The Rise of Defense Stocks in a Geopolitically Fragmented World

By Hitender Tanwar, Franchise Partner, Motilal Oswal Financial Services Ltd. | June 25, 2025

Geopolitical fragmentation, driven by U.S.-China tensions and regional conflicts, has fueled a global defense spending boom, with implications for Indian investors. Global military spending reached $2.7 trillion in 2024, up 9.4% year-over-year (Bank of America, June 2025). This blog explores why defense stocks are surging, opportunities in India’s defense sector, and how to invest wisely. Start your journey at Open an Account.

Why Defense Stocks Are Surging

NATO’s push for members to increase defense spending to 5% of GDP by 2027, up from 2%, signals a structural shift. India’s defense budget for FY25 is ₹6.2 lakh crore, up 4.8%, driven by border tensions and self-reliance initiatives like Make in India. Key Drivers:

Geopolitical Risks: Israel-Iran tensions and Ukraine-Russia conflicts boost demand for defense tech.
AI and Drones: Modern warfare’s reliance on AI (e.g., Ukraine’s drone use) drives innovation.
Supply Chain Resilience: Nations prioritize domestic defense production, benefiting Indian firms.

India’s Defense Sector Opportunities

India’s defense sector is poised for growth, with exports rising 23% to ₹21,083 crore in FY24. Key Players:

1. Hindustan Aeronautics Ltd. (HAL)

HAL’s order book exceeds ₹94,000 crore, driven by Tejas and helicopter contracts. Tip: Consider direct equity for long-term growth.

2. Bharat Electronics Ltd. (BEL)

BEL’s radar and electronic warfare systems align with AI-driven defense trends. Tip: Use SIPs for steady exposure.

3. Mazagon Dock Shipbuilders

Naval modernization fuels demand for submarines and frigates. Tip: Monitor for valuation corrections.

Investment Strategies

Defense stocks are volatile but offer high growth. Recommendations:

Blend Large and Mid-Cap: Combine HAL with mid-caps like BEL for diversification.
ETFs: Consider global defense ETFs for international exposure.
Long-Term Horizon: Hold for 5-7 years to capture policy-driven growth.
Risk Management: Limit sector allocation to 10-15% of your portfolio.

Pro Tip: Use Motilal Oswal’s MO Trader for real-time defense stock analysis.

Global Context

BlackRock’s June 2025 commentary highlights Japan and Korea’s defense stocks as attractive due to valuation gaps versus European peers, up 120% YTD. Indian investors can access global markets via Motilal Oswal’s international funds. Caution: Monitor U.S.-China AI race impacts on tech supply chains.

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