Why Defence Stocks Surged in India Over the Last 3 Days: Key Drivers and Timeline

Indian defence stocks have witnessed a sharp rally in the past three days, significantly outperforming the broader market. This surge is driven by a confluence of geopolitical, policy, and financial factors that have reignited investor interest in the sector. Below, we break down the reasons behind this rally, supported by data, expert commentary, and a timeline of recent events.

Key Reasons for the Rally in Defence Stocks

1. Geopolitical Tensions and Military Operations

• The recent India-Pakistan conflict, including Operation Sindoor, showcased India’s indigenous military capabilities and heightened investor confidence in the domestic defence sector.
• The successful operation and subsequent ceasefire demonstrated the effectiveness of home-grown weapons and advanced domestic technology, reinforcing the strategic importance of Indian defence manufacturers.

2. Government Policy Push: ‘Made in India’ & Atmanirbhar Bharat

• Prime Minister Narendra Modi’s strong advocacy for self-reliance in defence manufacturing has accelerated the momentum.
• The government’s focus on indigenization, limiting imports, and encouraging private sector participation has led to robust order flows for domestic companies.
• In the FY25 Union Budget, 75% of capital procurement was earmarked for Indian manufacturers, further boosting sector prospects.

3. Anticipation of Increased Defence Spending

• Investors expect a significant rise in government defence allocations following recent military events and ongoing border tensions.
• The Nifty India Defence Index jumped nearly 13% in three days, reflecting this optimism.

4. Strong Financial Performance and Order Books

• Leading defence companies like HAL, BEL, Bharat Dynamics, and Mazagon Dock have reported strong revenue and profit growth, with robust order books ensuring future earnings visibility.
• For example, HAL and BEL have delivered 15–17x returns over the last five years, with order books worth ₹1.3 lakh crore and ₹711 billion, respectively.

5. Sectoral Outperformance and Mutual Fund Inflows

• Defence mutual funds and sectoral indices have outperformed the broader market, attracting fresh inflows from both retail and institutional investors.
• Several stocks in the sector have delivered 30–40% returns in just one mont.

Performance Snapshot: Defence Stocks (Past Week)

Company	1-Week Return (%)	1-Month Return (%)
Paras Defence & Space Tech	28	74
Data Patterns	32	32.3
Bharat Dynamics	24	24.3
Cochin Shipyard	35	41.49
Mazagon Dock Shipbuilders	18.89	28.99
BEL (Bharat Electronics)	4.6 (1 day)	23.91
HAL (Hindustan Aeronautics)	14.55	21.53
Nifty India Defence Index	10–13 (3 days)	17.7

sources:- NSE

Timeline of Key Events Leading to the Rally

Date	Event/Development	Impact on Defence Stocks
April 22	Pahalgam terrorist incident reignites Indo-Pak tensions	Defence stocks begin upward movement
Early May	Operation Sindoor conducted, demonstrating indigenous military capability	Surge in investor confidence
May 13	PM Modi’s ‘Made in India’ push reiterated; major defence stocks jump up to 9% in a single session	Fresh buying in sector
May 14–16	Ceasefire announced; sectoral index and key stocks up 10–38% in three days	Rally accelerates

How Long Will the Defence Stocks Rally Continue?

The recent sharp rally in Indian defence stocks, sparked by Operation Sindoor, heightened India-Pakistan tensions, and strong government policy support, has investors asking: 

How long will this rally last?

Factors Supporting Continued Rally

1. Sustained Geopolitical Tensions:
   Persistent border conflicts, terrorism concerns, and security challenges in Kashmir keep defence modernization and procurement a priority for the government. As long as these tensions remain, demand for defence equipment and indigenous manufacturing is expected to stay strong.
2. Government Policy & Budget Boosts:
   The government’s push for ‘Made in India’ defence equipment and a possible supplementary defence budget boost of around ₹50,000 crore signal long-term support for domestic defence firms. The FY26 defence budget is already substantial at ₹6.81 lakh crore, with expectations of further increases.
3. Robust Order Books and Earnings:
   Defence PSUs and private companies have strong order books (e.g., HAL ₹1.3 lakh crore, BEL ₹71,100 crore) and have reported solid earnings growth, which underpins stock valuations and investor confidence.
4. Global Interest and Export Potential:
   India’s proven indigenous systems and rising global defence partnerships enhance export opportunities, adding a new growth dimension beyond domestic procurement

Factors That Could Temper the Rally

1. Ceasefire and De-escalation:
   The recent ceasefire and reduced military hostilities may lessen immediate urgency for defence spending, potentially slowing momentum.
2. Profit Booking and Market Volatility:
   After sharp gains (some stocks up over 100% in a year), short-term profit booking and market corrections are natural and could cause temporary pullbacks.
3. Execution Risks:
   Delays in contract awards, project execution, or policy changes could impact growth expectations.

Expert Views on Duration

• Dr. Manoranjan Sharma, Chief Economist, Infomerics:
  “The rally in defence stocks is on,” citing India’s success in Operation Sindoor and the government’s focus on indigenous technology as key drivers.
• Ravi Singh, SVP-Retail Research, Religare Broking:
  “Long-term procurement plans, export growth, and Atmanirbhar Bharat initiative will sustain the sector’s growth,” suggesting the rally could continue over the medium to long term.
• Dr. V.K. Vijayakumar, Geojit Financial Services:
  Advises measured optimism, noting that while fundamentals are strong, investors should watch for market volatility and valuation levels.

Conclusion: How Long Will the Rally Last?

The defence stocks rally is supported by strong structural factors-geopolitical tensions, government backing, robust order books, and export potential-that suggest a medium to long-term uptrend. However, short-term volatility, profit booking, and geopolitical developments like ceasefires could cause intermittent pauses or corrections.

Investors should monitor government budget announcements, contract awards, and geopolitical developments closely. Those with a long-term horizon and belief in India’s defence modernization story may find continued opportunities, while short-term traders should be cautious of market swings.

In summary:
The defence rally is unlikely to be a short-lived spike but rather a sustained trend fueled by strategic imperatives and policy support, with potential for further gains over the coming months and years, tempered by normal market cycles.

Conclusion

The recent surge in Indian defence stocks is the result of heightened geopolitical tensions, a clear government policy thrust towards self-reliance, expectations of increased defence spending, and robust financial performance by sector leaders. With strong order books, supportive policy, and increasing global interest in Indian defence products, the sector is poised for sustained growth, making it a focal point for investors in 2025 and beyond.

This article is based on the latest market data and expert commentary as of May 16, 2025