Defence stocks demonstrated remarkable resilience on January 9, climbing up to 6% even as benchmark indices Sensex and Nifty faced weakness. The sector's outperformance was driven by a combination of international developments and domestic contract wins that boosted investor sentiment across defence companies.

Key Stock Movements

The Nifty India Defence index showcased strong performance, with several stocks leading the charge:

At 12:10 pm on January 9, the sectoral index was trading 0.7% higher, demonstrating the sector's strength against broader market trends. Bharat Electronics particularly stood out, hitting a seven-week high at ₹424.55 per share following significant order wins.

Bharat Electronics Order Success

Bharat Electronics emerged as a standout performer, rising as much as 2.1% to reach its highest level in seven weeks. The state-owned aerospace and defence electronics company secured orders worth ₹596 crores, encompassing diverse defence technologies:

• Drone detection and jamming systems
• Mobile communication terminals
• Software solutions and upgrades
• Spares and maintenance services

The stock has demonstrated exceptional performance in 2025, gaining 36% year-to-date, reflecting strong operational momentum and order book growth.

Trump's Defence Budget Proposal

A significant catalyst for the sector rally came from across the Pacific, where US President Donald Trump proposed a substantial defence budget increase. The proposed budget of $1.5 trillion for 2027 represents a dramatic escalation from the $901 billion approved by Congress for 2026.

This announcement created positive spillover effects for Indian defence stocks, mirroring gains seen in US defence companies:

India-Germany Submarine Deal

Reports of a potential landmark submarine manufacturing agreement between India and Germany provided another boost to defence stocks, particularly benefiting Mazagon Dock Shipbuilders. According to Bloomberg reports from January 8, the two nations are finalizing details of a deal worth at least $8 billion, which would represent the largest-ever defense agreement for India.

The agreement, being negotiated ahead of Chancellor Friedrich Merz's visit to India, would include technology transfer for submarine production for the first time. Mazagon Dock Shipbuilders emerged as the top gainer among Nifty 200 and Nifty 500 constituents, rising up to 5% following reports that the company and German-based Thyssenkrupp Marine Systems GmbH are likely to sign the submarine manufacturing deal this year.

Geopolitical Tensions Drive Sector Interest

European defence stocks posted gains for the fifth consecutive session on January 8, with geopolitical tensions over Greenland adding another layer of support to the defence sector globally. The US administration's interest in acquiring Greenland has raised concerns about NATO's stability and created broader geopolitical uncertainties.

White House Press Secretary Karoline Leavitt confirmed that the administration was exploring a "range of options" regarding Greenland, citing national security concerns related to Russian and Chinese activities in the region. European leaders have firmly stated that "Greenland belongs to its people" and that decisions concerning the territory rest solely with Denmark and Greenland.

The convergence of these three factors - increased defence spending proposals, major bilateral defence agreements, and rising geopolitical tensions - created a perfect storm of positive sentiment for defence stocks, enabling the sector to outperform despite broader market weakness.

India and Germany are reportedly approaching the final stages of negotiations for a submarine manufacturing deal valued at least $8 billion, which could establish itself as India's largest defence agreement in history. The substantial deal highlights India's commitment to strengthening its naval capabilities while advancing domestic manufacturing through strategic international partnerships.

Deal Structure and Scope

According to Bloomberg reports citing sources familiar with the negotiations, the agreement encompasses comprehensive submarine manufacturing arrangements between the two nations. The deal's structure emphasizes technology transfer as a central component, aligning with India's broader defense manufacturing objectives.

Strategic Implications

The proposed agreement represents a significant milestone in India-Germany defence cooperation, potentially setting new benchmarks for international defence partnerships. The technology transfer aspect of the deal could enhance India's indigenous submarine manufacturing capabilities, contributing to the country's self-reliance goals in critical defence sectors.

The involvement of German technology and expertise, combined with India's manufacturing infrastructure, could create a robust framework for advanced submarine production. This collaboration may strengthen India's position in naval defence while fostering long-term technological advancement in the sector.

Industry Context

India's defence sector has been actively pursuing strategic partnerships with international manufacturers to enhance domestic capabilities. The potential $8 billion submarine deal with Germany continues this trend, focusing on high-value naval assets that require sophisticated technology and manufacturing expertise.

The agreement's emphasis on technology transfer aligns with India's defence procurement policies, which prioritize knowledge sharing and capability building alongside equipment acquisition. Such arrangements support the development of domestic defence manufacturing ecosystems while ensuring access to advanced military technologies.

While negotiations continue, the deal represents a significant opportunity for India's naval defence sector, including companies like Mazagon Dock Shipbuilders that specialize in naval vessel construction and could potentially benefit from expanded submarine manufacturing activities in the country.