Will drone stocks continue to soar after recent military conflict?

Synopsis

Since the Pahalgam attack on April 22, Paras Defence and Space Technologies, Ideaforge Technology and Zen Technologies have soared 30-50%, amid a broader euphoria among defence-related stocks.

Mumbai: Drone makers have caught the fancy of Dalal Street punters, spurred by the extensive use of these aerial systems in the recent India-Pakistan conflict. Shares of companies that make drones, such as Hindustan Aeronautics, Bharat Electronics, Paras Defence and Space Technologies, Ideaforge Technology and Zen Technologies, have jumped as much as 50% since May 7 - the day India launched its military response, dubbed Operation Sindoor, in response to a terrorist attack at Pahalgam on April 22.

"Some stocks in the listed space are directly engaged in defence related drone manufacturing which are likely to be the biggest beneficiaries; however, others have moved up largely due to the sentimental push," said Bhalchandra Shinde, associate fund manager, Motilal Oswal AMC.

Since the Pahalgam attack on April 22, Paras Defence and Space Technologies, Ideaforge Technology and Zen Technologies have soared 30-50%, amid a broader euphoria among defence-related stocks.

Ambareesh Baliga, a Mumbai-based independent analyst, said the momentum is strong in drone stocks and can move 15-20% higher from the current levels.

In Operation Sindoor, drones were used for surveillance and combat. Investors expect the government to spend more over the next five years to boost the use of drones. According to Grand View Research, the India military drone market generated a revenue of $1,527.1 million in 2024 and is expected to reach $4,082.1 million by 2030. The domestic market is expected to grow at 17.9% on a compounded basis from 2025 to 2030, it said.

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Albeit the steady growth estimates, fund managers and analysts advise caution while riding the bullish momentum in these stocks, as recent gains have already baked in expectations of increased orders for drones in the near future.

"Drone usage has come to the fore in the recent conflict and government focus is expected to remain on the companies which could lead to expansion in order books however, these positive are significantly priced in the stocks already," said Ashwini Shami, EVP & Portfolio Manager, OmniScience Capital.

Shami said the outlook from a valuation perspective is not exciting any more since drone stocks are trading in a high P/E range.

PSU names within the segment such as Hindustan Aeronautics and Bharat Electronics are preferred picks given the stronger moat and larger order books and are reasonably valued relative to the other peers, said Shami. The Nifty India Defence Index jumped 17.9% and 15.4% since the Pahalgam attack and Operation Sindoor, respectively, while benchmark Nifty has moved 2.1% and 1.1% higher in the same period.

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