Last Updated:March 17, 2026, 12:21 IST

Defence, energy, and shipping companies are emerging as relative winners. Analysts say these sectors are less exposed to immediate downside risks and often benefit during conflicts

Geopolitical conflicts rarely affect financial markets uniformly. Instead, they often trigger a shift in investor sentiment that benefits certain sectors while hurting others.

The Iran-Israel conflict has unsettled global markets, with oil prices climbing sharply, gold and silver gaining as safe-haven assets, and equities turning volatile as investors assess the geopolitical fallout. Yet even as the broader market wobbles, a handful of stocks are managing to outperform.

Defence manufacturers, energy producers, and shipping companies are emerging as relative winners. Analysts say these sectors are less exposed to immediate downside risks and often benefit during conflicts, reflecting a classic wartime market pattern in which capital rotates into industries linked to defence spending, higher crude prices, and potential disruptions to global shipping routes.

Why Wars Often Trigger Sector Rotations In Stock Markets

Geopolitical conflicts rarely affect financial markets uniformly. Instead, they often trigger a shift in investor sentiment that benefits certain sectors while hurting others.

One of the most immediate impacts of conflict is on energy markets. The Middle East remains central to global oil supply, and any escalation in the region raises concerns about disruptions to production or shipping routes such as the Strait of Hormuz. Even the perception of risk can push crude prices higher.

Higher oil prices tend to boost the earnings outlook of upstream energy companies — firms that explore for and produce crude oil.

“War impacts stock markets because it creates uncertainty and shifts economic expectations. Markets dislike uncertainty, and conflicts make it harder to predict growth and stability,” said Darshan Rathod, COO, Multyfi – a SEBI-registered stock market advisor.

For India, the biggest impact comes through crude oil. Higher oil prices increase inflation and put pressure on sectors like aviation, logistics, and consumption. At the same time, global investors often move towards safer assets, leading to volatility in equities. However, not all sectors are affected equally, Rathod added.

“Defence and energy companies tend to benefit as demand visibility improves. In simple terms, war does not stop markets; it changes where the money flows,” he stressed.

Market experts say this dynamic is often described as a “war premium” — a period when stocks linked to defence, energy, and logistics attract heightened investor interest.

What Are The 5 Indian Stocks That Are Outperforming?

“Rising crude oil prices and global uncertainty are putting pressure on the broader market. However, a clear pattern is emerging — while many stocks are struggling, a few sectors are outperforming. In my view, this is a classic case of sector rotation during geopolitical stress. Oil companies like ONGC and Oil India are benefiting from higher crude prices, improving their earnings outlook. At the same time, defence players such as Bharat Electronics, Hindustan Aeronautics, and Bharat Dynamics are gaining due to stronger visibility in defence spending,” explained Rathod.

The key takeaway is that markets are not just rising or falling; they are shifting. “Investors who understand these shifts can navigate volatility better,” he pointed out.

Hindustan Aeronautics: One of the key beneficiaries of rising geopolitical tensions is Hindustan Aeronautics Limited (HAL), India’s leading defence aerospace manufacturer. HAL plays a critical role in producing fighter aircraft, helicopters, and other military platforms for the Indian armed forces. The company also has a large and growing order book driven by domestic defence procurement programmes. Analysts note that the company’s strong pipeline of defence projects and long-term government contracts provide stability even during broader market volatility.

Bharat Electronics: Another stock attracting investor interest during geopolitical uncertainty is Bharat Electronics Limited (BEL). BEL specialises in defence electronics, including radar systems, missile guidance technology, electronic warfare equipment and surveillance platforms. These systems are crucial for modern military operations and border security. Because electronic warfare and surveillance capabilities become even more important during periods of heightened security concerns, companies like BEL often benefit from increased government spending and investor confidence.

Paras Defence: While HAL and BEL represent large defence companies, Paras Defence & Space Technologies has emerged as a smaller but rapidly growing player in India’s defence ecosystem. The company supplies specialised components for defence and space applications, including optics, defence electronics and advanced engineering solutions. It also has export potential, supplying products to global defence supply chains. Because of its niche positioning and growth potential, Paras Defence often attracts significant market interest during periods when defence spending becomes a major theme in global markets.

ONGC: Energy companies are another group benefiting from geopolitical tensions, particularly when oil prices rise. Oil and Natural Gas Corporation (ONGC), India’s largest upstream oil producer, stands to gain when crude prices increase. Since the company’s revenues are closely linked to global oil prices, any sustained rise in crude typically improves its earnings outlook. Even modest supply risks can trigger price spikes, which in turn support the share prices of upstream producers like ONGC.

