BEL, HAL, BDL, Mazagon Dock, MORE: Are Defence Stocks Gearing For Fresh Rally After NATO Defence Budget Hike?

Indian defence stocks are back in focus after the NATO countries hiked their defence budget during the 2025 summit held in the Netherlands. NATO's budget hike represents a huge opportunity for Indian aerospace and defence companies, as Prime Minister Narendra Modi-led government seeks to hit Rs 50,000 crore in exports by 2029 in the sector.

On June 27, major defence PSU stocks rallied with Hindustan Aeronautics (HAL), Bharat Dynamics (BDL), and Bharat Electronics (BEL) seeing significant upside. Other stocks like Mazagon Dock, GRSE, Paras Defence, Swan Defence, Bharat Forge and Kaynes Technologies also recorded sharp buying. However, some defence stocks were under pressure despite the broader market being bullish.

"Defence- stocks are likely to be in focus, as India's strengthening manufacturing ties with Europe, backed by NATO's rising defence spend, present a significant export opportunity. The government has set an ambitious target of ₹50,000 crore in defence exports by 2029," said Siddhartha Khemka, Head - Research, Wealth Management, Motilal Oswal Financial Services.

Defence Stocks On June 27:

After market hours on June 27, HAL shares jumped 1.7%, while BEL was up 1.2%. BDL outperformed the two large defence companies with an upside of 3.5%. Also, Bharat Forge and GRSE gained by 1.7% each. Kayne's stock climbed 1.6%, but robust gains were added in CFF Fluid Control and Swan Defence & Heavy Industries which skyrocketed by around 5% each.

Additionally, Mazagon Dock and Solar Industries shares were up 1.5% each, while Unimech Aerospace advanced over 4.7%. Paras Defence zoomed by 1%.

However, stocks like Cochin Shipyard, Premier Explosions, Apollo Micro Systems, Astra Microwave, and Avantel dropped by 1% to 3%.

NATO Defence Budget Hike:

During the NATO Summit 2025, the allies committed to invest about 5% of their GDP each on core defence requirements and defence- and security-related spending by 2035, on an annual basis.

It said, they will allocate at least 3.5% of GDP annually based on the agreed definition of NATO defence expenditure by 2035 to resource core defence requirements and to meet the NATO Capability Targets.

Also, the NATO allies agreed to submit annual plans showing a credible, incremental path to reach this goal. They will account for up to 1.5% of GDP annually to inter alia protect critical infrastructure, defend networks, ensure civil preparedness and resilience, innovate, and strengthen the defence industrial base.

NATO means the North Atlantic Treaty Organization (NATO), a military alliance that was established in 1949. At present, NATO has 32 member countries. These countries called NATO Allies, are sovereign states that come together through NATO to discuss political and security issues and make collective decisions by consensus.

Originally there were 12 founding members of NATO Belgium, Canada, Denmark, France, Iceland, Italy, Luxembourg, the Netherlands, Norway, Portugal, the United Kingdom, and the United States. Later on, other countries that joined are --- Greece, Turkey, Germany, Spain, Czech Republic, Hungary, Poland, Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia, Slovenia, Albania, Croatia, Montenegro, North Macedonia, Finland, and the most recent to join is Sweden.

After the NATO defence budget hike, ROB Murray, a nonresident senior fellow in the Forward Defense program and the Transatlantic Security Initiative within the Atlantic Council said, "A purpose-built multilateral Defense, Security, and Resilience Bank owned by allies should anchor this new architecture-providing guarantees, absorbing risk, and enabling capital to flow to the mid-tier firms and industrial suppliers they depend on but have undercapitalized for too long. But it's not a silver bullet. This must be a system-wide mobilization of public and private finance," as reported by Atlantic Council.

Murray further told Atlantic Council that the scale of the shift is vast: To get to 5 percent requires $1.9 trillion in additional annual spending across NATO. Without structural reform, that surge will drive inflation, not capacity. The signs are already there-155mm artillery shells that cost $2,000 before 2022 now exceed $8,000. Leopard 2 tanks sold to the Dutch for $23 million each in October 2024 were sold to Austria in February 2025 at $30 million per tank.

"If 5 percent is to be more than a symbolic target, allies must build the financial tools to match their strategic ambition. That starts now-with action, not aspiration," he said.

Coming to India, the start of 2025 has been positive despite a geopolitical crisis with neighbouring country Pakistan. India has pushed intense defence budget and targets an ambitious Rs 50,000 crore defence exports by 2029. One of the biggest defence deal that India struck was with France in start of FY26.

Earlier on April 28, India signed a significant defense agreement with France to procure 26 Rafale-Marine fighter jets, valued at approximately Rs 63,000 crore. This includes 22 single-seat jets and 4 twin-seat jets. This deal marks India's first acquisition of the naval variant of the Rafale, making it the first international operator of this model. The deal also covers pilot training, flight simulators, weapons, essential equipment, and long-term maintenance support.

The rafale deal with France, is in line with the Indian Government's thrust on Aatmanirbhar Bharat, the agreement includes Transfer of Technology for integration of indigenous weapons in India.

Motilal Oswal expert has maintained positive outlook on defence segment of India, as it is well-positioned to benefit from ongoing policy support and seasonal tailwinds, along with other sectors like financials, capital markets, agriculture-linked segments (including agri inputs, tractors, and rural consumption).