Defense stocks rally 19% in 2025: Will the momentum continue?
What's the story
Defense stocks have emerged as a major market player in India this year, with the Nifty India Defense pack surging 19%. The rally is fueled by geopolitical uncertainty and policy-driven support. Out of the 18 constituents in the Nifty India Defense index, 14 are in positive territory on a year-to-date (YTD) basis. Notably, nine have delivered double-digit returns.
Market leaders
Garden Reach Shipbuilders leads the rally
Garden Reach Shipbuilders & Engineers (GRSE) has led the charge in this year's defense stock rally, gaining 45% in 2025 alone. Other major players include MTAR Technologies, Paras Defence, and Bharat Electronics which have all seen gains of over 30%. Bharat Dynamics shares have also jumped by 26%, while Astra Micro has rallied by an impressive 24% during this period.
Market fluctuations
Defense stocks' performance
Despite the overall positive trend, some stocks have struggled. Zen Technologies has been the biggest drag on the index with a 45% crash. Cyient DLM, Unimech, and BEML have also faced pressure with losses ranging from 11-38% YTD.
Policy impact
A shift toward domestic procurement
The Indian government's push for self-reliance (Atmanirbhar Bharat) and export promotion has also impacted the defense sector. The Ministry of Defense signed a record 193 contracts worth over ₹2.1 trillion in FY25, providing companies like HAL and BEL with visibility for the next 5-10 years. Notably, 92% of these contracts were awarded to domestic firms in 2025, significantly improving local players' margins who previously acted only as sub-contractors.
Export growth
Defense exports and budget boost market confidence
India's defense exports also hit a record high of ₹23,620 crore in FY25, showing that Indian-made technology is now globally competitive. A record defense budget of ₹6.81 lakh crore and strong export growth have further fueled the rally. Vinit Bolinjkar from Ventura Research said these factors have contributed to solid returns from the Nifty India Defense Index despite mid-year corrections.
Valuation worries
Concerns over valuations of defense stocks
The sharp surge in defense stocks has raised concerns over their valuations, prompting investors to reconsider if these multibagger stocks still deserve a place in their portfolios. Vikas Gupta from OmniScience Capital highlighted that pure-play weapons equipment-related defense stocks trade at "high valuations ranging from 34 to 178." He said the median price-to-earnings ratio (PE) of the defense pack is 50+, which remains high despite recent declines.