Defence stocks surge 50% in a month. ‘Operation Sindoor’ type tactical buy or overkill?

The successful launch of ‘Operation Sindoor’ in the early hours of Wednesday has once again turned the spotlight on Indian defence stocks, which have rallied nearly 50% over the past month, reflecting strong investor interest. However, experts caution against chasing the rally out of FOMO, stressing the importance of a selective, strategy-driven approach to stock picking in this space.

“Long-term investors should keep a watchlist of stocks or sectors they are looking at, to allocate capital to. There is no need to hurry or get into a panic mode or FOMO mode,” Vikas Gupta, CEO & Chief Investment Strategist at OmniScience Capital, said.

Gupta acknowledged the focus “naturally” getting back on the defence stocks following India’s avenging of the Pahalgam attack. He said that the defence companies have large order books, which will get even larger along with the urgency to execute orders. The move is likely to boost revenues and earnings and could start reflecting within the 1-3 years timeline.

Also read: Defence stocks see $5 billion rally as border tensions escalate

Echoing a similar sentiment, market expert Nischal Maheshwari has asked investors to be cautious as the stocks may now look expensive following the recent rally. Maheshwari said that the recent trade in defence stocks has been on account of the geopolitical situation.

“Having said that, last especially in March, there were a lot of orders which have gone out to all these companies and that is also getting reflected. These stocks had underperformed for some time initially, and sort of a catch-up game, but at these prices, once again, the valuations are going to now start looking pretty expensive for most of them. So, you need to be cautious. Yes, it is a good trade, but for long-term buying this is not the point,” he said.

Defence stocks have rallied up to 50% over the past one month with Paras Defence and Space Technologies topping the chart. Stocks like Data Patterns, DCX Systems, Astra Microwave Products, Solar Industries India and Mazagon Dock Shipbuilders have delivered between 35% and 21% returns in this period.

Apart from Mazagon, other PSU stocks like Mishra Dhatu Nigam, Garden Reach Shipbuilders & Engineers, Bharat Dynamics, Bharat Electronics, BEML and Hindustan Aeronautics Limited (HAL) have also given double-digit returns in the same period.

At the index level, the Nifty Defence Index has jumped 16% and is among the best-performing sectors.

An ETMarkets analysis also showed heightened investor interest in defence stocks existing throughout this year, with mutual funds increasing their holdings in 11 out of 18 stocks within the Nifty India Defence Index in the March ended quarter, signalling growing institutional confidence in the sector’s long-term prospects.

Also read: Nifty muscle memory check: India-Pakistan conflicts have meant 5% dip. Will this time be different?

The top mutual fund buy in the quarter that ended on March 31, 2025 was BEML where MFs raised their holdings by 1.6% over the December quarter. The next in line were Solar Industries India, MTAR Technologies and Zen Technologies which saw a hike of 1.2%, 0.96% and 0.65%, respectively.

Meanwhile, Astra Microwave, Mishra Dhatu Nigam, BDL, Mazagon Dock, Paras Defence, Dynamatic Technologies and GRSE were among stocks which witnessed a rise in holdings of the foreign institutional investors (FIIs).

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)