Discover what’s driving the rally and why the future looks even brighter for defence stocks
The Nifty India Defence Index has seen a historic rise in recent weeks, reaching levels never seen before. This sharp rally has caught the attention of the entire stock market and brought the spotlight onto India’s defence sector. The surge is not just based on temporary excitement—several strong reasons support this growth, including geopolitical tensions, policy support from the government, increasing local defence production, and strong financial performance by defence companies.
Geopolitical Events and National Security Concerns
One of the biggest reasons behind the rally is the increased tension in the region due to recent military action by India. On May 7, 2025, India launched a major military operation named Operation Sindoor. The operation targeted terror camps beyond the country’s border. This move caused a sharp reaction from neighbouring countries and increased national security concerns.
Whenever security risks go up, the government usually boosts spending on the defence sector. Investors expected this and started buying shares of defence-related companies. As a result, the Nifty India Defence Index jumped by more than 23% in just 15 trading days, rising from around 6,940 to over 8,700. In contrast, the broader Nifty 50 index rose only about 3% during the same period.
Government Policies Supporting Defence Manufacturing
The Indian government has made a strong push to reduce dependence on foreign defence imports and instead promote local manufacturing. This is part of the broader Make in India program. A few years ago, around 65% of India’s defence equipment was imported. Today, around 65% of the requirements are met by Indian manufacturers—a complete turnaround.
This shift has happened because the government introduced several important policies. These include:
Banning imports of certain defence items and encouraging Indian companies to produce them.
Offering financial incentives to companies involved in local defence production.
Releasing special lists (called indigenisation lists) that highlight items to be made only in India.
As a result, Indian defence companies now expect to receive orders worth over ₹2.1 lakh crore (₹2.1 trillion) from the government in the next five years. This expectation has made defence stocks more attractive to investors.
Strong Financial Results of Defence Companies
The recent rise in stock prices is not just because of expectations. Many defence companies have also posted solid financial results. In the quarter ending March 2025, eight out of the eighteen companies in the Nifty India Defence Index reported profits that were higher compared to the same period last year.
Five of these companies earned more profit than analysts had predicted. This shows that the growth of the defence sector is not just based on emotion or speculation—it’s supported by strong business fundamentals.
Interestingly, even after the rally, many stocks in the defence index are still trading below their highest prices of the past year. As of May 20, 2025, 14 of the 18 companies in the index were still more than 10% below their 52-week highs. This means there is still room for further price increases, giving more reason for investors to be optimistic.
Rise of Defence-Themed Mutual Funds and ETFs
The growing interest in defence stocks has also led to the rise of defence-focused investment funds. Exchange-traded funds (ETFs) and mutual funds that focus on the defence sector have shown strong returns.
For example:
The Groww Nifty India Defence ETF has given a return of over 23% since its launch.
The Motilal Oswal Nifty India Defence Index Fund has also seen good growth, with a net asset value of ₹11.25 and total managed assets of nearly ₹2,875 crore.
These funds invest in top defence companies like Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL), and Solar Industries. Since these funds offer exposure to a group of strong defence companies, they’ve become a popular option for investors who want to benefit from the sector’s growth without having to pick individual stocks.
Long-Term Outlook for India’s Defence Sector
The future of India’s defence sector looks promising. There is continued support from the government in terms of funding, policy support, and encouraging exports. Additionally, several new projects are in the pipeline to modernise the armed forces.
One of the biggest examples is the approval of the fifth-generation fighter aircraft project, known as the AMCA programme. This will not only improve India’s air power but also bring advanced technology and new opportunities for domestic companies.
Defence companies in India are also expanding their export activities. More countries are showing interest in buying Indian defence equipment, which will bring in foreign exchange and boost the overall economy.
Experts believe that the current rally is not just a short-term trend. It reflects deeper, long-term changes in how India views national security and industrial growth. With robust order books, expanding global interest, and constant policy support, defence companies are likely to remain strong performers for the foreseeable future.
The record-breaking rally of the Nifty India Defence Index is a result of multiple powerful factors working together:
Rising geopolitical tensions leading to higher defence spending
Government policies supporting domestic manufacturing
Strong financial performance by listed defence companies
Growth of defence-focused mutual funds
Positive outlook for long-term expansion and exports
This combination of policy support, solid fundamentals, and global interest makes India’s defence sector one of the most exciting investment stories in the market today. As India continues to move towards self-reliance and modernisation, the Nifty India Defence Index is expected to play a key role in representing this transformation on the stock market.
