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Amidst the ongoing tension in the Middle East, on one hand the Indian stock market fell badly as soon as it opened, while on the other hand, the major defense companies of the country are witnessing tremendous growth. Amid the growing impact of war in the Middle East after the death of Iran's Supreme Leader Ayatollah Ali Khamenei, shares of Hindustan Aeronautics, Bharat Dynamics, BEL, Paras Defense and other defense companies rose by 13.5% on Monday. This has increased expectations of more export orders and better investor confidence.

On BSE, Paras Defense rose the most by 13.5% to Rs 722, while HAL, BEL and Bharat Dynamics gained up to 3.5%. The recent attacks by the US and Israel, and retaliation by Iran, came days after Prime Minister Narendra Modi visited Israel in late February. During that visit, he had said that India and Israel will jointly develop, produce and exchange technology in the defense sector.

According to a joint statement, India and Israel will develop and produce weapons together to strengthen defense cooperation, soon finalize a mutual trade agreement, increase cooperation under the UPI digital payment system, work together on space projects and new technology and other plans.

War is escalating in the Middle East

86-year-old Ali Khamenei was killed in missile attacks by the US and Israel last weekend. Four members of his family, including his daughter and a grandson, are also reported dead. Since then, Iran has retaliated by attacking several countries in the region, further increasing political and security tensions. Brokerage firm JM Financial believes that Indian defense companies like Hindustan Aeronautics Limited (HAL) and Bharat Electronics Limited (BEL) may get support from the environment, even if the domestic stock market continues to be volatile due to global risk concerns.

In recent months, sharp fluctuations have been seen in the shares of defense companies. The sector witnessed rapid growth last year after the Indian Army took targeted action against terrorist organizations in Pakistan and Pakistan-occupied Kashmir. However, due to lack of new reasons, this momentum later diminished. HAL shares have fallen by more than 11% so far in 2026, while Bharat Dynamics Limited (BDL) shares are down by about 15%, which reflects the recent slowdown in the sector. Amidst the increasing tension, the shares of defense companies may rise again, but the entire market may remain under pressure.

What will be the future outlook?

In an ET report, Sunny Aggarwal, Head of Fundamental Retail Research at SBI Securities, termed the rising political and global tensions as a bit negative for the market and said that a sudden big reaction is not expected. According to him, there may be a slight decline on Monday due to the news of Ali Khamenei's death and retaliation. He said that after that the situation may gradually become normal. He also said that it will be very important to keep an eye on the prices of crude oil. If oil prices remain stable, Agarwal believes the market reaction may be limited. The long-term direction will depend on further global and political developments.

Kranti Bathini of Wealthmills Securities said that the rising tensions in the Middle East, especially related to the UAE, were not much expected and could have a negative impact on the financial markets in the short to medium term. However, he also said that fluctuations in crude oil prices will be very important for the Indian stock market. Pointing to India's strong domestic economic condition, he said that the market is already under pressure due to many reasons. The impact of the war may be short to medium term, but it will not have a major impact on the structure in the long run.