Indo-Pak ceasefire: Can investors still add defence stocks to their watchlist for long-term investment?

Defence stocks in Monday’s trade (May 12, 2025) traded mixed after India and Pakistan agreed for a ceasefire post an over 90-hour-long escalation following Operation Sindoor by India in the aftermath of Pahalgam attack.

At the last count at around, 12:31 pm, big names like Bharat Electronics and Bharat Dynamics traded higher by up to 1 per cent, while Hindustan Aeronautics traded weak by over 1 per cent.

Similarly, other counters, like Zen Technologies, Unimech Aerospace and Krishna Defence traded higher by up to 5 per cent, while counters like Paras Defence, Astra Microwave and Apollo Micro Systes were down up to 6 per cent.

Nifty Defence index history and performance 

The Nifty Defence Index (launched in Nov 2024) has outperformed broader indices like Nifty 50 and Nifty Midcap 100 in the last 1 month, with a 18 per cent gain against the Nifty’s 8 per cent rise& Nifty midcaps 9 per cent rise since 9th April 2025

Structural Tailwinds Supporting Defence Sector

Rahul Ghose, Founder and CEO, Octanom Tech and Hedged.in says, “while near-term momentum may be driven by conflict-related sentiment, the real story lies in the long-term structural push for indigenous defence manufacturing under the Atmanirbhar Bharat mission. The government’s consistent focus on import substitution, increased allocation to defence capex, and the promotion of public-private partnerships have laid a strong foundation.”

Key drivers :

Rising Defence Budget Allocation: In FY25, India allocated over INR 6.2 lakh crore to defence, with INR 1.72 lakh crore for capital expenditure alone. This allocation is expected to rise further given current tensions.

Make in India for Defence: Companies like BEL and HAL are major beneficiaries of indigenisation policies, securing large domestic orders for radars, helicopters, and avionics.

Export Opportunities: HAL and BDL have shown increasing traction in exports, especially to Southeast Asian, African, and Latin American countries.

Private Sector Participation: L&T Defence, Data Patterns, and Bharat Forge have actively expanded their defence portfolios, marking a shift from traditional PSU dominance.

Technology and R&D: With DRDO-backed programs and government support, companies are investing more in indigenous platforms and advanced systems, improving future scalability.

So, as India reaches truce with Pakistan now- can investors still be looking at defence stocks for long term perspective?

Dr Ravi Singh, SVP – Retail Research, Religare Broking said, “On 9th May, amid rising tensions along the India-Pakistan border, the overall market traded on a negative note. However, defence stocks gained momentum. In recent years, we have observed a growing focus on defence budgets across nations. In India, HAL and BEL are among the top stock picks in the defence sector, offering potential value for long-term investors.

Both stocks are fundamentally and technically strong and appear to be good additions to a long-term investment portfolio, he added.

Dr. Vikas Gupta, CEO & Chief Investment Strategist at OmniScience Capital, meanwhile, held that these companies already have large order books which will get even larger. Operation Sindoor is likely to put the focus on pace of execution in the Defence companies. These companies are likely to be given aggressive execution targets which are likely to start becoming visible in a few quarters and 1-3 years time line, thus possibly boosting revenues and earnings forecast.

Similarly, the companies operating in other dimensions, i.e. non-arms and ammunition, of Defence, such as, cyber security, strategic minerals & rare earths, oil & gas, hydro-projects, military EPC, military logistics and railways are also likely to see execution at a higher pace. However one should be careful to invest only at attractive valuations and in those which pass the scientific investing criteria, he added.

Key stocks that look attractive from a fundamental as well as technical standpoint –

Hindustan Aeronautics Ltd (HAL):A key player in aircraft manufacturing, HAL has a strong order book (~INR 184,000 crore) and ongoing production of Tejas Mk1A. Its joint venture with Safran for engine development also adds long-term potential. Technically HAL has corrected from the levels of 5600 to 3080 in Feb 25.The stock is now trading at around 4500 levels .It has formed a bullish engulfing pattern on monthly 20 EMA followed by consecutive monthly highs. As the valuations are still hovering around expensive levels staggered buying would be the best approach.

Bharat Dynamics Ltd (BDL): A key manufacturer of missile systems, BDL’s pipeline is strong, and the recent partnership with MBDA (Europe) further enhances capability.

Technically, the stock went down almost 50% from the highs of 1790 levels to almost 900 & again rallied back to 1500.The stock formed a piercing pattern candlestick on monthly 20 EMA in March 25. In the short-term the stock could consolidate within a range of 1050-1500 levels. Any dip towards the lower end of the range ( around 1100) can be considered as a buying opportunity.

Dr. Ravi Singh says that HAL is currently trading near ₹4,500 and has an upside potential of around 10–12%, with downside risk limited to 5%.

Mazagon Dock Shipbuilders: Benefiting from Indian Navy’s modernisation push, this PSU is building advanced submarines and stealth frigates under Project 75 and other contracts.

Technically, the stock is strongest within the defence sector. It has a strong uptrend on weekly, monthly and quarterly time frame with no major resistance overhead. Any pullback towards the level of 2480-2260 should be seen as a good opportunity for entry.

Paras Defence:Paras Defence stands out due to its specialised offerings in optoelectronics, space optics, and defence electronics systems. It has carved a niche in high-precision components and is deeply integrated into India’s defence and space supply chains. The company boasts a robust order book, strong client relationships with DRDO and ISRO, and consistent revenue growth. On the technical front, the stock has formed a series of bullish candles around the monthly 20-EMA, lending further credibility to the fundamentally positive outlook. This confluence of technical and fundamental signals suggests strong investor confidence and potential upside in the medium term.The stock can be considered for entry around the current price

While there many defence stocks which look positive within the sector, we are specifically focusing on the ones which have both a strong fundamental outlook along with positive technical structure.

Bharat Electronics: BEL is trading near a strong resistance level of ₹322; a breakout above this level could see prices move towards ₹350–362, with downside risk limited to ₹304.

Conclusion –

Defence stocks are no longer mere event-driven trades. With India poised to become the world’s third-largest defence spender by 2026, the sector offers a 5–7-year runway. As one veteran fund manager noted: “In 1999, we bought defence stocks for patriotism. In 2025, we buy them for profit.”

While Operation Sindoor’s aftermath may bring volatility, history and policy alignment suggest dips are buying opportunities-not exit signals. The missiles may fly, but the markets will march on.