Top Indian Defence Stocks to Watch Amid Rising India-Pakistan Tensions

SUMMARY

India-Pakistan tensions, sparked by the April 2025 Pahalgam attack, boost India’s defense sector. With ₹2 lakh crore in modernization and 68% of the 2022 defense budget for local firms, stocks like Hindustan Aeronautics, Bharat Electronics, Bharat Dynamics, Mazagon Dock, and Data Patterns are set to gain from orders for aircraft, missiles, and naval systems. Despite short-term volatility, “Make in India” and export potential drive long-term growth.

Geopolitical tensions between India and Pakistan, such as those highlighted by the recent Pahalgam terror attack and subsequent diplomatic measures, often lead to increased defence spending and focus on domestic defence production in India. This can benefit Indian defence stocks, particularly those involved in manufacturing critical equipment, aerospace, electronics, and naval systems. Below is a point-form analysis of Indian defence stocks likely to benefit, based on their market position, order books, and relevance to India’s defence modernization efforts, with consideration of the current geopolitical context from recent reports.

Defence Stocks Likely to Benefit

Hindustan Aeronautics Limited (HAL):

• Why: Leading aerospace and defence manufacturer, producing fighter jets (Tejas), helicopters, and engines. Benefits from India’s push for indigenous defence under “Make in India.”

• Relevance: HAL’s order book was ₹79,230 crore as of December 2021, with ongoing contracts for Tejas and ALH helicopters. Increased border tensions could accelerate orders for combat aircraft and upgrades.

• Recent Sentiment: Nuvama initiated a “Buy” rating, citing HAL’s role in defense modernization.

Bharat Electronics Limited (BEL):

• Why: Navratna PSU specializing in defense electronics (radars, missile systems, communication systems). High exposure to defense contracts, with a market cap over ₹60,000 crore.

• Relevance: Preferred by analysts for its 1.5–2x faster growth potential compared to the overall defense budget. Likely to benefit from demand for electronic warfare and surveillance systems amid tensions.

• Performance: Stock rallied recently due to strong earnings prospects and export potential.

Bharat Dynamics Limited (BDL):

• Why: Manufactures missiles (Akash, BrahMos) and torpedo systems, critical for India’s missile defense strategy.

• Relevance: Increased border skirmishes could boost demand for missile systems. Nuvama’s “Buy” rating highlights BDL’s strong order pipeline.

• Context: Benefits from India’s focus on self-reliance and export bans on 780 defense items, creating supply opportunities.

Mazagon Dock Shipbuilders:

• Why: Key shipbuilder for Indian Navy, producing warships and submarines. Significant order book for frigates and destroyers.

• Relevance: Naval modernization is a priority amid regional tensions, with India countering Pakistan’s Chinese-supplied submarines (e.g., Hangor-class).

• Performance: Delivered handsome returns since August 2022, with potential for further gains.

Cochin Shipyard:

• Why: Builds naval vessels and aircraft carriers, aligning with India’s maritime security needs.

• Relevance: Benefits from increased naval budgets to counter Pakistan’s naval upgrades, including Chinese Type 054A frigates.

• Market Sentiment: Frequently cited as a high-potential stock during defence rallies.

Data Patterns (India):

• Why: Fast-growing defence electronics provider, specializing in radar systems and aerospace solutions.

• Relevance: Recent DRDO project for radar signal processors strengthens its position. Benefits from import bans and modernization funds (₹2 lakh crore).

• Growth: Revenue grew to ₹5.6 billion in FY24, driven by order inflows.

Solar Industries:

• Why: Manufactures explosives and propellants for missiles and rockets, with exports to countries like Israel.

• Relevance: High demand for explosives during conflicts; 85% of its ₹8.9 billion order book is defense-related.

Paras Defence and Space Technologies:

• Why: Specializes in defense optics, electronics, and drones, with a ₹630 crore order book as of March 2024.

• Relevance: Rising demand for UAVs and surveillance systems during border tensions. Aims to lead in drone technology.

Additional Context

• Geopolitical Trigger: The Pahalgam terror attack (April 22, 2025) and India’s response (suspending the Indus Waters Treaty, downgrading diplomatic ties) have heightened tensions, increasing market volatility. Indian markets showed resilience, but defence stocks face short-term corrections due to high valuations.

  
  

• Defence Budget: India’s 2022 budget allocated 68% of defence capital to local industries, with 25% of R&D grants for private players, boosting domestic firms. A modernization plan worth ₹2 lakh crore further supports these stocks.

  
  

• Pakistan’s Defence Reliance: Pakistan’s reliance on Chinese arms (81% of imports, including J-10CE jets, HQ-9 systems) intensifies India’s focus on countering with indigenous and Western-supplied systems (Rafale, S400).

  
  

• Market Dynamics: The Nifty India Defence Index fell 3% on April 25, 2025, reflecting short-term volatility, but long-term prospects remain strong due to government policies and export potential to 42 countries.

Disclaimer: Investments in securities are subject to market risks. Past performance is not indicative of future returns. Consult a financial advisor before investing. Sources include web reports and posts on X for sentiment.