Lacking firepower: Down up to 11%, Iran-Israel war fails to trigger defence stocks. What’s the outlook

While the onset of the Iran-Israel-US war was expected to bring windfall gains for defence sector stocks, the current trends paint a mixed picture, a somewhat counterintuitive scenario as they have failed to rally with the war now into its third week. Though economic uncertainty and high energy prices are growing concerns that have kept global markets jittery, market experts see promise in the sector against the backdrop of the current geopolitical environment.

This year so far has been tough for domestic markets, with the Nifty sliding 9% on a year-to-date basis, let down by delays in the India-US trade deal initially, persistent FII outflows, rupee weakness, valuation concerns and now an added geopolitical crisis that has ramifications for energy prices.

The impact has trickled down to broader markets, with defence counters not remaining untouched.


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Defence stocks performance

In the 18-stock Nifty India Defence index, 11 are trading in the red, down up to 11% since the war started on February 28. Among the laggards, Unimech Aerospace has fallen over 11% since the war began, followed by BEML (down 10%) and Cochin Shipyard (nearly 9%). Other notable decliners include Bharat Forge, Mishra Dhatu Nigam and Cyient DLM, which have dropped between 5% and 9% in the same period.

However, the weakness has not been universal. Mazagon Dock has emerged as the top gainer, rising over 6%, while Zen Technologies and Solar Industries have advanced nearly 5% and 4%, respectively. Bharat Dynamics, Data Patterns and HAL have also posted modest gains, indicating stock-specific triggers outweighing the broader geopolitical narrative.

The divergence becomes sharper when seen in the context of 2026 year-to-date performance. Despite the recent volatility, select defence stocks have delivered strong returns this year. MTAR Technologies has surged an impressive 50% year-to-date, while Data Patterns and Bharat Forge are up over 25% and 18%, respectively. Solar Industries and BEL have also posted double-digit gains.

On the flip side, several stocks remain deep in the red for the year, with Cyient DLM down nearly 29%, BEML falling over 18% and Cochin Shipyard and Unimech Aerospace declining more than 14% each.

The data suggests that while defence stocks are often seen as beneficiaries of geopolitical tensions, the current phase reflects profit booking, valuation concerns and stock-specific factors rather than a broad-based rally.

What should investors do?

Santanu Sengupta of Goldman Sachs expects that priority spending in this environment would likely be on defence or infrastructure required for self-sufficiency or strategic autonomy.

Veteran investor Manishi Raychaudhuri told ETNow that his preference remains industrials, including defence companies. "Given the current geopolitical environment, defence expenditure is likely to rise significantly across the world. We are already seeing that in Europe, and many of those orders could also come to Asian companies, as seen in Korea," he said.

(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times.)