Defence index rises 2% to snap 2-day fall on escalating Israel-Iran tensions; BEML, GRSE rise up to 9%

June 20, 2025 | Mumbai — The Indian defence sector stocks witnessed a sharp rally on Thursday, with the Nifty India Defence Index climbing 2% to break a two-day losing streak. The surge came amid renewed geopolitical tensions in the Middle East, as escalating hostilities between Israel and Iran have reignited global security concerns and sparked fresh interest in defence-related equities.

Leading the gains were Bharat Earth Movers Limited (BEML) and Garden Reach Shipbuilders & Engineers (GRSE), both of which jumped as much as 9% in intraday trade.

Geopolitical Jitters Boost Defence Plays

The recent flare-up between Israel and Iran, marked by drone strikes and retaliatory air raids, has reintroduced global investors to the prospect of prolonged military conflict. Analysts say the market's knee-jerk reaction to geopolitical events often favors safe-haven and defence sector stocks. The sentiment was no different on the Indian bourses, where heightened conflict in the Middle East translated into bullish bets on domestic defence manufacturers.

"Whenever there's geopolitical escalation, the demand for military preparedness tends to get a boost—not just locally, but globally," said Ashwin Mahajan, Senior Equity Strategist at LKP Securities. "India, which is already investing heavily in indigenous defence manufacturing under the 'Make in India' and Atmanirbhar Bharat campaigns, becomes a strategic focus for both institutional and retail investors."

Stock-Specific Action: BEML and GRSE Steal the Show

Among the top movers, BEML Ltd. surged nearly 9% to a new 52-week high. The rally was supported by recent news of fresh orders from the Indian Army for logistics and combat support vehicles. The firm is expected to benefit significantly from the government’s focus on indigenous defence procurement.

Meanwhile, GRSE, one of the key shipbuilders for the Indian Navy, spiked 8.7% following reports of progress in upcoming naval shipbuilding tenders. GRSE has already seen strong order inflow in FY25, including a ₹2,500 crore contract for next-generation patrol vessels.

Other prominent gainers included:

• Hindustan Aeronautics Ltd. (HAL): up 3.4%

• Bharat Dynamics Ltd. (BDL): up 2.8%

• Cochin Shipyard Ltd. (CSL): up 2.1%

Market Context: Defensive Stocks in a Volatile World

With crude oil prices inching upward due to regional instability and risk-off sentiment building in broader equity markets, investors are increasingly tilting toward sectors considered "defensive." The defence sector—traditionally insulated from short-term macroeconomic headwinds—is now benefitting from both strong domestic tailwinds and global tail-risk factors.

Over the past year, India’s defence index has returned over 38%, outperforming the benchmark Nifty 50 by a wide margin. The government’s policy support, including increased budget allocations for defence capital expenditure, export incentives, and privatization of defence PSUs, has contributed to sustained investor confidence.

Analysts See Continued Upside

Industry experts suggest that the recent rise may not be a short-term blip but part of a larger structural uptrend.

"We're looking at a multi-year growth cycle in Indian defence, driven by geopolitical urgency, government policy, and global realignment of supply chains," said Namrata Jain, Defence Sector Analyst at ICICI Direct. "The escalations in Israel-Iran are a trigger, but the fundamentals for Indian defence PSUs are increasingly robust."

Foreign institutional investors (FIIs) have also been gradually increasing exposure to Indian defence plays, especially amid rising de-globalization trends and the rebalancing of global supply chains in favour of India.

Investor Outlook: Stay Selective, Watch for Orders

While the defence theme remains strong, analysts advise investors to stay discerning and focus on companies with:

• Consistent order inflow

• Competitive technology edge

• Export potential

• Clean balance sheets

“Don’t chase rallies blindly. Focus on companies like HAL, BEL, and GRSE that have strong execution capabilities and long-term contracts,” noted Ravi Bansal, Portfolio Manager at Motilal Oswal AMC.

Additionally, the upcoming Union Budget 2025, expected in July, could include further allocations to defence R&D and procurement, acting as the next potential catalyst for the sector.

As global tensions simmer and India’s strategic importance rises, defence stocks are again in the spotlight. Thursday’s rally in the defence index, spurred by the unfolding Israel-Iran situation, reinforces the sector’s role as a geopolitical hedge and long-term growth story. While volatility is expected in the short term, the structural underpinnings of India’s defence modernization make this a space to watch closely.