The Indian defence sector has witnessed a remarkable rally in 2025, with the Nifty India Defence Index gaining significant momentum to reach an all-time high. After a sharp correction of 33 percent between July 2024 and February 2025, the index has rebounded strongly, recording a cumulative rise of over 50 percent since the February low. The market capitalisation of 18 listed defence companies has soared to Rs 11.23 lakh crore as of June 2025, surpassing the previous peak of Rs 10.09 lakh crore recorded in July 2024. This resurgence highlights growing investor confidence amid escalating geopolitical tensions and renewed policy focus on indigenous defence manufacturing.
The rally gained traction with notable monthly gains of 24.6 percent in March, 11.5 percent in April, and a further 9 percent rise in May. Despite this broad upward trend, only six companies have reclaimed their previous record highs, while the remainder continue to trade below peak valuations. This pattern underscores selective strength within the sector, driven by specific companies exhibiting robust operational and market performance.
Highlights:
Nifty India Defence Index up 50% from February low.
Market cap of defence firms hits Rs 11.23 lakh crore in June 2025.
Mixed recovery with only six stocks surpassing previous highs.
Select Defence Stocks Lead the Rally with Double-Digit Gains
The sector-wide surge has been propelled by sharp rebounds in several key defence companies. Ten firms that reached 52-week lows during March and April have recovered with gains ranging from 55 to 112 percent. Noteworthy performers include DCX Systems, MTAR Technologies, Dynamatic Technologies, Cyient DLM, Unimech Aerospace and Manufacturing, Data Patterns, Mishra Dhatu Nigam, Astra Microwave Products, Hindustan Aeronautics, and BEML. These companies have benefited from renewed investor interest and operational resilience amid the evolving geopolitical environment.
Additionally, eight other stocks that bottomed earlier in 2024 have posted robust returns between 58 and 200 percent. Among them are Cochin Shipyard, Bharat Dynamics, Mazagon Dock Shipbuilders, Zen Technologies, Bharat Electronics, Solar Industries India, Paras Defence and Space Technologies, and Garden Reach Shipbuilders. This broad-based recovery reflects a strong appetite for defence equities, driven by expectations of sustained government spending and export opportunities.
Highlights:
Ten companies rebounded 55%-112% since March-April lows.
Eight firms recovered 58%-200% since earlier 2024 lows.
Select companies include Hindustan Aeronautics, Bharat Dynamics, and Mazagon Dock.
Geopolitical Tensions and Government Policies Boost Sector Sentiment
The upward momentum in defence stocks coincides with rising geopolitical tensions between India and Pakistan, which have heightened strategic concerns and bolstered defence spending expectations. The market rally was further fueled by Prime Minister Narendra Modi’s firm commitment to the Make in India initiative, emphasizing self-reliance and indigenous defence manufacturing. His focus on enhancing modern warfare capabilities and promoting domestically made defence systems has strengthened investor confidence in the sector’s growth prospects.
Moreover, reports that more than a dozen countries are interested in acquiring the BrahMos missile system, following the successful demonstration of its capabilities in Operation Sindoor, underscore India’s rising stature in defence technology and exports. These developments suggest a positive outlook for the sector’s expansion, both domestically and internationally.
Highlights:
Rising India-Pakistan tensions underpin defence sector gains.
PM Modi’s Make in India initiative reinforces policy support.
BrahMos missile system draws international buyer interest.
Mutual Fund Inflows Reflect Growing Institutional Interest
Institutional investors have significantly increased their exposure to the defence sector in recent months. In April alone, mutual funds raised their holdings in 11 of the 18 listed defence companies, signaling confidence in the sector’s long-term potential. Hindustan Aeronautics led the inflows with Rs 505 crore added, pushing total holdings to Rs 13,480 crore. Solar Industries India and Mazagon Dock Shipbuilders also attracted substantial investments, with Rs 119 crore and Rs 78 crore in new inflows, respectively.
Other companies seeing increased mutual fund interest include Zen Technologies, BEML, Data Patterns, Garden Reach Shipbuilders, Mishra Dhatu Nigam, and Dynamatic Technologies. However, Bharat Electronics experienced the largest mutual fund outflow, with a reduction of Rs 893 crore in holdings to Rs 33,619 crore. Smaller outflows were also noted in Cochin Shipyard, Astra Microwave Products, Unimech Aerospace, and MTAR Technologies.
Highlights:
Mutual funds raised stakes in 11 defence firms in April.
Hindustan Aeronautics saw Rs 505 crore inflows.
Bharat Electronics faced largest mutual fund outflow of Rs 893 crore.
Expert Views See Defence as a Multi-Year Structural Growth Theme
Market experts view the defence sector as a compelling investment opportunity with both tactical and structural appeal. Sandeep Bagla of Trust Mutual Fund highlighted that ongoing geopolitical risks are expected to sustain increased defence budgets, making the sector attractive for long-term investors seeking strong returns. Similarly, Anil Rego of Right Horizons PMS noted that near-term performance is being driven by regional instability, procurement momentum, and rising government allocations.
Over the longer term, the sector stands to benefit from consistent government investments in modernisation, a growing export pipeline, and policy reforms under the Atmanirbhar Bharat programme aimed at boosting innovation and self-reliance. These factors are expected to position India’s defence industry as a key growth engine, supported by favourable government initiatives and evolving global security dynamics.
Highlights:
Defence sector seen as a long-term structural growth story.
Geopolitical risks and government spending to drive momentum.
Atmanirbhar Bharat reforms to foster innovation and exports.
