to expectations of higher order inflows.

According to him, "The momentum picked up in May after the Indian military carried out targeted strikes in Pakistan under 'Operation Sindoor'. Although India-Pakistan tensions have since eased, the ongoing Russia-Ukraine war has helped sustain investor interest in the sector. More recently, the Israel-Iran conflict and the latest US strikes on Iran's key nuclear sites have added fresh fuel to the rally, pushing defence stocks even higher."

Top Gainers In Defence Rally

Garden Reach Shipbuilders & Engineers (GRSE) has led the gains, with nearly 108 per cent rally during the same time frame, emerging as the clear winner of the defence rally. Paras Defence and Space Technologies has rallied 81.65 per cent, followed by Data Patterns, which rose 79.30 per cent, and Mishra Dhatu Nigam, which has surged 70.30 per cent.

Following the trend, Astra Microwave Products rose nearly 69 per cent, while Cochin Shipyard delivered a solid 58.5 per cent return. Solar Industries and Bharat Dynamics also advanced over 51 per cent each during the same period.

BEML, Bharat Electronics (BEL), and Unimech Aerospace followed with gains of 48.3 per cent, 39.8 per cent, and 36.9 per cent, respectively. Zen Technologies rose close to 35 per cent, and MTAR Technologies added over 31 per cent.

Further down the list, DCX Systems and Mazagon Dock Shipbuilders yielded gains of around 29 per cent and 26.5 per cent, respectively. Meanwhile, heavyweight Hindustan Aeronautics Ltd (HAL) and Dynamatic Technologies were relatively subdued performers, rising 20.43 per cent and 12.67 per cent each. At the bottom, Cyient DLM barely moved, posting a marginal gain of just 0.76 per cent.

IdeaForge Technology, which is not part of the Nifty India Defence index, too rallied 82.25 per cent since FY25 start.

Is The Defence Rally Sustainable

But is the rally purely sentiment-driven? Not entirely, according to Garg.

He believes the surge in defence stocks is not just a reaction to these geopolitical tensions but also reflects strong fundamentals. Several Indian defence companies, he points out, are well-positioned to benefit from the ongoing Middle East conflict.

He says, "Indian defence manufacturers are securing strong export pipelines and expanding their capabilities in areas like drones and loitering munitions, which are gaining importance in modern warfare."

Garg notes that many players in the sector already have sizeable export order books for artillery, missile systems, and advanced defence equipment, with confirmed deals across regions, including the Middle East and Europe.

'This growing international demand, supported by India's push to achieve Rs 25,000 crore in defence exports by FY26, indicates that the rally in defence stocks has a solid foundation beyond short-term sentiment," he says.

Anil R, Research Analyst at Geojit Investments, shares a similar view. He believes the recent rally in defence stocks is being fuelled by a mix of short-term sentiment and long-term structural drivers. "Heightened geopolitical tensions, particularly following US strikes on Iran, have sparked immediate investor interest in the sector."

That said, Anil also says that valuation concerns still remain, as many defence stocks are currently trading at elevated multiples. He cautions that markets may not have fully priced in the risks associated with large order backlogs and the complexities of executing advanced, tech-heavy defence contracts.

Should You Ride This Rally

Ajit Mishra, Senior Vice President – Research at Religare Broking cautions that the sharp run-up in stock prices has stretched valuations, which could lead to short-term volatility. With India's defence spending still relatively low at 1.9 per cent of gross domestic product (GDP), he sees room for growth, but advises investors to be selective.

Companies with strong order books, healthy financials, and a solid track record of execution are better placed to weather market swings. Rather than chasing momentum, Mishra recommends sticking with fundamentally sound players, as the broader growth story for defence remains intact.

Anil R suggests that long-term investors could consider accumulating quality defence stocks during market dips, particularly those with strong fundamentals and a solid execution history. He warns that blindly chasing momentum without a clear strategy could result in losses similar to previous market traps. To manage risk and improve returns, he recommends a balancing exposure to defence with investments in other sectors.

Garg also shares similar advice. To sum up, he quotes Warren Buffett, "Be fearful when others are greedy, and be greedy when others are fearful."