Defence shares have become one of the hottest themes in Indian markets this year, with the Nifty India Defence index up about 19% since the start of 2025.
Why Defence Stocks Are Leading the Market
Several forces are pushing the sector higher:
- Massive order backlog: The Ministry of Defence signed a record 193 contracts worth over ₹2.1 trillion in FY25.
- Domestic procurement drive: About 92% of contracts went to Indian firms, improving margins for local manufacturers.
- Export boom: Defence exports hit an all‑time high of ₹23,620 crore in FY25.
- Geopolitical tension: Ongoing conflicts in Ukraine, the Middle East, and the India‑Pakistan border have spurred higher defence spending worldwide.
Key Performers and Laggards
Among the 18 stocks in the index, most have posted solid gains:
- Garden Reach Shipbuilders & Engineers (GRSE) – up ~45% (top performer).
- MTAR Technologies, Paras Defence, Bharat Electronics – each up >30%.
- Bharat Dynamics – +26%.
- Astra Microwave – +24%.
On the downside, Zen Technologies fell about 45%, while Cyient DLM, Unimech and BEML lost between 11% and 38%.
Drivers Behind the Rally
Analysts point to a mix of policy support and market fundamentals:
- Record defence budget of ₹6.81 lakh crore for FY25.
- Multi‑year order books that give visibility for the next decade.
- Make‑in‑India initiatives that encourage local production and reduce reliance on imports.
Valuation Concerns and Outlook for 2026
While the sector’s growth story is strong, valuations have stretched:
- Pure‑play weapons stocks trade at price‑to‑earnings ratios ranging from 34 to 178.
- The median PE for the defence pack sits above 50, indicating premium pricing.
Many analysts expect the rapid “skyrocketing” phase to moderate as prices become more realistic, but they still see long‑term structural growth as intact.
Top Picks for Investors
Research teams highlighted a few companies that could benefit most from the trend:
- Astra Microwave Products: Expected 18‑23% annual growth in revenue, EBITDA and profit through FY28, driven by high‑margin exports.
- Bharat Electronics (BEL): Strong order inflow of ₹12,539 crore (till Oct 2025) and 25% YoY profit growth in Q2 FY26.
- Hindustan Aeronautics (HAL): Riding a massive ₹62,370 crore LCA Mk1A order and a push for indigenisation.
Additional names mentioned for their niche strengths include Mazagon Dock (submarines and warships), Solar Industries (explosives and ammunition) and Data Patterns (high‑margin electronic‑warfare R&D).
Final Thoughts
Defence stocks have delivered impressive returns this year, backed by strong policy support, export growth and a healthy order pipeline. However, investors should keep an eye on high valuations and focus on companies with proven execution and next‑generation technology.
Remember, this is perspective, not prediction. Do your own research and consider consulting a certified financial advisor before making any investment decisions.