HAL, BEL to BDL: Defence stocks rally up to 40% post Operation Sindoor. Should you buy now for long-term gains?

Defence stocks, such as Bharat Dynamics (BDL), Bharat Electronics (BEL) and Ideaforge Technology, have posted strong gains in recent days amid expectations of sustained demand following Operation Sindoor. While the sharp rally has pushed valuations higher, analysts believe select defence names still offer attractive long-term investment potential.

India launched Operation Sindoor on May 7, targeting terror camps in Pakistan and Pakistan-occupied Jammu and Kashmir to avenge the victims of the Pahalgam terror attack on April 22, which left 26 persons dead.

India's action against terror camps demonstrated the effectiveness, efficiency, and strength of indigenous defence equipment. Experts pointed out that the India-Pakistan conflict has brought global attention to the performance, quality, and impact of Indian-made defence systems — a development that could lead to increased international orders in the coming years.

The expectations of robust demand, defence stocks have surged between 5-40 per cent since May 8.​

Shares of Ideaforge Technology, Mishra Dhatu Nigam, Zen Technology, Data Pattern, BDL, BEL, Bharat Forge, BEML and Hindustan Aeronautics (HAL) have surged more than 10 per cent since then.

"Defence stocks have been rallying strongly, driven by the success of indigenous defence equipment during the India-Pakistan tensions and robust government support for promoting domestic defence manufacturing," said Ajit Mishra, SVP of research at Religare Broking.

"After India-Pakistan tension, global attention on India's defence sector has increased due to showcasing its defence prowess, capability and efficiency in the products, which can be one reason for the recent rally in assumption for global business export opportunities. At the same time, many defence stocks delivered stronger than expected Q4 earnings, which triggered an additional rally in the sector stocks," said Prashanth Tapse, Senior VP of research at Mehta Equities.

Are defence stocks long-term bets?

Some experts believe that despite stretched valuations, the sector remains a healthy long-term bet as India's defence budget could be increased in the coming years due to security challenges.

"Although the sharp rally has led to stretched valuations, the sector remains a compelling long-term investment opportunity. Ongoing geopolitical uncertainties and security challenges are expected to push India’s defence budget—currently at 1.9 per cent of GDP—higher in the coming years, providing further momentum to the sector," said Mishra.

Experts underscore that while stocks are trading slightly above fair valuation, earnings growth, similar to what they delivered in Q4FY25, can justify the current valuations.

"Few stocks are trading as high as 120 times and as low as 40 times price to earnings, which is a very wide range for justifying expensive versus cheap. It is better to wait and watch for some correction in the price, reasoning that profit-booking attempts at higher levels. High valuations are justified due to massive visibility in future earnings, strategic importance, strong balance sheet with negligible debt and high order book momentum," said Tapse.

Tapse believes the defence sector's long-term prospects are structurally positive, and the sector is poised for a multi-year growth story for a four to five-year period.

"Post the current demonstration, it has enhanced investor confidence, and global attention can bring in high export potential business. We expect the Indian defence sector to witness a CAGR of 12–15 per cent over the next five years, driven by Make in India, export push, strong, increasing domestic procurement post India-Pakistan tension and higher capital expenditure in the annual defence budget," Tapse said.

What defence stocks should you buy?

While the long-term prospects of defence stocks look compelling, experts warn investors should remain selective and cautious of near-term volatility, focusing on fundamentally strong companies to ensure sustained long-term growth.

Tapse is positive about HAL.

"A few favourite counters are trading at very high valuations and one, which is still looking long-term promising, is HAL, trading around 40 times price to earnings ratio," Tapse said.

He pointed out that HAL's order book is valued at approximately ₹1.84 lakh crore, marking a significant increase from ₹94,129 crore at the beginning of the fiscal year, and it is anticipating the order book to reach ₹2.5 lakh crore ( ₹2.5 trillion) by the end of FY26.

"I believe HAL has a pivotal role to play in India's defence sector and its alignment with the nation's push for self-reliance in defence manufacturing. With multi-year revenue, visibility makes HAL more promising and a proxy stock for the defence sector with a core compounder candidate in the sector," said Tapse.

Kunal Kamble, Senior Technical Research Analyst at Bonanza, is bullish on Unimech Aerospace as the stock has given a breakout from a triple-bottom pattern, indicating a potential trend reversal to the upside.

Kamble pointed out that the breakout is supported by rising volumes on buying days, reflecting strong buying interest. The stock is trading above its major EMAs, confirming bullish momentum. Additionally, DI+ is above DI-, and the ADX is above DI-, suggesting both an uptrend and strength behind the move.

"As long as the stock sustains above ₹990, it is expected to move towards ₹1,330, with a further upside potential to ₹1,450 in the short to medium term," said Kamble.

Kamble also suggests buying BEML stock, as it has broken out from an ascending triangle pattern on the daily chart with strong volume support, indicating bullish momentum.

On the weekly chart, BEML has also broken out of a seven-week consolidation, reflecting sustained buying interest.

The RSI is moving higher, supporting the price action, while the stock trades above all major EMAs, confirming a strong uptrend.

"As long as BEML holds above ₹3,150, the structure remains positive. The stock appears poised to move towards ₹4,550, with a further upside potential to ₹5,000 in the near to medium term," said Kamble.

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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions, as market conditions can change rapidly, and circumstances may vary.