Chennai, Feb 25
Defence stocks, which have been investor favourites over the past few years, have recently begun to show a divergent trend. While PSU stocks in the sector have come under pressure after a relentless rally, private players have managed to sustain the rally.
Hindustan Aeronautics (HAL) was down over 9 per cent year-to-date (YTD) on Wednesday on the NSE, and Bharat Dynamics (BDL) was down over 16 per cent (despite closing in the green on Wednesday), even as Data Patterns surged over 18 per cent and Solar Industries India gained over 10 per cent. Meanwhile, the Nifty Defence Index, which aims to track the performance of a portfolio of stocks that broadly represent the Defence theme, has gained 4.75 per cent YTD.
Vinod Nair, Head of Research, Geojit Investments, said, “Defence stocks have corrected amid a mix of broader market weakness, elevated valuations and sector-specific concerns. A sharp pullback in the major indices triggered risk-off sentiment, while reports related to the HAL Tejas incident raised worries over delivery timelines, adding to investor caution.”
Gaurav Arora, Head – Research, SAHI, told businessline that private defence companies benefit from superior execution visibility, faster decision-making and alignment with the government’s push for efficiency. “The earlier decision to involve private players in advanced fighter programmes like AMCA has reinforced investor belief that future defence contracts may increasingly favour private participation. Strong order visibility, niche capabilities and export opportunities further insulate private players from the sentiment-driven volatility seen in PSU stocks,” he said.
Valuations high
Amit Anwani, Research Analyst at PL Capital, pointed out that valuations were high in the defence sector.
According to Ashwini Shami, President and Chief Portfolio Manager, OmniScience Capital, while the growth outlook remains strong, investors need to rationalise return expectations from the sector given the premium valuations and execution challenges in certain cases.
What’s also amplified near-term risk aversion in PSU defence names are “fears of shifting preferences toward efficiency and timely delivery,” added Arora.
Even though there was a higher defence allocation in the recently-announced Budget, there were expectations around policy revision, which have not been met yet, resulting in the stocks falling, said Anwani.
Outlook strong
If the analysts’ optimism is anything to go by, India’s defence story remains structurally strong. According to Arora, the long-term defence story remains structurally strong, supported by sustained capex and indigenisation. “However, PSU defence stocks may face intermittent volatility as markets reassess execution efficiency and the risk of greater privatisation. Any perception that delays or quality issues could shift future orders toward private players will cap near-term upside. Selectivity and valuation discipline will be crucial, with execution emerging as the key differentiator.”
Shami added his outlook on pure-play defence stocks, both in the public and private sectors, remains cautious given the rich valuations. “While the growth outlook for the sector is positive, we are focusing on execution dynamics and the growth-vs-valuation metric to identify opportunities in pure defence plays as well as companies that play a crucial role in the geo-strategic domain.”
Published on February 25, 2026
