Defence stocks gain amid West Asia crisis

The coordinated US-Israel strikes on Iran mark a sharp escalation in West Asia tensions, shifting the situation from limited hostilities to active military exchange after Iran retaliated with missile and drone attacks on US bases.

Even as the benchmark and broader indices were down sharply on Monday due to escalating tensions in West Asia, the Nifty Defence index ended the session in the green.

While the Nifty was down 1.24 per cent, the Nifty Defence was up 0.49 per cent.

Top gainers in the defence index

The defence index was the only thematic index to post positive returns as listed defence firms found favour with investors.

The top gainers in the index were Paras Defence and Space Technologies, and Solar Industries, which rose 3-3.5 per cent at close.

They were followed by Dynamatic Technologies and index heavyweight Bharat Electronics (BEL), which were up about 2.2 per cent each.

Other notable gainers were Hindustan Aeronautics Ltd, or HAL (1.1 per cent) and Astral Microwave Products (1.69 per cent).

The coordinated US-Israel strikes on Iran mark a sharp escalation in West Asia tensions, shifting the situation from limited hostilities to active military exchange after Iran retaliated with missile and drone attacks on US bases.

Sectors that may see support

Upstream energy and defence may see relative support, according to analysts at JM Financial Institutional Equities.

Upstream oil producers such as Oil and Natural Gas Corporation (ONGC) and Oil India may benefit from stronger realisations while defence names, including HAL and Bharat Electronics Ltd (BEL), could see sentiment support.

Additionally, the government’s growing capital budget allocation and continued focus on increasing India’s defence product manufacturing capability are expected to support order inflow for defence companies, including BEL, in the medium-to-long term, according to Icra.

The Government of India’s (GoI’s) focus on increasing indigenous procurement under “Atmanirbhar Bharat” initiative provides a unique opportunity for the sector to build its future revenue streams through development of domestic capabilities.

BEL’s unexecuted order book as on January 1, 2026, stood at Rs 73,015 crore.

This translates into an order book to order inflow ratio of around 3.2 times — based on financial year 2024-25 (FY25) operating revenue — providing adequate medium-term revenue visibility.

Experts bullish on HAL

For HAL, its robust order book estimated at Rs 2.5 trillion offers double-digit revenue growth visibility for the next few years.

In the near term, a ramp-up in deliveries of Tejas Mk1A is expected to drive revenues in coming quarters.

The defence major is expected to deliver five aircraft during the year.

Mirae Asset Sharekhan Research is bullish on HAL’s growth trajectory as it is one of the key beneficiaries of structural reforms in the defence sector.

It has a healthy order book and a promising order pipeline, which provide growth visibility till 2032, it added.

Demerger of AMPL

Meanwhile, Astra Microwave Products Ltd (AMPL) has received in-principle board approval to explore the demerger of its Space, Meteorology and Hydrology business into a separate entity (Astra Space Technologies Private Ltd, or ASTPL), resulting in two independently listed companies with mirror shareholding.

After restructuring, AMPL will function as a pure-play defence & aerospace company while ASTPL will house the other verticals.

The company aims to complete the demerger and list ASTPL by the first quarter of financial year 2027-28 (Q1FY28), subject to timely receipt of all approvals.

The demerger will enable the company to focus better on both the key segments (defence and space) with better capital allocation and target segment-specific growth opportunities in the coming period.

Defence constitutes 72 per cent of the current order book while the remaining share is from space and others.

The move structurally creates two specialised platforms — one strengthening India’s defence electronics ecosystem and the other expanding indigenous space hardware and satellite capabilities — positioning both to capitalise on rising domestic and global demand, ICICI Securities said in a note.