Shares of defence companies surged on Thursday, extending their recent rally, after German lawmakers approved a significant increase in defence spending.

The move, aimed at bolstering European security, lifted investor sentiment in domestic defence manufacturing stocks, which have been gaining amid the government of India's push for self-reliance and higher exports in the sector.

Garden Reach Shipbuilders & Engineers (GRSE) continued its strong momentum, climbing 8.62 percent to an intraday high of Rs 1,782.9 on the NSE. The stock has gained over 32 percent in the past five trading sessions. It opened with a gap-up of 4.18 percent before extending gains through the session.

Mazagon Dock Shipbuilders also posted strong gains, rising 5.24 percent to an intraday high of Rs 2,762.9. The stock has been on an uptrend for five consecutive sessions, a 17 percent gain during this period.

Mishra Dhatu Nigam advanced 4.24 percent to Rs 296.5 per share, continuing its three-day winning streak, during which it has gained 12.15 percent. Bharat Dynamics moved up 3.7 percent to an intraday high of Rs 1,242.35, extending its gains to 11.37 percent over the last three sessions.Shares of Paras Defence and Space Technologies jumped 9.84 percent to Rs 1,047.7, with the stock opening 2.22 percent higher. It has risen 14.07 percent in the last three trading sessions. DCX Systems advanced 2.9 percent to Rs 246.2, while Hindustan Aeronautics Ltd (HAL) gained over 2 percent intraday. Bharat Forge also saw strong buying interest, climbing 5.18 percent to Rs 1,194.9 per share.

Market analysts said the surge in Indian defence stocks is driven by expectations of increased export orders, as European nations face challenges in scaling up their own defence production.

Krishna Appala, Senior Analyst at Capitalmind Research, noted that Indian companies are emerging as key suppliers for global defence equipment due to their ability to deliver at scale and competitive costs.

"The rally in defence stocks is supported by strong order backlogs, improving revenue visibility, and attractive valuations that emerged after a period of correction. This has made them appealing to long-term investors," Appala said.

The Nifty India Defence Index rose 2 percent, with 14 of its 16 constituents trading in the green. The index has climbed over 10 percent in the last five trading sessions, reflecting the sector’s bullish sentiment.