Defence stocks: Why BDL, BEL and HAL shares are in focus amid Iran war with US and Israel

Defence stocks such as Bharat Dynamics Ltd (BDL) and Bharat Electronics Ltd (BEL) are in focus on Monday as domestic brokerages noted that the two defence PSUs have their supply chain dependence on Israel. Any prolonged geopolitical issue with Iran can lead to supply chain risk for these companies, glimpse of which was earlier witnessed during Israel-Palestine conflict, Antique Stock broking said.

The brokerage said Apar industries may also get impacted in form of higher insurance and freight cost. Apar offers high-quality cables, oils, and conductors tailored for the defence sector.

The Middle East conflict escalated over the weekend after the US and Israel bombed Iran. Iran’s retaliation by attacking other GCC countries heightened the seriousness of the situation, though the conflict is expected to remain relatively short, lasting from a few days to a couple of weeks, given the imbalance between the two sides and the depletion of Iran’s leadership.

Defence names including HAL and BEL could see sentiment support, JM Financial said. " Upstream energy and defence may see relative support, while oil-sensitive sectors such as OMCs, paints, tyres, aviation and chemicals face margin pressure," this brokerage said.

Overall, the brokerage said markets are likely to move from earnings-driven to oil-driven trading in the near term. "While media reports indicate disruption to shipping activity in the Strait, confirmation of a complete and sustained closure remains unclear, making the probability and duration of supply interruption the key variable for markets," it said.

V K Vijayakumar, Chief Investment Strategist at Geojit Investments said the medium term impact on the market will depend on how long the conflict will last. "We don’t know the answer to this question. After crippling Iran, US and Israel may make a strategic withdrawal. The market will react very negatively. In a weak market, upstream oil companies and defense stocks will do well," it said.