Bharat Dynamics to BEL — defence stocks surge as India-Pakistan tensions escalate; should investors buy?
Thematic index Nifty India Defence jumped over 3 per cent, with most stocks up with significant gains.
The index was 3 per cent up at 7,086 around 10:15 AM, with shares of Mishra Dhatu Nigam, Data Patterns (India), Hindustan Aeronautics (HAL), Astra Microwave Products, Mazagon Dock Shipbuilders, Cochin Shipyard, BEML and Data Patterns (India), up between 1 to 2 per cent.
Equity benchmark Nifty 50 was 0.86 per cent down at 24,066 at that time.
Defence stocks jumped while benchmark indices fell by about a per cent due to a fresh escalation in India-Pakistan tensions. Amid rising tensions, the order flow for defence companies is expected to rise. The market is discounting this.
"With rising tensions between India and Pakistan, defence companies have been directed to ramp up production, providing a sentiment-driven boost to defence stocks," said Avinash Gorakshakar, the head of research at Profitmart Securities.
The Indian Army shot down over 50 Pakistani drones during a large-scale counter-drone operation along the Line of Control (LoC) and the International Borders (IB) on Wednesday night, according to sources confirming to ANI.
The Indian government on Thursday said that the Indian Armed Forces neutralised the air defence system at Lahore.
"The Indian Armed Forces targeted Air Defence Radars and systems at a number of locations in Pakistan. Indian response has been in the same domain with the same intensity as Pakistan. It has been reliably learnt that an Air Defence system at Lahore has been neutralised," said a Ministry of Defence statement.
After the Pahalgam terror attack on April 22, which left 26 persons dead, India conducted Operation Sindoor on May 7 and targeted terror camps in Pakistan and Pakistan-Occupied Kashmir.
Defence stocks are expected to enjoy positive momentum in the near term due to the prospects of increased demand. However, the valuation of most stocks in the segment is rich, which seems to have made experts cautious about them.
Experts believe the defence sector may offer long-term potential, but at present, valuations appear stretched. Investors are advised to avoid sentiment-driven buying and wait for more reasonable entry points.
"Investors should remain cautious and avoid chasing the news blindly. Valuation remains a key consideration—buying at elevated levels purely based on short-term headlines may not be prudent for long-term investing," said Gorakshakar.
Gorakshakar said if the market corrects, select defence stocks could offer attractive entry points. But indiscriminate buying at any price is unwise.
"Once news flows begin to indicate easing tensions, these stocks may lose momentum. Moreover, the conflict is not expected to persist over an extended period, which limits the sustainability of this rally," Gorakshakar said.
Prashanth Tapse, Senior VP (Research) at Mehta Equities, is positive about Hindustan Aeronautics Ltd (HAL) and Data Patterns (India).
Tapse pointed out that he recent India-Pakistan episode has underscored India's growing capability in producing powerful and effective defence equipment. The global spotlight on the efficiency, quality, and impact of these systems could drive increased international orders in the coming years.
"At current valuations, select defence stocks such as Hindustan Aeronautics Ltd (HAL) appear reasonably priced and may offer attractive long-term opportunities. Long-term investors may also consider Data Patterns (India) as a potential addition to their portfolios," Tapse said.
While investors may selectively bet on defence stocks, it could also be time to consider other sectors with low valuations and strong potential to outperform.
Experts say this is the time to accumulate quality stocks from domestic-oriented sectors.
"Smart investors should consider accumulating quality stocks at current levels. Focus on domestic-oriented sectors such as cement, infrastructure, capital goods, hotels and hospitality, and consumer-driven businesses, which are well-positioned to benefit from India's long-term growth story. While sectors like IT, pharma, and metals may currently face uncertainty, potential trade agreements could provide much-needed clarity," Gorakshakar said.
"Investors should stay optimistic about India's prospects—after all, foreign institutional investors (FIIs) continue to invest, indicating their confidence that the current challenges are temporary," Gorakshakar pointed out.
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Read more stories by Nishant Kumar
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions, as market conditions can change rapidly, and circumstances may vary.
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