Post-War Stock Picks: Why Defence And Railways Are India’s Hottest Investment Bets After India-Pak Ceasefire?

Indian companies have historically prospered in post-war eras in heavy sectors like steel, chemicals, machinery, and power. Companies in heavy industries, infrastructure, and defence production are anticipated to benefit from higher government expenditure on vital infrastructure and defence following the recent Indo-Pak conflict. Markets often recover from geopolitical downturns, according to historical data, and the current climate exhibits exceptional resilience as a consequence of ongoing domestic and foreign investment.

Many Indian businesses offer strategic investors enticing entrance opportunities, especially in light of the recent de-escalation of tensions between India and Pakistan. Researchers have observed a significant recovery in market indices following significant geopolitical de-escalations, which are fueled by renewed FII and better domestic economic circumstances. As per an interview with Mr. Achin Goel,Fund Manager at Bonanza, here are the top sectors to bet on and stocks to buy after the India-Pakistan ceasefire.

1) Do any of your top stock picks have exposure to emerging markets that could see increased foreign direct investment after geopolitical easing?

Ans: Our largest exposures currently lie in the Defence and Railway sectors. We have maintained a constructive view on the defence sector, driven primarily by robust order books. The railway sector has also delivered solid performance, with notable stock appreciation in companies such as Titagarh Wagons and IRFC. This upward momentum can largely be attributed to factors including order wins, favourable quarterly results, and the government's sustained emphasis on railway infrastructure development.

While certain stocks may continue to perform well, it is essential to exercise caution with regard to valuations and stock selection. Additionally, we observed a strong rebound in domestically oriented companies. In this context, our investment focus remains firmly on domestic businesses, with particular emphasis on the defence and railway sectors.

2) Which of these companies have historically thrived during peace dividend periods, and are they positioned similarly today?

Ans: Historically, Indian companies in heavy industries such as steel, chemicals, machinery and power have thrived during post-war periods. After the recent Indo-Pak war, companies in defence manufacturing, infrastructure, and heavy industries are expected to benefit due to increased government spending on defence and strategic infrastructure.

Firms involved in steel production, engineering goods, and defence equipment manufacturing are likely to see growth, as India focuses on strengthening its military capabilities and domestic production under initiatives like Atmanirbhar Bharat. Additionally, sectors such as logistics and construction may gain from infrastructure development linked to national security enhancements.

3) Are these stocks currently undervalued due to geopolitical uncertainty, and is now the strategic moment to enter before re-rating?

Ans: Given the recent easing of tensions between India and Pakistan, many Indian companies represent appealing entry chances for strategic investors. Historical evidence reveals that markets tend to rebound from geopolitical downturns, and the current environment demonstrates outstanding resilience as a result of continuous international and local investment. Despite stretched valuations in large-caps and muted Q4FY25 earnings (Nifty-50 grew 7.5% YoY), the market's ability to maintain strength during peak uncertainty validates underlying fundamentals.

However, investors should remain selective given mixed earnings outlook, US debt concerns adding $3.8 trillion burden, and Middle East tensions creating additional volatility. The optimal strategy involves defensive positioning in quality names while capitalizing on any dip-buying opportunities, as geopolitical premiums typically compress rapidly once tensions subside, creating potential re-rating catalysts for undervalued defensive sectors.

4) Which valuation metrics (e.g., EV/EBITDA, P/E, PEG) make your top picks stand out in a risk-premium compressing environment.

Ans: In the current Indian market environment characterized by compressing risk premiums, valuation metrics such as EV/EBITDA, P/E, and PEG ratios are critical in distinguishing top stock picks. The EV/EBITDA ratio offers a capital-structure-neutral measure of company value relative to earnings and P/E ratio, which compares a company's stock price to its earnings per share, is widely used to gauge market expectations of future growth and profitability, whereas the PEG ratio, which adjusts P/E by expected earnings growth.

These ratios help in identifying stocks with balanced valuation with growth potential and help investors seek growth at a fair price. In this context, stocks with stable or improving earnings growth but trading at moderate EV/EBITDA and P/E multiples, combined with favorable PEG ratios, stand out as compelling picks, especially when corporate earnings are expected to increase due to strong economic activity in India. We consider most of the ratios in identifying our picks but emphasize more on PEG ratio as this reflects undervaluation amid robust growth prospects.

5) If global energy or commodity prices stabilize post-conflict, which pick among your top 5 is most leveraged to that trend?

