One Year After Pahalgam, Defence Stocks Rise 37%, Add ₹2.9 Lakh Cr

India's defence sector has emerged as one of the biggest market outperformers in the year following the Pahalgam terror attack, with strong government spending, rising geopolitical tensions and policy push towards indigenisation driving a sharp rally in defence stocks.

The Nifty India Defence Index has surged 37% over the past 12 months, while the combined market capitalisation of its 18 constituent companies has increased by ₹2.9 lakh crore to ₹11.92 lakh crore.

The rally follows heightened focus on defence preparedness after India launched Operation Sindoor in response to the Pahalgam attack, targeting military and terror infrastructure across the border. The subsequent policy momentum has translated into strong investor interest in defence-linked companies.

Multibagger Gains Across Defence Stocks

Several defence-linked stocks have delivered outsized returns during this period. Mtar Technologies has led the rally with a 277% surge, followed by Apollo Micro Systems, which has gained 137%, and Data Patterns, up 106%, placing all three firmly in the multibagger category.

The gains have been broad-based. Companies such as Axiscades Technologies, Dynamatic Technologies, Bharat Forge, Garden Reach Shipbuilders & Engineers (GRSE), Astra Microwave, Paras Defence and Bharat Electronics (BEL) have all risen more than 50%. Even Hindustan Aeronautics Limited has gained around 12% during the period.

A key driver of the rally has been a sharp increase in defence procurement. The government has approved ₹9.3 lakh crore worth of defence acquisitions in FY26 so far, nearly four times the ₹2.5 lakh crore cleared in the same period last year.

The Defence Acquisition Council also cleared proposals worth ₹2.38 lakh crore in a single day on March 27, including large orders such as the S-400 air defence system and medium transport aircraft.

The ongoing conflict in the Middle East has added further tailwinds, as countries globally increase defence spending amid rising security concerns.

Brokerages Bullish, Execution Risks Remain

Brokerages remain structurally positive on the sector, particularly on companies with strong indigenous capabilities and intellectual property.

Nomura has highlighted defence electronics as a key opportunity, with BEL among its preferred picks. It also sees growth potential in Data Patterns and Solar Industries, while viewing HAL as a relatively lower-risk play.

Motilal Oswal Financial Services expects the sector to benefit from rising domestic procurement and growing export opportunities, supported by the government's push for indigenisation. However, it cautions that supply chain constraints, particularly in specialised components and imported subsystems, could impact execution timelines.

Despite the strong rally, mutual fund participation has been selective. While stocks such as HAL, Zen Technologies, Data Patterns and Bharat Dynamics saw some inflows, BEL witnessed notable selling. Shipbuilding companies including Cochin Shipyard, Mazagon Dock Shipbuilders and GRSE saw limited interest from institutional investors.

With strong policy support, rising defence budgets and increasing global demand, the sector's sharp rally since the Pahalgam attack highlights a structural shift in investor preference towards defence as a long-term growth theme.