Tensions between India and Pakistan have escalated following a recent terror attack in Kashmir, triggering a swift and notable reaction in the stock markets. As fears of geopolitical instability rise, Public Sector Undertaking (PSU) stocks—particularly in the defense and infrastructure sectors—have shown mixed movements, with defense PSUs rallying while others remain volatile.
In This Article:
Defense PSUs Lead the Surge Amid Strategic Buying
Increased defense spending expectations, alongside government focus on national security, have led to a sharp rise in the shares of key defense PSUs. Investors, including mutual funds (MFs) and foreign institutional investors (FIIs), have actively accumulated shares of defense-related companies in the fourth quarter of FY25.
Key Defense Stocks Gaining Traction
- Hindustan Aeronautics Ltd (HAL): With a robust order book and consistent revenue visibility, HAL has seen strong institutional buying. Analysts project long-term growth as indigenous defense manufacturing picks up pace.
- Bharat Electronics Ltd (BEL): BEL reported significant growth in Q3 profits and margins. The company remains a favorite due to its stable government contracts and strategic defense systems.
- Mazagon Dock Shipbuilders Ltd (MDL): The company’s strong order pipeline in naval ships and submarines positions it as a critical player in India’s maritime defense strategy.
These companies are viewed as crucial for national security and continue to attract investor attention, making defense PSUs one of the most resilient categories in the face of geopolitical stress.
Mixed Trends in Energy and Infrastructure PSUs
Not all PSU sectors are witnessing bullish trends. While defense is rallying, several energy and infrastructure PSUs have experienced subdued or negative movement.
NHPC and Indus Water Treaty Tension
Amid talks of suspending or revising the Indus Water Treaty, hydropower firm NHPC has emerged as a potential beneficiary. The possibility of India redirecting more of its water resources has sparked speculative interest in hydropower projects. Some brokerage forecasts even suggest the possibility of a strong return on investment if policy reforms materialize.
PowerGrid Corporation Faces Pressure
PowerGrid shares, on the other hand, dipped amid market uncertainty. Despite its stable financials, the stock underperformed due to broader concerns over capital expenditure delays and reduced power demand projections.
Broader Market Reaction: Volatility Persists
While specific PSU stocks are rallying, benchmark indices have shown signs of hesitation:
- Nifty 50 and Sensex experienced minor drops due to market-wide selling pressure and investor caution.
- Despite geopolitical fears, select IT and FMCG stocks provided stability, acting as defensives in turbulent conditions.
- Volatility indices rose slightly, indicating uncertainty among traders about short-term market direction.
Market participants are closely monitoring any government statements or military developments, which could influence sentiments further.
Pakistan’s Market Under Heavy Strain
Across the border, the financial fallout appears more severe. The Pakistan Stock Exchange witnessed its worst monthly decline since 2023, reflecting investor anxiety over a potential prolonged standoff with India.
- Equities in Pakistan dropped by nearly 3% in April.
- The bond market also saw negative returns, and investor confidence plummeted.
- Concerns over foreign investment withdrawal and a weakening currency have compounded the pressure.
This contrast in market behavior highlights the relative economic resilience of Indian markets, even in the face of geopolitical adversity.
Institutional Investors Shift Toward Strategic Assets
Mutual funds and FIIs have actively rotated their portfolios toward sectors that are expected to benefit from increased government focus on defense, infrastructure, and national security.
Trends Noticed in Q4 FY25
- Defense PSUs saw the highest net inflows among public sector categories.
- Energy and transport infrastructure stocks received selective buying based on long-term policy reforms.
- Domestic retail investors are now being advised to watch institutional patterns before taking positions.
Key Investment Lessons for Retail Investors
What Should Investors Consider?
- Focus on fundamentals: Stocks with strong order books and government contracts offer more stability.
- Watch institutional flows: Follow where MFs and FIIs are placing their bets.
- Diversify wisely: Avoid concentrating too heavily in one sector, even if it appears lucrative in the short term.
- Stay informed: Keep up with geopolitical developments and government policy changes that can directly impact PSU performance.
Moving Forward
The escalating India-Pakistan tensions have injected a wave of uncertainty into the stock markets. While defense PSUs have become the star performers in this environment, other sectors continue to wrestle with unpredictability. Investors—particularly retail participants—must tread cautiously, aligning their portfolios with stable, long-term themes while keeping an eye on fast-changing geopolitical dynamics.
As the situation unfolds, the role of PSU stocks will likely remain in focus, especially those tied to defense, infrastructure, and national resilience. Strategic investments and timely action could define gains in an otherwise volatile market.
By – Nikita