Shipping companies: Operators such as Great Eastern Shipping and the Shipping Corporation of India may benefit from higher tanker demand and freight rates if shipping routes in the Middle East become more complicated or risky. The Strait of Hormuz, a critical chokepoint for global oil shipments, sits at the centre of the current geopolitical tensions. Any disruption or perceived threat to shipping in the region can increase insurance costs and freight rates for tankers. For shipping companies, these higher freight rates can translate into improved revenue and profitability, making the sector attractive to investors during periods of geopolitical uncertainty.

Will Oil & Defence Stocks Rally Continue?

During the Ukraine war, defence companies across several countries saw strong investor interest as governments increased military spending. Energy stocks also rallied amid disruptions to global oil and gas supplies.

Earlier Gulf conflicts produced similar effects. Oil prices surged due to fears of supply disruptions, while defence contractors experienced increased order flows.

These historical examples show that markets often respond to geopolitical shocks by pricing in the possibility of higher spending and tighter supply conditions in specific sectors.

Rathod said the recent rally in oil and defence stocks has stood out, especially as the broader market remains under pressure. This move is largely driven by geopolitical tensions, which have pushed crude oil prices higher. Oil companies benefit directly from rising crude, while defence companies gain from increased government spending and stronger order visibility.

“In the short term, this rally is partly sentiment-driven and could reverse if tensions ease. However, defence remains a strong long-term theme due to policy support and domestic manufacturing push. Investors should avoid chasing momentum blindly and focus on balancing opportunity with risk,” he advised.

What About The Short-Term Momentum Of Defence & Energy Stocks?

The rally in defence and energy stocks raises an important question: Is this just a short-term reaction or a long-term opportunity?

Rathod said, “In the short term, the move is driven by geopolitical tensions and rising crude prices. However, the defence sector has strong structural support, including government spending, strong order books, and a push for self-reliance. Energy is more cyclical, as oil companies depend on global prices. But broader energy demand continues to grow. This creates a clear market shift not all sectors move together. Investors who recognize this can find better opportunities.”

What Does The Near-Term Outlook Mean For The Indian Market?

The key question for investors now is whether the current rally represents a short-term geopolitical trade or a longer-term structural shift.

India’s defence sector has been expanding rapidly due to government initiatives aimed at boosting domestic manufacturing and reducing reliance on imports. Energy security and maritime logistics are also becoming increasingly important in global geopolitics.

As a result, some analysts believe that defence, oil, and shipping stocks may continue to remain important themes in Indian equity markets.

“In the short term, sharp movements are likely. However, this does not reflect weakness in the Indian economy. What stands out is sector rotation. While consumption and rate-sensitive sectors are under pressure, defence, energy, and utilities are attracting capital. Strong domestic inflows are also providing stability to the market. If global conditions improve, especially if oil prices stabilize, markets could recover,” Rathod points out.

Defence manufacturers, energy producers, and shipping companies are emerging as relative winners. Analysts say these sectors are less exposed to immediate downside risks and often benefit during conflicts, reflecting a classic wartime market pattern in which capital rotates into industries linked to defence spending, higher crude prices, and potential disruptions to global shipping routes.

Why Wars Often Trigger Sector Rotations In Stock Markets

Geopolitical conflicts rarely affect financial markets uniformly. Instead, they often trigger a shift in investor sentiment that benefits certain sectors while hurting others.

One of the most immediate impacts of conflict is on energy markets. The Middle East remains central to global oil supply, and any escalation in the region raises concerns about disruptions to production or shipping routes such as the Strait of Hormuz. Even the perception of risk can push crude prices higher.

Higher oil prices tend to boost the earnings outlook of upstream energy companies — firms that explore for and produce crude oil.

“War impacts stock markets because it creates uncertainty and shifts economic expectations. Markets dislike uncertainty, and conflicts make it harder to predict growth and stability,” said Darshan Rathod, COO, Multyfi – a SEBI-registered stock market advisor.

For India, the biggest impact comes through crude oil. Higher oil prices increase inflation and put pressure on sectors like aviation, logistics, and consumption. At the same time, global investors often move towards safer assets, leading to volatility in equities. However, not all sectors are affected equally, Rathod added.

“Defence and energy companies tend to benefit as demand visibility improves. In simple terms, war does not stop markets; it changes where the money flows,” he stressed.

Market experts say this dynamic is often described as a “war premium” — a period when stocks linked to defence, energy, and logistics attract heightened investor interest.

What Are The 5 Indian Stocks That Are Outperforming?

“Rising crude oil prices and global uncertainty are putting pressure on the broader market. However, a clear pattern is emerging — while many stocks are struggling, a few sectors are outperforming. In my view, this is a classic case of sector rotation during geopolitical stress. Oil companies like ONGC and Oil India are benefiting from higher crude prices, improving their earnings outlook. At the same time, defence players such as Bharat Electronics, Hindustan Aeronautics, and Bharat Dynamics are gaining due to stronger visibility in defence spending,” explained Rathod.

