Investing In Defence Stocks: A Shield Against Geopolitical Uncertainty?
During periods of uncertainty in the world, the defence industry is one area that usually remains firm or prospers. More government spending, increasing production of defence within the country, and an increase in the number of people desirous of the latest defence technologies are leading defence stocks as a means of growth and war-proof investment strategies.
This article looks at an emerging trend of investment in defence stocks in India, and, in the process, analyses the risks involved, the evolving policies, and the market factors related to such investment options.
Why Defence Stocks Are Gaining Investor Attention?
The concept of defence stocks as counter-cyclical investments is very old. In the last couple of years, they have gained much popularity due to the following factors:
1. Global Restlessness: Conflicts such as the ongoing one in the Russia-Ukraine war and the ongoing spat between Israel and Iran have compelled nations to allocate more funds to their armed forces.
2. Increased Government Expenditure: India and other countries allocate their budgets to modernisation and defence sector investment options.
3. Consistent Cash Flow: Defence firms enjoy long-term contracts with the government that act as a secure source of income.
4. Safe-haven Appeal: When prices are rising, interest rates are increasing, and stock markets are fluctuating, these stocks provide security and portfolio diversification during wartime economic uncertainty.
India’s Defence Sector: A Growing Investment Opportunity
India now spends the third most on its defence in the world1. By 2025, the government targets to achieve 1.75 lakh crores in defence production2. It accelerates production in India through collaborative and smarter operations in public and private schools.
To governments worldwide, Indian firms are now being contracted as suppliers of their domestic and external defence requirements, availing lucrative opportunities in the defence sector stocks in 2025.
The defence sector outlook 2025 India is positive, due to strong capital allocations, export goals, and self-reliance-oriented policy frameworks.
India’s Defence Budget Year-on-Year (in INR Lakh Crore)
| Year | Budget Allocation |
| 2014-2015 | 3.14 |
| 2015 - 2016 | 3.27 |
| 2016-2017 | 3.89 |
| 2017-2018 | 4.17 |
| 2018-2019 | 4.42 |
| 2019-2020 | 4.88 |
| 2020-2021 | 5.23 |
| 2021-2022 | 5.35 |
| 2022-2023 | 5.55 |
India aims to increase its annual defence production from INR 1.75 lakh crore in FY25 to INR 3 lakh crore by FY29. This will happen thanks to strong collaboration between the government and the private sector, reforms under the "Make in India" initiative, and increased military exports3.
How Geopolitical Events Impact Market Trends
Crises in geopolitics and war greatly affect the stock market dynamics. Everyone must know that defence stocks will likely perform higher than expected in such global changes.
Russia, Israel, Iran: What History Tells Us
Defence stocks tend to outperform broader indices during international conflicts, according to patterns in the past.
When the war between Russia and Ukraine started in early 2022, companies related to defence in India, such as Bharat Dynamics Ltd, stocks grew by more than 20% compared to the Nifty 50, which remained flat.
When Israel and Iran fought in June 2025, oil prices increased by 7%, and measures of global volatility, such as the US VIX, increased too. Defence stocks in the US and India performed well, with many investors purchasing them4.
Defence Stocks As A Hedge Against Volatility
Governments often accelerate the procurement of defence supplies when there is considerable doubt. What is driving this trend in India?
- Encourages R&D and domestic supply by the Defence Production Policy.
- The defence spaces and acceleration of clearance are achieved using the new defence acquisition procedure (DAP).
- The anticipated exports increase to INR 15,920 crores in 2023-245.
Therefore, it is clear that war stocks to buy India should be a part of any strategy that wants to avoid volatility.
Global Indices and Oil: What's the Link?
The oil supply lines are usually affected by conflicts in the field of geopolitics, and hence, soaring prices may affect a few of these businesses, such as manufacturing and transportation. However, defence stocks often go in the opposite direction of the trend.
Considering geopolitical risks and investing in uncertain times makes them a good fit for an asset class.
Top Defence Investment Options In India
Public sector companies (PSUs) co-exist with the active presence of private players in India, providing investors with multiple choices. Some of the best defence stocks in India are discussed below:
1. Bharat Electronics Ltd. (BEL): Electronics for aerospace and military.
2. Hindustan Aeronautics Ltd. (HAL): Aircraft and aviation systems.
3. Bharat Dynamics Ltd. (BDL): Missile systems.
4. Solar Industries India: Explosives and ammunition
5. MTAR Technologies: High-precision engineering for defence and nuclear sectors.
Impact On Fuel Costs, Inflation, And Portfolio Returns
Prices may rise during a war as the oil prices rise to high levels. Defence portfolios are performing well, as they support the stock market with a rare counterweight experience in times of war, since destroying companies such as the car manufacturing and logistics industries has a less serious impact.
