Defence stocks in India are facing challenges following a period of substantial investment, with the Nifty India Defence index experiencing a nearly 5% drop in August following a 12% decline in July.
In just one month, defence stocks have fallen by up to 12%, with Bharat Dynamics being the poorest performer within the index. Mishra Dhatu has faced a decline of over 10.5%, while companies such as Hindustan Aeronautics and Bharat Electronics have dropped around 4%.
This correction follows an impressive four-month surge as investors take profits. Additionally, a weakened sentiment in the Indian stock market due to a 50% tariff imposed by US President Donald Trump has impacted various sectors, including defence.
Analysts believe that ongoing geopolitical uncertainties and the potential ten-year framework for the India–US Major Defence Partnership may revive interest in defence stocks.
Defence Sector Outlook
Vaqarjaved Khan, CFA, a Senior Fundamental Analyst at Angel One, notes that the possible India-US Defence Partnership could enable Indian companies to transition from component suppliers to full system integrators.
Khan further asserted that this represents a strategic shift away from dependency on Russia towards US, European, and indigenous suppliers, potentially offering long-term growth visibility for Indian defence manufacturers.
Projections by analysts indicate that defence public sector units (PSUs) may see revenue growth of 12-15% CAGR over FY25-27, while private firms could experience growth rates between 18-20% during the same period, supported by increased operating leverage, localisation, and export opportunities.
