The shares of defence companies surged on June 23 after US launched strikes at key nuclear facilities in Iran, which increased hopes of higher defence order inflows amid escalating conflict in the Middle East. The sharp rise in the share prices pushed the Nifty Defence index up over 2 percent to close at 9,078.

Garden Reach Shipbuilders and Engineers (GRSE) shares were the top gainers on the index, jumping over 6.5 percent to close at Rs 3,502 apiece. Zen Technologies and Paras Defence shares followed, jumping around 5 percent each to close at around Rs 1,995 apiece and Rs 1,740 apiece respectively. Notably, Zen Tech shares were locked in the upper circuit.

Bharat Electronics (BEL) shares jumped over 3 percent, while Data Patterns, Mazagon Dock Shipbuilders, BEML and Cochin Shipyard shares rose over 2 percent each. Notably, BEL was one of the top gainers on Sensex today.

DCX India and Hindustan Aeronautics (HAL) shares were up around 1 percent each. Solar Industries shares closed in the green with marginal gains.

Idea Forge shares rallied 10 percent to hit the upper circuit at Rs 631.05 apiece.

US President Donald Trump on Sunday said that the country's defence forces struck three of Iran's main nuclear sites. "The strikes were a spectacular military success … Iran's key nuclear enrichment facilities have been completely and totally obliterated," he said during his televised address.

Trump later said that US forces dropped six bunker-buster bombs and fired 30 Tomahawk missiles at the facilities, and threatened Iran of further consequences if they don't accept a peace deal. Israeli Prime Minister Benjamin Netanyahu congratulated Trump for his "bold decision". "History will record that President Trump acted to deny the world's most dangerous regime, the world's most dangerous weapons," Netanyahu said.

While US officials claimed that the country was not at war with Iran, Trump's threat of further military action has raised concerns.

The defence stocks have been in focus on hopes of higher order inflows, after the Indian military conducted targeted strikes against terrorist outfits in Pakistan under the codename 'Operation Sindoor' in May. As the geopolitical tensions between India and Pakistan eased, the escalations in Russia-Ukraine war continued to support the rally in defence stocks. The latest rise in tensions between Israel and Iran further boosted the stocks. However, analysts have mixed views regarding the space, with some flagging elevated valuations in these stocks.

"Defence stocks have been highly volatile lately rallying strongly after Operation Sindoor, then seeing profit booking, and now rising again amid Middle East tensions. This reflects a mix of short-term momentum and long-term optimism. Geopolitical risks and a stronger push for domestic defence manufacturing have boosted investor confidence. With India’s defence spending at just 1.9% of GDP, there’s significant room for long-term growth," said Ajit Mishra – SVP, Research, Religare Broking.

"However, the sharp rally has brought valuation concerns, making near-term volatility likely. Investors should remain selective, focusing on companies with robust order books, sound financials, and strong execution. While the momentum may fluctuate, the long-term outlook for India’s defence sector remains structurally attractive in an increasingly uncertain global landscape," he added.

Sankhanath Bandyopadhyay, Economist at Infomerics Valuation and Ratings, meanwhile said, "Defence stocks look promising due to the ongoing geopolitical tussle between Iran and Israel. Moreover, the Indian government is likely to enhance defence spending from the current ~2 percent of GDP to 3–4 percent over the next decade. Further, the government has targeted ?25,000 crore in defence exports by 2025–26."

He added, "Investors can focus on export-driven defence stocks with long-term potential. In the current scenario, geopolitical tensions will likely be lingering between different countries, especially as being reflected in rising tensions in the Middle East. Investors should carefully assess the financials and outlook of such stocks before investing, and there should be judicious mix so that a healthy dividend can also be earned."

India's Defence Secretary Rajesh Kumar Singh recently emphasized the importance of private sector involvement in the defence aviation industry. He further noted that the defence ministry is working to appropriately utilize capital expenditure. "Capital expenditure has grown 7% over the past few years, but difficulty in absorbing funds meant we had to surrender some of the budget at the revised estimate stage. For the first time in five years, we fully utilized the budget last year, awarding contracts worth ?2 lakh crore — up from ?1 lakh crore in 2023–24. We are working to accelerate contract signing and improve fund absorption," he said during an interview with ANI.