Defence stocks gained traction on June 17 as the war between Israel and Iran entered its fifth day, extending hopes for higher order inflows for the domestic defence players. The sharp rise in the share price pushed the Nifty Defence index up over 1.3 percent to hover around 8,982.
The defence stocks have been in focus on hopes of higher order inflows, after the Indian military conducted targeted strikes against terrorist outfits in Pakistan under the codename 'Operation Sindoor' in May. As the geopolitical tensions between India and Pakistan eased, the escalations in Russia-Ukraine war continued to support the rally in defence stocks. The recent rise in tensions between Israel and Iran further boosted the stocks. However, analysts have mixed views regarding the space, with some flagging elevated valuations in these stocks.
"Defence stocks have been highly volatile lately rallying strongly after Operation Sindoor, then seeing profit booking, and now rising again amid Middle East tensions. This reflects a mix of short-term momentum and long-term optimism. Geopolitical risks and a stronger push for domestic defence manufacturing have boosted investor confidence. With India’s defence spending at just 1.9% of GDP, there’s significant room for long-term growth," said Ajit Mishra – SVP, Research, Religare Broking.
"However, the sharp rally has brought valuation concerns, making near-term volatility likely. Investors should remain selective, focusing on companies with robust order books, sound financials, and strong execution. While the momentum may fluctuate, the long-term outlook for India’s defence sector remains structurally attractive in an increasingly uncertain global landscape," he added.
Sankhanath Bandyopadhyay, Economist at Infomerics Valuation and Ratings, meanwhile said, "Defence stocks look promising due to the ongoing geopolitical tussle between Iran and Israel. Moreover, the Indian government is likely to enhance defence spending from the current ~2 percent of GDP to 3–4 percent over the next decade. Further, the government has targeted ₹25,000 crore in defence exports by 2025–26."
He added, "Investors can focus on export-driven defence stocks with long-term potential. In the current scenario, geopolitical tensions will likely be lingering between different countries, especially as being reflected in rising tensions in the Middle East. Investors should carefully assess the financials and outlook of such stocks before investing, and their should be judicious mix so that a healthy dividend can also be earned."
Mazagon Dock Shipbuilders shares jumped nearly 5 percent to trade at Rs 3,322 apiece. Notably, the stock has now snapped a four-day losing streak during which investors resorted to profit booking after record rally.
Data Patterns shares followed, rising over 2.5 percent to trade at Rs 3,035 apiece. Garden Reach Shipbuilders and Engineers (GRSE) and Bharat Dynamics (BDL) shares gained over 2 percent each, while those of Cochin Shipyard rose over 1.7 percent.
DCX India, Paras Defence and BEML shares gained over 1 percent, while Hindustan Aeronautics (HAL), Solar Industries, Cyient DLM, Bharat Electronics (BEL) and Astra Microwave Products shares were trading in the green with marginal gains.
Despite the uptrend in the sector, Zen Technologies and few other defence stocks were trading in the red with marginal losses.
Iran and Israel are continuing to exchange missiles between each other, causing significant casualties on both sides. Additionally, US President Donald Trump urged Iranians to evacuate Tehran. "Iran should have signed the 'deal' I told them to sign. What a shame, and waste of human life. Simply stated, IRAN CAN NOT HAVE A NUCLEAR WEAPON. I said it over and over again! Everyone should immediately evacuate Tehran!" Trump wrote in a post on his Truth Social platform.
This has increased concerns of further rise in geopolitical tensions in the oil rich Middle East, with the US President hinting at possible strikes on Iran. Trump departed from the G7 Summit in Canada a day early, with French President Emmanuel Macron hinting at a ceasefire. However, Trump has now denied the claim.
"Publicity seeking President Emmanuel Macron, of France, mistakenly said that I left the G7 Summit, in Canada, to go back to D.C. to work on a “cease fire” between Israel and Iran. Wrong! He has no idea why I am now on my way to Washington, but it certainly has nothing to do with a Cease Fire. Much bigger than that," he wrote in another post on Truth Social.
Investment research firm GoalFi's founder Robin Arya said that there is still some reasons why investors should selectively look at defence stocks. "While valuations have re-rated sharply post Operation Sindoor, we remain selective, not avoidant. The Nifty Defence Index rallied over 18 percent in May, adding nearly Rs 1.8 lakh crore in investor wealth… However, this is backed by a Rs 16 lakh crore domestic procurement pipeline and a Rs 3 lakh crore defence export target by 2029, up from Rs 1,941 crore in 2014. Structural improvements in execution, return ratios, and global demand make selective participation justified despite premium valuations," he said.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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