Indian Defence Stocks Surge Post Indo-Pak War: Long-Term Rally or Short-Lived?

The remarkable rise in Indian defence stocks following the recent Indo-Pak conflict, particularly after the successful Operation Sindoor, has sparked widespread debate among investors and policy analysts. On May 14, 2025, shares of key defence sector companies — including Cochin Shipyard, Paras Defence, Mazagon Dock Shipbuilders, Bharat Dynamics, Bharat Electronics, and Hindustan Aeronautics — surged by up to 11%. The question now facing market observers is whether this bullish run is a temporary spike or the beginning of a long-term trend.

The conflict served as a powerful testament to India’s growing military prowess, largely driven by homegrown defence technologies. From advanced drone warfare to layered air defence systems and electronic warfare, the seamless deployment of indigenous solutions during the operation captured global attention. This robust integration of domestic military technology is not only reshaping the defence narrative in the subcontinent but also placing India on the global defence innovation map.

Strategic and Economic Fundamentals

India's economy remains resilient in a muted global landscape. Key macroeconomic indicators — including over $688 billion in forex reserves, a manageable current account deficit, and a controlled fiscal glide path — lend a stable backdrop to its stock markets. While global cues and firm-level fundamentals continue to influence market volatility, the sustained strength in economic performance and policy continuity is offering a strong foundation for the defence sector’s growth story.

Some analysts believe the current valuation of defence stocks is justified, considering India’s demonstrated military capability. Under the nation’s evolving war doctrine — one defined by strategic patience and calibrated retribution — defence modernization is set to remain a policy priority. As a result, the optimism surrounding defence equities may well mark the beginning of a "new normal" in India’s capital markets.

The Rise of India's Military-Industrial Complex

Drawing parallels with the United States, where the military-industrial complex has historically underpinned economic development, India now appears to be at a similar inflection point. The successful performance of indigenous weapon systems in recent operations could catalyze a virtuous cycle of defence-driven economic growth. The strategic, technological, and commercial viability of Indian defence manufacturing has now been clearly established.

Defence Exports and Policy Backing

India’s defence exports have seen a staggering increase — from just ₹686 crore in 2013–14 to ₹23,622 crore in 2024–25. Defence Minister Rajnath Singh attributed this growth to key policy initiatives like 'Atmanirbhar Bharat', the Production-Linked Incentive (PLI) scheme, and the 'Make in India' program. These interventions have been instrumental in boosting the competitiveness of Indian defence firms, attracting foreign investments, and reducing dependence on imports.

The Ministry of Defence also reported that India exported a diverse range of defence products to nearly 80 countries in FY25, including arms, ammunition, and critical subsystems. Aiming to sustain this momentum, the government has set a bold target of ₹50,000 crore in annual defence exports by 2029. The Nifty India Defence Index, which has surged by over 30% in the past three months, reflects strong investor confidence in the sector’s future.

A Transforming Global Defence Landscape

The international defence market continues to grow, and India is poised to capture a larger share. Strategic partnerships with countries like Russia, France, and Israel are deepening, supported by shared geopolitical interests and technological convergence. With India now possessing a critical mass of sophisticated weaponry and an expanding defence ecosystem, it is well-positioned to emerge as a significant global arms supplier.

Conclusion

India’s defence sector is entering a transformative phase, powered by indigenous innovation, robust policy support, and rising global interest. The recent rally in defence stocks might be more than just a post-war bump — it could signal the dawn of a long-term structural shift. With strategic clarity and economic strength, India’s military-industrial trajectory seems set to climb higher, redefining not just its battlefield readiness but also its position in the global economic order.

Also Read: Operation Sindoor: A New Template for Modern Military Engagement