Defence Stocks Are Buzzing Again, Is It a Comeback Story Worth Betting On?

As tensions with Pakistan escalated, India’s defence sector didn’t just respond on the ground—it also ignited a sharp rally on the stock markets. Shares of key defence players such as Bharat Dynamics, Hindustan Aeronautics, Paras Defence, Bharat Electronics, Cochin Shipyard, Mazagon Dock Shipbuilders, and Garden Reach Shipbuilders have surged between 13% and 42% over the past month.

This renewed interest signals a significant turnaround for the sector, which found itself at the epicentre of last year’s market sell-off, driven largely by concerns over elevated valuations. With growth prospects improving and expectations of swelling order books gaining traction, investor sentiment is clearly shifting.

While government spending on defence modernisation and indigenisation has remained steady, the recent conflict has thrust the sector’s long-term growth narrative back into the spotlight. Adding further momentum was Prime Minister Narendra Modi’s recent national address, where he reiterated his strong push for the 'Make in India' initiative in defence manufacturing. His emphasis has reignited hopes of large-scale orders for key players, attracting investors eager not to miss the next big wave.

“While the India-Pakistan ceasefire declaration has brought temporary calm, the underlying conflict remains unresolved,” said Ashwini Shami, Senior Portfolio Manager at OmniScience Capital. “The heightened need for defence equipment and systems has come to the forefront, and the focus now shifts to execution and delivering on order books to meet this anticipated demand.”

Shami also highlighted the stellar performance of indigenous defence systems, which have proven both reliable and effective. “This success has further strengthened the demand outlook,” he said. “The imperative to fortify our borders and enhance operational readiness is creating sustained demand, which bodes well for strong growth in both order books and revenue for defence companies.”

Still, the key question persists: with much of the recent rally already priced in, is the market euphoria around defence stocks truly warranted or are investors being swept up by yet another narrative-driven surge?

The Street remains divided. While many analysts acknowledge the sector’s promising fundamentals, concerns over valuations, despite some moderation, continue to keep them cautious.

Kranthi Bathini, Director of Equity Strategy at WealthMills Securities, believes the sector would have performed well even without the geopolitical flare-up. However, he warns that the recent buying frenzy has pushed many of these stocks into overbought territory, at least in the short term. Even so, Bathini maintains a constructive view for long-term investors.

A slightly different view comes from Sanjeev B. Zarbade, Vice President – Research at Antique Stock Broking. Zarbade sees the strongest potential within the shipbuilding segment, forecasting that these stocks could trade up to 45 times their FY27 core earnings, given their long-term growth trajectory.

In line with this view, he remains bullish on Mazagon Dock and Garden Reach Shipbuilders, two prominent players in the shipbuilding space. However, he expressed caution on Cochin Shipyard, whose stock outlook, he said, is closely tied to the potential commissioning of a second indigenous aircraft carrier (IAC-II). With no clear consensus on the urgency or specifications of the vessel, Zarbade noted that uncertainty continues to weigh on near-term sentiment for the stock.

In a market where valuation concerns are often treated as a game of passing the parcel, investors eyeing the defence sector may need to take a longer-term perspective. For those willing to ride out the volatility, the sector could offer meaningful upside.