The Curious Case of India's Defence Stocks

There’s a fine line between national security and stock market speculation.

And every time that line blurs, defence stocks seem to take flight.

When geopolitical tensions heat up—as they did recently with rising concerns at the India-Pakistan border—Dalal Street doesn’t wait for diplomacy.

It moves fast, and it moves emotionally.

In just two days, defence counters like Hindustan Aeronautics Limited (HAL), Mazagon Dock, Garden Reach Shipbuilders (GRSE), Bharat Dynamics (BDL), and Bharat Electronics Limited (BEL) surged up to 12%, riding on headlines, hope, and a hefty dose of high-stakes sentiment.

It’s not the first time this has happened. Nor will it be the last.

Missiles and market moves often follow a peculiar rhythm.

In times of conflict, especially in this part of the world, defence stocks often catch investor attention.

Let’s pause and unpack this sentiment.

Why exactly do defence stocks react so dramatically?

Is it patriotism? Is it speculative FOMO?

Or is it just basic supply-demand logic amplified by conflict-fuelled headlines?

Headlines vs. Fundamentals: What’s Driving These Stocks?

Part of it is narrative.

Investors, especially retail ones, often see defence stocks as a proxy for national strength.

When tensions flare up, there’s a subconscious desire to support the industry believed to be ‘protecting’ the country.

Add a few headline-friendly names like Rafale or indigenous drone deals, and it creates the illusion of bulletproof fundamentals overnight.

For instance, the recent buzz around HAL isn’t just about the India-Pak tension.

The company’s association with the Rafale expansion plan and indigenous fighter jet development has given it solid tailwinds.

Mazagon Dock’s submarine contracts and GRSE’s warship orders are no less impressive. There is substance here—but that substance tends to get lost when emotional buying takes over. We’ve seen this pattern before —and the market’s muscle memory is surprisingly consistent.

After the 2016 surgical strikes, the Nifty 50 dipped briefly but recovered within a week.

The 2019 Balakot airstrikes told a similar story: a knee-jerk sell-off followed by a swift rebound.

Defence stocks, in particular, rallied sharply in the aftermath, buoyed by patriotic sentiment and aggressive retail buying.

But these rallies, like wartime headlines, tend to fade fast.

By the time diplomacy kicks in and the news cycle moves on, many of these stocks give up most of their gains—not because the companies are weak, but because markets had priced in too much, too soon.

Emotional surges outpace fundamentals, and what goes up in a flash often settles just as quickly.

Beyond the Buzz: How to Play Defence Smartly

Here’s where things get interesting for the savvy investor.

Every conflict-fuelled rally has two types of players—the emotional trader and the strategic buyer.

The former jumps in for a few percentage points and exits at the first sign of peace.

The latter waits for the post-hype dip—because that’s where the value often lies.

India’s defence story isn’t just about reacting to neighbours like Pakistan or China—it’s about a long-term strategic pivot.

We’re talking Atmanirbhar Bharat, yes, but also cold numbers.

India is now the world’s fifth-largest military spender, with defence expenditure that’s nine times higher than Pakistan’s.

This isn’t a knee-jerk budget—it’s a calculated push.

India’s defence budget for Financial Year 2025-26 clocks in at a hefty ₹6,81,210.27 crore—with a whopping ₹1,80,000 lakh crore earmarked just for capital outlay.

That’s not just spending—it’s a signal.

A clear vote of confidence in homegrown defence capabilities and long-term military modernisation.

That means more indigenous procurement, more Make-in-India, and more contracts flowing to domestic PSUs.

HAL, BEL, BDL, GRSE—they aren’t just riding short-term sentiment; they’re holding real, tangible order books.

The secular growth story here is rooted in policy—not panic—and investors would do well to view it through that lens, beyond the battlefield buzz.

For example, BEL and HAL have robust order books, diversified product lines, and improving operating margins.

GRSE is executing critical Navy orders and modernising its shipbuilding infrastructure.

These are not companies that only move when missiles are fired.

They are long-term bets on India’s growing defence self-reliance.

So, where does that leave the investor?

Watching closely. Tensions might spike again. Stocks may rally further.

But the real opportunity is in evaluating which companies can deliver steady growth in peacetime when the headlines fade and the contracts continue.

When missiles move markets, it pays to have a strategy beyond the blast radius.

Because in the world of defence stocks, what goes up in a war rally often comes down in a peace deal.

But those who choose wisely and hold steady might find themselves sitting on a stockpile of potential long-term value.

References and Sources:

1. FINANCIALEXPRESS
2. CNBCTV18
3. THEWEEK
4. MONEYCONTROL
5. PIB