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Defence stocks in focus: The Indian stock market ended the first half of the calendar year on a strong footing. Although equities experienced bouts of heightened volatility, driven by rising geopolitical tensions, trade uncertainties, and elevated commodity prices, they stabilised swiftly once conditions eased, reflecting investor confidence in the long-term growth prospects of a domestically driven economy.

Both the Nifty 50 and Sensex ended the month with gains, rising 3.10% and 2.65%, respectively. This pushed the cumulative four-month gains for both indices to over 15%. Impressively, the indices have recovered nearly 17.3% from their April lows—marking one of the strongest turnarounds in recent times.

As markets closed the first half with strong gains, defence stocks emerged as standout performers. Rising tensions with Pakistan, ongoing issues with China, and escalating conflicts in the Middle East fueled demand for defence counters in the Indian stock market amid expectations that the government may increase allocations to the sector to further strengthen national borders.

Additionally, target price upgrades by brokerages, backed by a strong sector outlook, and NATO leaders committing to higher defence spending further propelled domestic defence stocks to deliver stellar returns.

For context, the Ministry of Defence, or MoD’s, budget for FY26BE stands at ₹6.81 trillion, marking a 6.3% year-on-year increase. However, due to escalating geopolitical tensions, analysts project the budget to rise by 10% YoY in FY27F, reaching around ₹7.49 trillion.

Sika Interplant Systems emerged as the top performer among defence stocks in the H1 2025 rally, delivering a 172% return as it surged from ₹509 to ₹1,378 apiece. This also marked the stock’s biggest six-month gain since its listing in July 2004.

Garden Reach Shipbuilders was the second-best performer in the defence pack, rallying from ₹1,610 to ₹3,015, a gain of 85%. During the period, the stock also crossed the ₹3,500 mark for the first time, touching a new record high of ₹3,535 apiece.

Other shipbuilding stocks, including Mazagon Dock Shipbuilders and Cochin Shipyard, delivered gains of 45% and 35%, respectively. Even after witnessing some profit booking toward the end of June, Apollo Micro Systems managed to end the period with a solid gain of 67%.

Bharat Dynamics also delivered a strong gain of 73% in the first six months of 2025. The stock hit a new all-time high of ₹2,096, crossing the ₹2,000 level for the first time.

Drone-related stocks, including Paras Defence and Space Technologies, also surged up to 60%. Overall, 13 defence and related stocks ended the first half of 2025 with gains of over 15%.

Looking ahead, India’s defence landscape is poised for transformative growth, underpinned by a record ₹6.81 trillion allocation in 2025–26, a 13% of total central expenditure and a decade-long compound annual spending increase of 9%.

A decisive 13% boost in capital outlay further marks the government’s commitment to cutting-edge modernization, funding advanced arms, naval vessels, aircraft, R&D, and critical border infrastructure.

This dual thrust of robust budgeting and elevated capital investment not only secures operational readiness but also catalyzes indigenous innovation and strategic self-reliance, charting a clear trajectory towards technological transformation and sustained sectoral growth, said domestic brokerage firm InCred Equities in its latest note.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.

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