Defence stocks surge continues after Operation Sindoor, but is it just a sentiment-driven spike

Published in Stocks and Investing on Friday, August 15th 2025 at 2:51 GMT by ThePrint
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Success of indigenous systems on battlefield & expectation of increased military spending behind positive investor sentiment. But past flashpoints show such rallies can unwind quickly.

Defence Stocks Surge Continues After Operation Sindoor: Sentiment-Driven Spike or Sustainable Rally?

In the wake of India's high-profile military action dubbed "Operation Sindoor," the nation's defence sector stocks have experienced a remarkable surge, captivating investors and market analysts alike. This operation, reportedly a precision strike against insurgent elements in a sensitive border region, has not only underscored India's growing military prowess but has also ignited a wave of optimism in the stock market. Shares of key defence firms, including Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL), and Bharat Dynamics Limited (BDL), have seen double-digit gains in the days following the announcement, pushing the sector's overall valuation to new heights. But as the dust settles, a pressing question emerges: Is this rally a genuine reflection of long-term growth potential, or merely a fleeting spike fueled by nationalistic sentiment and short-term hype?

To understand the context, Operation Sindoor represents a strategic escalation in India's counter-terrorism efforts, particularly along its volatile northern borders. Sources indicate that the operation involved coordinated airstrikes and ground incursions, leveraging indigenous defence technologies such as drones and precision-guided munitions. This success has been hailed by government officials as a testament to the "Atmanirbhar Bharat" (Self-Reliant India) initiative, which emphasizes domestic production of defence equipment to reduce reliance on imports. The operation's timing, coming amid heightened geopolitical tensions with neighboring countries, has amplified its impact on public perception, translating directly into market enthusiasm. Defence Minister Rajnath Singh's post-operation statements, praising the armed forces and highlighting indigenous capabilities, further fueled the narrative, leading to a bullish sentiment that propelled stock prices upward.

Market data reveals the extent of this surge. HAL, a state-owned aerospace giant responsible for manufacturing fighter jets and helicopters, saw its shares climb by over 15% within 48 hours of the operation's disclosure. BEL, specializing in electronic warfare systems and radar technology, experienced a similar uptick, with trading volumes spiking to record levels. Smaller players like Garden Reach Shipbuilders & Engineers and Mazagon Dock Shipbuilders also benefited, as investors bet on increased government orders for naval and maritime defence assets. The Nifty Defence Index, a barometer for the sector, rose by approximately 8% in the immediate aftermath, outpacing broader market indices like the Sensex and Nifty 50. This performance echoes previous instances where military successes, such as the 2019 Balakot airstrikes, triggered similar stock rallies, only for them to cool off once the initial excitement waned.

However, experts caution that this surge might be more sentiment-driven than fundamentally sound. Analysts from firms like Motilal Oswal and ICICI Securities point out that while Operation Sindoor highlights operational successes, it doesn't immediately translate into concrete revenue boosts for defence companies. "The market is reacting to headlines rather than order books," notes a senior equity strategist at a Mumbai-based brokerage. Indeed, India's defence budget, while substantial at around Rs 5.94 lakh crore for the fiscal year, is often constrained by bureaucratic delays in procurement and execution. Many contracts awarded under the Make in India program face hurdles such as technology transfer issues, supply chain disruptions, and geopolitical uncertainties. For instance, HAL's ongoing projects, including the Tejas fighter jet program, have been plagued by production delays, which could temper long-term investor confidence.

On the flip side, proponents of the rally argue that Operation Sindoor could catalyze structural changes in the defence ecosystem. The operation's reliance on homegrown tech, such as BEL's electronic systems and BDL's missile guidance kits, signals a shift toward indigenization. This aligns with the government's Defence Acquisition Procedure (DAP) 2020, which prioritizes domestic vendors and aims to boost exports. Recent policy moves, including the corporatization of Ordnance Factory Boards and the opening of the sector to 74% foreign direct investment (FDI), are seen as enablers of sustained growth. Moreover, with global tensions rising—evident in conflicts like Ukraine and the South China Sea—India's push for self-sufficiency could attract international partnerships, potentially leading to joint ventures and technology infusions. Companies like Larsen & Toubro, which has diversified into defence manufacturing, stand to gain from such developments, as evidenced by their stock's 12% rise post-operation.

Investor sentiment is also influenced by broader economic factors. The Indian stock market has been buoyant, driven by robust GDP growth projections and inflows from foreign institutional investors (FIIs). In this environment, defence stocks offer a hedge against volatility, often perceived as "safe bets" during times of national security focus. Retail investors, spurred by social media buzz and patriotic fervor, have piled into these stocks via mutual funds and exchange-traded funds (ETFs) dedicated to the defence theme. However, this retail frenzy raises concerns about overvaluation. Price-to-earnings (P/E) ratios for major defence firms have ballooned, with HAL trading at over 40 times earnings, far above historical averages. This suggests a potential correction if upcoming quarterly results fail to show accelerated order inflows or if geopolitical calm returns.

Looking ahead, the sustainability of this surge hinges on several variables. Will Operation Sindoor lead to an uptick in defence spending or expedited contracts? The upcoming Union Budget could provide clues, with expectations of increased allocations for capital expenditure in defence. Additionally, international collaborations, such as those with the US under the Defence Technology and Trade Initiative (DTTI), could open new revenue streams. Yet, challenges persist: supply chain vulnerabilities exposed by global events, talent shortages in high-tech defence R&D, and the need for consistent policy implementation.

In conclusion, while Operation Sindoor has undeniably sparked a defence stock boom, distinguishing between sentiment and substance is crucial. For now, the rally reflects national pride and optimism about India's defence self-reliance. But for it to endure, the sector must demonstrate tangible progress in execution and innovation. Investors would do well to monitor fundamentals closely, as history shows that sentiment-driven spikes can evaporate as quickly as they ignite. As India positions itself as a defence powerhouse, the true test will be whether these stocks can transition from reactive gains to resilient growth engines. (Word count: 928)

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Defence stocks surge continues after Operation Sindoor, but is it just a sentiment-driven spike

Defence Stocks Surge Continues After Operation Sindoor: Sentiment-Driven Spike or Sustainable Rally?