The key takeaway is that markets are not just rising or falling; they are shifting. “Investors who understand these shifts can navigate volatility better,” he pointed out.

Hindustan Aeronautics: One of the key beneficiaries of rising geopolitical tensions is Hindustan Aeronautics Limited (HAL), India’s leading defence aerospace manufacturer. HAL plays a critical role in producing fighter aircraft, helicopters, and other military platforms for the Indian armed forces. The company also has a large and growing order book driven by domestic defence procurement programmes. Analysts note that the company’s strong pipeline of defence projects and long-term government contracts provide stability even during broader market volatility.

Bharat Electronics: Another stock attracting investor interest during geopolitical uncertainty is Bharat Electronics Limited (BEL). BEL specialises in defence electronics, including radar systems, missile guidance technology, electronic warfare equipment and surveillance platforms. These systems are crucial for modern military operations and border security. Because electronic warfare and surveillance capabilities become even more important during periods of heightened security concerns, companies like BEL often benefit from increased government spending and investor confidence.

Paras Defence: While HAL and BEL represent large defence companies, Paras Defence & Space Technologies has emerged as a smaller but rapidly growing player in India’s defence ecosystem. The company supplies specialised components for defence and space applications, including optics, defence electronics and advanced engineering solutions. It also has export potential, supplying products to global defence supply chains. Because of its niche positioning and growth potential, Paras Defence often attracts significant market interest during periods when defence spending becomes a major theme in global markets.

ONGC: Energy companies are another group benefiting from geopolitical tensions, particularly when oil prices rise. Oil and Natural Gas Corporation (ONGC), India’s largest upstream oil producer, stands to gain when crude prices increase. Since the company’s revenues are closely linked to global oil prices, any sustained rise in crude typically improves its earnings outlook. Even modest supply risks can trigger price spikes, which in turn support the share prices of upstream producers like ONGC.

Shipping companies: Operators such as Great Eastern Shipping and the Shipping Corporation of India may benefit from higher tanker demand and freight rates if shipping routes in the Middle East become more complicated or risky. The Strait of Hormuz, a critical chokepoint for global oil shipments, sits at the centre of the current geopolitical tensions. Any disruption or perceived threat to shipping in the region can increase insurance costs and freight rates for tankers. For shipping companies, these higher freight rates can translate into improved revenue and profitability, making the sector attractive to investors during periods of geopolitical uncertainty.

Will Oil & Defence Stocks Rally Continue?

During the Ukraine war, defence companies across several countries saw strong investor interest as governments increased military spending. Energy stocks also rallied amid disruptions to global oil and gas supplies.

Earlier Gulf conflicts produced similar effects. Oil prices surged due to fears of supply disruptions, while defence contractors experienced increased order flows.

These historical examples show that markets often respond to geopolitical shocks by pricing in the possibility of higher spending and tighter supply conditions in specific sectors.

Rathod said the recent rally in oil and defence stocks has stood out, especially as the broader market remains under pressure. This move is largely driven by geopolitical tensions, which have pushed crude oil prices higher. Oil companies benefit directly from rising crude, while defence companies gain from increased government spending and stronger order visibility.

“In the short term, this rally is partly sentiment-driven and could reverse if tensions ease. However, defence remains a strong long-term theme due to policy support and domestic manufacturing push. Investors should avoid chasing momentum blindly and focus on balancing opportunity with risk,” he advised.

What About The Short-Term Momentum Of Defence & Energy Stocks?

The rally in defence and energy stocks raises an important question: Is this just a short-term reaction or a long-term opportunity?

Rathod said, “In the short term, the move is driven by geopolitical tensions and rising crude prices. However, the defence sector has strong structural support, including government spending, strong order books, and a push for self-reliance. Energy is more cyclical, as oil companies depend on global prices. But broader energy demand continues to grow. This creates a clear market shift not all sectors move together. Investors who recognize this can find better opportunities.”

What Does The Near-Term Outlook Mean For The Indian Market?

The key question for investors now is whether the current rally represents a short-term geopolitical trade or a longer-term structural shift.

India’s defence sector has been expanding rapidly due to government initiatives aimed at boosting domestic manufacturing and reducing reliance on imports. Energy security and maritime logistics are also becoming increasingly important in global geopolitics.

As a result, some analysts believe that defence, oil, and shipping stocks may continue to remain important themes in Indian equity markets.

“In the short term, sharp movements are likely. However, this does not reflect weakness in the Indian economy. What stands out is sector rotation. While consumption and rate-sensitive sectors are under pressure, defence, energy, and utilities are attracting capital. Strong domestic inflows are also providing stability to the market. If global conditions improve, especially if oil prices stabilize, markets could recover,” Rathod points out.

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