The Indian stock market has witnessed a powerful surge in a specific sector this year, propelled by global tensions and strong domestic policy support. Defence stocks have emerged as standout performers, with the Nifty India Defence index rallying an impressive 19% year-to-date (YTD) in 2025.
Top Performers and Key Constituents
Data from the National Stock Exchange (NSE) reveals a broad-based upswing. Out of the 18 stocks in the defence index, 14 are trading in positive territory for the year, with nine delivering double-digit returns. Leading the charge is public sector shipbuilder Garden Reach Shipbuilders & Engineers (GRSE), whose shares have skyrocketed by 45.63% in 2025 alone.
Other major gainers include MTAR Technologies (up 39.65%), Paras Defence (up 33.59%), and defence electronics giant Bharat Electronics (BEL), which has climbed 32.90%. Bharat Dynamics and Astra Microwave have also posted strong gains of over 23%.
However, the rally has not been uniform. On the losing side, Zen Technologies has been the biggest drag, crashing 45.38%. Cyient DLM and Unimech have also faced significant pressure, declining between 11% and 38% so far this year.
The Powerful Drivers Behind the Rally
Analysts point to a powerful confluence of factors fueling this exceptional performance. Geopolitical uncertainty stemming from the Russia-Ukraine war, Middle East instability, and regional conflicts has forced nations to prioritise defence acquisitions.
On the domestic front, the government's Atmanirbhar Bharat (Self-Reliant India) initiative has been a game-changer. Santosh Meena, Head of Research at Swastika Investmart, highlighted that a record 193 contracts worth over ₹2.1 trillion were signed by the Ministry of Defence in FY25. This provides companies like Hindustan Aeronautics (HAL) and BEL with clear revenue visibility for the next 5–10 years.
A landmark shift saw 92% of these contracts awarded to domestic firms in 2025, drastically improving margins for local players who were previously relegated to sub-contractor roles. Adding to the momentum, India's defence exports hit an all-time high of ₹23,620 crore in FY25, proving global competitiveness.
Vinit Bolinjkar, Head of Research at Ventura, cited the record defence budget of ₹6.81 lakh crore, strong export growth, multi-year order books, and policy stability from 'Make in India' as key pillars supporting the sector's bull run.
Sustainability and Valuation Concerns for 2026
The sharp surge has inevitably raised questions about high valuations and whether the momentum can continue into 2026. Vikas Gupta, CEO of OmniScience Capital, expressed caution, noting that pure-play defence stocks are trading at price-to-earnings (PE) ratios ranging from 34 to 178, with a median PE above 50.
Experts believe the phase of rapid, across-the-board "skyrocketing" may moderate as valuations become more realistic. Santosh Meena expects the market to start differentiating, rewarding companies with high execution capabilities and focus on Next-Gen technology. Despite short-term valuation concerns, the long-term structural growth story for Indian defence remains firmly intact, supported by multi-decade modernization plans.
Expert Stock Picks for the Defence Theme
Analysts have identified specific stocks they believe are well-positioned within this theme:
Astra Microwave Products: Cited by Vinit Bolinjkar for its strong export-driven growth, with projected revenue, EBITDA, and profit CAGR of 18-23% through FY28.
Bharat Electronics (BEL): A consensus pick. Bolinjkar highlights robust order inflows (₹12,539 crore till Oct 2025) and 25% YoY PAT growth. Meena calls it a "defensive backbone" with a ₹74,000+ crore order backlog and a debt-free balance sheet.
Hindustan Aeronautics (HAL): Bolinjkar points to the massive ₹62,370 crore LCA Mk1A order and strong indigenisation as multi-year growth drivers.
Mazagon Dock: Santosh Meena is bullish due to its near-monopoly in high-value submarine and warship construction, aligned with the Indian Navy's long-term modernization.
Solar Industries and Data Patterns: Meena also recommends these for their unique models—Solar for its recurring revenue from explosives and Data Patterns for its high-margin, indigenous R&D in electronic warfare.
Disclaimer: This analysis is for educational purposes only. The views are of individual analysts. Investors are advised to consult certified experts before making any investment decisions, as market conditions can change rapidly.
