Defence stocks have seen a significant surge, rallying up to 10% as tensions between India and Pakistan escalate following a deadly attack in Jammu and Kashmir. On April 22, 2025, an attack in Pahalgam claimed the lives of 26 civilians, igniting outrage in India and prompting strong calls for retaliation.
In response to the heightened tensions, Defence Minister Khawaja Muhammad Asif stated, "We have reinforced our forces because it is something which is imminent now. In such a situation, some strategic decisions have to be taken, and those decisions have been made," during an interview with Reuters. He indicated that the Pakistani military had briefed the government about a possible Indian assault, although he refrained from providing further details.
Following the Pahalgam attack, India accused Pakistan of harboring the attackers, asserting that two of the suspected terrorists were Pakistani nationals. Islamabad, however, denied any involvement and called for a neutral investigation into the incident.
The stock market reflected the rising tensions, with the Nifty Defence index climbing over 4.5% on April 28, marking its largest intraday gain since mid-April. Notably, shares of Paras Defence surged 11.66% to reach an intraday high of ₹1,167, while Garden Reach Shipbuilders saw a rise of 9.17%. Other companies like Data Patterns gained 8.17%, and Bharat Electronics climbed 3.28% to ₹307.35.
On April 29, the Nifty Defence index continued its upward trend, jumping 4.49% even as the broader Nifty 50 index slipped slightly by 0.05%. The rally in defence stocks comes on the heels of a potential ₹63,000 crore deal between India and France for the purchase of 26 Rafale Marine fighter jets, aimed at bolstering India's naval capabilities.
Amid this backdrop, Garden Reach Shipbuilders reported a surge of over 8% to ₹1,891 amid speculations regarding the Rafale deal and rising geopolitical tensions. The company's stock has gained 10% in April alone, and it recently signed a 30-year lease with Syama Prasad Mookerjee Port for shipbuilding expansion.
Investor sentiment has been buoyed by the anticipation of strong government support for the defence sector, which is expected to see increased order flows. Kranthi Bathini, Director of Equity Strategy at WealthMills Securities, noted, "Given the kind of geopolitical tensions that are going up, defence stocks are in focus. Their order book is going to go up in the coming days, coming quarters. So that's the reason defence stocks have a clear-cut strong order book and earning visibility. So investors with a long-term horizon, even medium to short term also, can buy these stocks at dips."
In addition to the surge in stock prices, the Indian government has taken steps to curb the influence of Pakistani media by banning more than a dozen Pakistani YouTube channels, citing their content as "provocative." This move is seen as part of a broader strategy to control the narrative amid rising tensions.
The stock market's reaction to the Pahalgam attack and the potential military escalation reflects a growing concern among investors regarding the stability of the region. As the geopolitical landscape continues to evolve, defence stocks are likely to remain in the spotlight, driven by both market sentiment and government actions.
As of April 29, 2025, the Nifty Defence index has surged more than 7% over the past two trading sessions. The gains in defence stocks are not only a response to immediate threats but also indicative of a long-term shift in India's military procurement strategy, which is increasingly focused on domestic manufacturing and self-reliance.
With the impending board meeting of Paras Defence scheduled for May 1, 2025, where the company will consider a stock split and announce its quarterly results, investors are closely watching for any developments that could further impact stock performance. The company has already seen a remarkable increase of over 52% in its shares over the past year.
As the situation unfolds, the defence sector's performance will be closely linked to the geopolitical climate. The potential for military action, coupled with ongoing procurement deals, suggests that defence stocks may continue to attract investor interest in the coming months.
In summary, the recent surge in defence stocks illustrates the market's response to escalating tensions between India and Pakistan and the broader implications for India's military strategy. With significant investments on the horizon and a focus on domestic capabilities, the defence sector is poised for growth amidst a challenging geopolitical landscape.
