Defence Sector in Spotlight as Indian Markets End H1 CY25 on a Strong Note

The Indian equity markets concluded the first half of the calendar year 2025 on a resilient and optimistic note. Despite experiencing intermittent volatility spurred by global geopolitical instability, trade disruptions, and persistently high commodity prices, markets rebounded quickly as these headwinds began to ease—underscoring investor confidence in India’s domestic growth potential.

The benchmark indices reflected this strength, with the Nifty 50 climbing 3.10% and the Sensex advancing 2.65% in June alone. These gains brought the cumulative four-month rally for both indices to over 15%. From their April lows, the markets have now surged by nearly 17.3%, marking one of the most notable rebounds in recent history.

Amid this positive momentum, defence stocks emerged as the clear outperformers. Heightened border tensions with Pakistan, ongoing friction with China, and intensifying conflicts across the Middle East have amplified investor focus on India's defence preparedness. The anticipation of increased defence allocations by the government to fortify national security acted as a strong tailwind for the sector.

Furthermore, upward revisions in target prices by leading brokerage firms—bolstered by a bullish long-term outlook—and commitments by NATO nations to ramp up military spending globally provided additional impetus to Indian defence counters.

Growing Budgetary Support Signals a Promising Future

The Ministry of Defence’s budget estimate for FY26 stands at an impressive ₹6.81 trillion, representing a 6.3% increase over the previous year. Analysts, however, believe that ongoing geopolitical escalations could push the FY27 forecast even higher—potentially reaching ₹7.49 trillion, a 10% year-on-year rise.

Sika Interplant Leads the Charge in H1 2025

Among all defence stocks, Sika Interplant Systems led the charge with a staggering 172% return in the first half of 2025. The company’s stock skyrocketed from ₹509 to ₹1,378, marking its most significant six-month gain since its market debut in July 2004.

Garden Reach Shipbuilders & Engineers (GRSE) followed as a strong second, rallying 85% during the same period. The stock climbed from ₹1,610 to ₹3,015 and even touched a record high of ₹3,535, breaking past the ₹3,500 barrier for the first time.

Other prominent names in the shipbuilding space also fared well. Mazagon Dock Shipbuilders posted a 45% gain, while Cochin Shipyard advanced by 35%. Apollo Micro Systems sustained momentum despite late-June profit booking, delivering a solid 67% return in H1.

In the missile systems space, Bharat Dynamics delivered a notable 73% rise, breaching the ₹2,000 mark for the first time and registering a new lifetime high of ₹2,096. Similarly, drone and aerospace players like Paras Defence and Space Technologies witnessed strong buying interest, gaining up to 60%.

In total, 13 defence-related companies recorded gains exceeding 15% in the first six months of the year.

Structural Reforms and Export Growth Bolster Outlook

Looking forward, India’s defence ecosystem appears well-positioned for transformative growth. The ₹6.81 trillion defence allocation for FY26—constituting 13% of the total Union Budget—represents a decade-long compound annual growth rate (CAGR) of approximately 9%, underscoring a consistent upward trend in defence spending.

A sharp 13% year-on-year rise in capital outlay further highlights the government's strategic push for modernization. These funds are being directed toward the development and procurement of state-of-the-art weapon systems, warships, fighter aircraft, R&D initiatives, and critical infrastructure along strategic borders.

This combination of sustained budgetary support and enhanced capital investment is not only ensuring greater operational readiness for the armed forces but is also stimulating indigenous innovation and accelerating India’s journey toward defence self-reliance.

In its recent note, domestic brokerage firm InCred Equities emphasized that this dual thrust will be pivotal in transforming India’s defence landscape. It paves the way for long-term technological advancement, increased manufacturing capabilities, and a self-sustaining ecosystem capable of meeting both domestic and export demand.