On Wednesday, May 7, 2025, shares of Indian defense companies surged in response to India's military operation targeting terrorist infrastructure in Pakistan and Pakistan-occupied Kashmir. This operation, dubbed "Operation Sindoor," was a direct retaliation against the deadly Pahalgam terror attack that claimed 26 lives, including those of Indian tourists and a Nepali citizen, on April 22.
As the news broke, shares of Hindustan Aeronautics Ltd. (HAL) rose by 1.7%, while Bharat Dynamics Ltd. saw gains of 0.7%. Other defense stocks, including Bharat Electronics Ltd. and Mazagon Dock Shipbuilders Ltd., also experienced significant increases, reflecting investor optimism amid heightened geopolitical tensions.
In the early hours of Wednesday, the Indian Armed Forces executed targeted strikes on nine terror camps, including known bases of the Jaish-e-Mohammed (JeM) in Bahawalpur and Lashkar-e-Taiba (LeT) in Muridke. According to government sources, no Indian Air Force aircraft involved in the operation were damaged or shot down, and all targets were successfully hit.
"Our actions have been focused, measured, and non-escalatory in nature. No Pakistani military facilities have been targeted," stated a Ministry of Defence spokesperson. This precision approach aimed to minimize collateral damage while delivering a clear message of accountability for the Pahalgam attack.
As a result of these military actions, defense stocks have become a focal point for investors. Arvind Sanger, of Geosphere Capital Management, noted, "Given that the US is becoming a less reliable security umbrella for many parts of the world, defense spending is on a structural rise as the world becomes a more dangerous place." This sentiment has led to a bullish outlook for defense companies, which are expected to benefit from increased government spending on military equipment.
In addition to HAL and Bharat Dynamics, other defense-related stocks like Cochin Shipyard Ltd. and Garden Reach Shipbuilders & Engineers Ltd. also saw positive movements. Specifically, Garden Reach shares were up nearly 5%, and Mazagon Dock shares rose by 2% in early trading.
However, the broader Indian equity market opened flat-to-lower as traders remained cautious amid ongoing border tensions. Major airlines, including IndiGo and SpiceJet, announced widespread flight cancellations and diversions due to the military operations, affecting travel plans across several airports in northern and western India.
IndiGo canceled flights to and from seven airports, including Srinagar, Jammu, and Amritsar, while SpiceJet confirmed that operations at multiple airports, including Dharamshala and Leh, would be suspended until further notice. This disruption in air travel is expected to lead to a surge in hotel cancellations as well, impacting companies like ITC Hotels and Indian Hotels.
Historically, the Indian stock market has shown resilience during periods of heightened tension with Pakistan. According to a report by Bajaj Finserv, the Nifty 50 index typically experiences an average decline of about 5.27% during such conflicts but often rebounds strongly in the months that follow. For example, after the Kargil War, the Nifty gained 32% within three months.
As the market reacts to the latest developments, investors are closely monitoring defense stocks, which have outperformed the broader market in recent days. The Nifty India Defence thematic index saw gains of 0.49% amid the heightened tensions, reflecting a growing confidence in defense spending.
Looking ahead, the recent conclusion of a ₹64,000-crore deal with France for 26 Rafale-M fighter jets is expected to further bolster the defense sector. Deliveries for these aircraft are set to begin in mid-2028 and are likely to be completed by 2030, which will include training and support for the Indian Air Force.
Despite the potential for short-term volatility, experts believe that the defense sector will continue to attract investor interest as geopolitical tensions persist. "While strategic military responses can stir optimism around defense plays, investors should also consider broader market cues and macroeconomic indicators," cautioned A R Ramachandran, an independent research analyst.
In conclusion, as India navigates these turbulent times, the performance of defense stocks will be pivotal in shaping market sentiment. Investors will be keenly watching how the situation unfolds and the potential implications for both the defense sector and the broader economy.