Opportunities In Energy, Commodities, and Bonds
Defence is also linked to the markets around it. Under pressure, the materials found through rare earth elements, such as missiles and radar systems, and the tech companies involved in ensuring surveillance and protection against cybersecurity attacks will perform well in a super stressful situation. One can also invest in defence mutual funds in India or state funds to build national security and earn a steady income.
Risks Of Investing In Defence Stocks
Despite its defence assets' good performance and stability, the defence industry is exposed to risks that go hand-in-hand with fluctuations in government expenditures, valuations, and policies.
Role Of Budget And Reforms In Defence Investing
Government contracts are significant to the business. Changes in politics may cause the redirection of investment into schools or healthcare, negatively affecting company revenues. For example, if the new government stresses social programs more than upgrading the military, PSUs such as BEL and BDL may get fewer orders.
High Valuations And Cyclical Risks
Many defence stocks trade at high P/E ratios due to increased interest by investors. For instance, the value of HAL and BEL has grown two to three times since 2021. A short-term decline in the market can harm portfolios that have excessive debt.
Diversification
Do not invest all your money in one company; invest in various spheres, e.g., related to aerospace, submarines, drones, and weapons. To limit the risk, consider investing in global ETFs, such as the iShares U.S. Aerospace & Defence ETF (ITA).
Staying Financially Resilient Amid Global Conflicts
In times of geopolitical tension and oil price volatility, market-linked investments can experience sharp swings. For investors seeking more stable returns, fixed income investments can serve as a reliable anchor.
Some of the most relevant options include:
1. Corporate Bonds – Issued by high-rated companies and offering predictable interest
2. Securitised Debt Instruments (SDIs) – Diversified pools of receivables that can offer higher yields
3. Government Bonds – Backed by sovereign entities and suited for conservative investors
4. Debt Mutual Funds – Allow smaller-ticket, diversified exposure to bonds
5. Infrastructure Bonds – Long-term options often offering tax benefits
6. REITs and InvITs – Hybrid income-generating assets tied to real estate and infrastructure
By blending these fixed-income options into their portfolio, investors can lower volatility and maintain consistent returns, even when the global outlook remains shaky.
Conclusion
Global conflicts may be fought across borders, but their shockwaves ripple through global stock markets, oil prices, and investor emotions. The past has shown us that volatility during war is often sharp but temporary. What matters is having a balanced, diversified portfolio that doesn’t rely solely on market mood swings.
For Indian investors, this means looking beyond traditional assets. Fixed-income investments like bonds and SDIs can bring much-needed calm in the chaos.
Explore stable, high-yield opportunities on Grip Invest and invest with confidence—even in uncertain times.
FAQs On Investing In Defense Stocks
1. Is it a good time to invest in defence stocks in India?
You can consider investing in defence stocks due to rising budgets, domestic attention, and global instability.
2. How does war or geopolitical tension impact defence stocks?
It normally raises the demand, elevates the stock prices, and makes the market less reliant on other markets.
3. Are defence mutual funds better than individual defence stocks?
Mutual funds reduce risks to new investors and help diversify investment, whereas stocks may provide better returns to investors.
References
1. Ministry Of Defense, accessed from: https://www.pib.gov.in/PressReleaseIframePage.aspx?PRID=2114546
2. Ministry Of Defense, accessed from: https://www.pib.gov.in/PressReleasePage.aspx?PRID=2098431
3. Ministry Of Defense, accessed from: https://www.pib.gov.in/PressReleasePage.aspx?PRID=2098431
4. Live Mint, accessed from: https://www.livemint.com/market/stock-market-news/defence-sector-stock-bharat-dynamics-share-price-rises-70-from-52-week-lows-should-you-buy-or-sell-11746073730216.html
5. Ministry Of Defense, accessed from: https://www.pib.gov.in/PressReleaseIframePage.aspx?PRID=2114546#:~:text=Defence%20exports%20surged%20by%2032.5,crore%20in%20FY%202023%2D24
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