India's defence sector has demonstrated remarkable resilience, with the Nifty Defence index surging nearly 20% year-to-date against an 8% decline in the Nifty 50. According to reports from OmniScience Capital, the Nifty India Defence Index has witnessed an upward re-rating of 9.2% since the beginning of 2026, with the index P/E expanding from 51.8x to 56.5x, while the broader Nifty 50 Index underwent a de-rating of 8.8% with P/E contracting from 22.8x to 20.8x. As reported by SAMCO Mutual Fund, heightened geopolitical tensions globally have reinforced the urgency for India to be self-reliant in defence, from raw components for ammunition and drones to full-scale platform manufacturing.
The defence sector's momentum is supported by a robust procurement pipeline approved by the Defence Acquisition Council. According to a Kotak Institutional Equities report, between FY24 and FY26, procurements worth nearly ₹16.6 trillion were approved, largely under the Buy Indian-IDDM (Indigenously Designed, Developed and Manufactured) and Buy & Make (Indian) categories. As reported by Kotak, Indian defence companies are well-positioned to benefit from rising geopolitical tensions, accelerating modernization programmes and an expanding export opportunity of ₹384 billion in FY2026, targeting ₹500 billion by FY2029. The brokerage expects companies with large order books, proven execution and diversified product portfolios to emerge as winners.
While large order books remain a key talking point for defence investors, the debate is shifting to execution capabilities versus new order wins. According to OmniScience Capital, for defence PSUs, the order book-to-revenue ratio continues to range between 2x and 10x, providing reasonable visibility of further order book growth. However, for private-sector defence companies, order books are typically less than 2 times current revenue. As reported by SAMCO Mutual Fund, while new order wins carry more weight for investor conviction because markets are sentiment-driven, execution track record, margin consistency and delivery timelines are equally important in validating whether visibility converts into actual earnings.
The defence sector is experiencing significant divergence in performance, with clear winners and losers emerging. According to market data, MTAR Technologies has rallied 162.7% year-to-date, Astra Microwave Products 76.3%, and Paras Defence and Space Technologies 75%. Conversely, Bharat Dynamics has fallen 13.9%, Cochin Shipyard 13.2%, Mazagon Dock 5.2%, and BEML 2.1%. As reported by SAMCO Mutual Fund, the defence sector remains fairly valued when viewed through a multi-year lens, despite the recent run-up, with defence still forming a very small share of India's GDP, leaving significant headroom for allocation growth.
Looking ahead, experts believe the next phase of the defence rally will depend on execution capabilities rather than further order wins, as much of the optimism around the order pipeline is already priced in. According to SAMCO Mutual Fund, stronger export momentum, sustained margin expansion and a more diversified revenue mix beyond government contracts could emerge as the next catalysts. The brokerage has initiated coverage on Hindustan Aeronautics Ltd with an 'Add' rating, while assigning 'Sell' ratings to Mazagon Dock Shipbuilders and Solar Industries India. It has retained its 'Reduce' rating on Bharat Electronics and 'Sell' rating on Cochin Shipyard, suggesting a more selective approach may be warranted in the current environment.