Ans: The Indian companies most leveraged to the trend would be from Oil marketing companies, Cement and infrastructure companies, Chemical manufacturers (especially fertilizers and inputs), Paints and Aviation amongst others. Hindustan Petroleum Corporation Ltd (HPCL)-It is highly sensitive to crude oil price and refining margin volatility. Lower and stable crude prices mean higher marketing margins and less working capital stress. Ultratech Cement- Power and fuel constitute over 25% of total costs. Cement prices are sticky, so stable/lower fuel costs lead to margin expansion. Chambal Fertilizers and Chemicals- Natural gas is the key raw material for producing urea, constituting 70% of the production cost.

Stable energy and commodity markets ease working capital and improve margins. Asian Paints- Of the total raw material costs incurred 50%-60% are due to crude oil and its derivatives. Softening of crude oil prices will reduce the cost of producing items such as titanium dioxide, a key ingredient for paint. Interglobe Aviation- Jet fuel accounts for 50%-55% of total airline costs. So any increase in oil prices will have a direct impact on the company's profitability.

6) Which of your top 5 picks shows the most durable earnings growth when geopolitical risk premiums fade away?

Ans: Our top picks, which are expected to show the most durable earnings growth when geopolitical risk premiums fade away in India in 2025 include sectors like Renewable Energy, Pharmaceuticals & Healthcare, Infrastructure, Financial Services including FinTech and FMCG. Renewable energy is propelled by India's commitment to net-zero emissions by 2070, government incentives, and falling costs in solar and wind technologies, with companies like Tata Power and Adani Green expected to give high double-digit growth.

Pharmaceuticals & healthcare growth is supported by rising healthcare spending, exports and innovation, with companies like Sun Pharma and Cipla expecting 12-15% growth. FMCG companies are also expected to give double-digit growth led by benefits from rising disposable incomes, rural penetration and e-commerce growth, with a resilient demand base.

7) What fundamental shifts (debt, cash flow, ROIC) are your picks showing that make them resilient in a post-crisis economic normalization phase?

Ans: In the post-crisis economic normalization phase, resilience in companies is strongly indicated by key fundamental parameters such as low debt levels, robust cash flow generation and high ROIC. Companies with manageable debt-to-assets ratios demonstrate lower financial risk and better capacity to service debt without compromising growth as borrowing costs remain elevated.

Strong free cash flow ensures companies can fund operations and growth internally, reducing reliance on external capital amid uncertain macroeconomic conditions. High ROIC, typically above industry averages, signals efficient capital allocation and value creation, allowing firms to sustain growth and shareholder returns even when economic growth moderates. Additionally, maintaining healthy liquidity ratios ensures short-term obligations are met without stress, further enhancing resilience.

8) How do your top stock picks reflect historical patterns of recovery following major geopolitical de-escalations?

Ans: Whenever some major geopolitical de-escalations happen, we have seen a notable rebound in market indices, driven by improved domestic economic conditions and renewed FII. After geopolitical tension and resultant market sell-offs, Indian equities have typically staged "V-shaped" recoveries, as seen in many instances like Russia-Ukraine war, Israel-Hamas war, etc.

This time also we have seen recovery aligns with historical trends where easing geopolitical risks reduce risk premiums, encouraging FIIs to return, domestic consumption and capital expenditure pick up, especially in sectors like consumer goods, Infrastructure and healthcare. The market's resilience is further supported by softer US dollar trends, improved valuations and government capex, which historically catalyze growth post-de-escalation. Similar trends we have seen in our top pics also, which have given decent recovery post-de-escalation.

9) Which sectors are likely to be the "first responders" in a market rebound following a ceasefire, and which stock picks exemplify that recovery?

Ans: Following the India-Pakistan ceasefire, low policy risk and short-term demand sector visibility are emerging as market "first responders." Leading the list is tourism, in which pent-up travel demand has led to a sharp rebound in bookings. InterGlobe Aviation (IndiGo), Indian Hotels, and Lemon Tree are the biggest winners here, with postponed travel plans already in motion. Even consumer goods and financials are in the spotlight.

Positive monsoon forecast at 105% of the long-period average is expected to boost rural incomes and FMCG demand, favouring established players like HUL and ITC. Banks with significant retail exposure, such as ICICI and SBI are likely to gain from improved credit sentiment. Collectively, these industries provide good visibility and solid balance sheets, qualities that are attractive to the market, looking for stability and domestic demand recovery.

Disclaimer: The views and recommendations expressed are solely those of the individual analysts or entities and do not reflect the views of GoodReturns.in or Greynium Information Technologies Private Limited (together referred as “we”). We do not guarantee, endorse or take responsibility for the accuracy, completeness or reliability of any content, nor do we provide any investment advice or solicit the purchase or sale of securities. All information is provided for informational and educational purposes only and should be independently verified from licensed financial advisors before making any investment decisions.