India Defence Shares Extend Losses Amid US-Iran Tensions

The Nifty India Defence index continued its downward trend on Thursday, extending losses for a second consecutive session. The index has declined by 2% over the past two sessions due to profit booking by investors.

Market Performance

During Thursday's session, only 5 out of 18 constituents of the index were trading in the green, while the rest were in the red. Dynamatic Technologies and Paras Defence and Space Technologies were among the major laggards, declining up to 3%.

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Defence Exports Growth

Despite the muted performance, India's defence exports have shown steady growth. Exports rose to Rs 23,600 crore in FY25, with the government targeting Rs 50,000 crore by FY29. This indicates continued momentum in overseas demand.

Opportunities in Regional Defence Spending

Countries such as Saudi Arabia, UAE, Qatar, and Bahrain have historically increased defence spending during periods of geopolitical tension. Analysts estimate that a 10-15% rise in regional procurement budgets could create an incremental export opportunity of Rs 25,000-40,000 crore for emerging suppliers such as India.

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Shift in Modern Warfare Technologies

The current conflict involving the US and Israel with Iran has led to a shift in modern warfare technologies. Relatively inexpensive loitering munitions, such as the Shahed drone (costing around USD 20,000), have driven demand for cost-effective counter-drone systems, layered air defence, and electronic warfare solutions. Indian companies, such as Bharat Electronics Ltd, Bharat Dynamics Ltd, Data Patterns (India) Ltd, and Zen Technologies, are gradually building capabilities in these areas.

Focus on Execution

Analysts say that while order books across defence companies remain strong, execution will be the key factor for investors. The discovery premium is largely gone, and the market wants to see actual execution by companies while maintaining margins.

Concerns over Supply Chain Constraints

Brokerage firm Motilal Oswal noted that supply chain issues could weigh on sentiment in the near term. Availability of specialised components and imported subsystems could impact execution timelines for certain defence platforms.

Long-Term Outlook

Despite the current weakness, analysts remain constructive on the sector over the longer term. The broader structure for defence stocks remains positive, and participants are advised to use this phase to gradually accumulate quality names with strong earnings visibility and reasonable valuation.