Now that the war in West Asia has ended, at least that is what it looks like, investors in the Indian stock market will be keen to identify the companies and industries that will do well going forward.
But how to go about it?
We believe this question highlights the importance of asset allocation over stock picking.
If you can identify the right sectors to allocate funds to in your portfolio, individual stock selection can play a secondary (but still important) role.
In this editorial, we will attempt to light the way for you in this regard.
Let’s examine three sectors that you should be tracking now.
Defence
Historically, India relied heavily on foreign countries for its defence needs. About 65-70% of defence equipment was imported until 2018.
However, this landscape has dramatically shifted, with around 65% of defence equipment now manufactured within India. This transformation reflects the country's commitment to self-reliance.
Moreover, the strength of India's defence industrial base—comprising 16 defence PSUs, several private conglomerates, over 430 licensed companies, and about 16,000 MSMEs—has become robust.
Consequently, the annual defence production crossed ₹1.54 trillion in FY25 and then crossed ₹1.78 trillion in 2026. The aspiration is to achieve ₹3 trillion worth of defence production by 2029, along with ₹50,000 crore in exports. This will establish India as a global defence manufacturing hub.
Defence exports already surged to a record high of ₹23,620 crore in FY25. This was a growth of 12% over FY24. Last fiscal year, defence exports grew further to ₹38,424 crore.
The defence budget allocation is ₹7.85 trillion for FY25, about US$94 billion, an increase of 15.2% from FY26. It was the highest allocation among all ministries at 14.67% of the Union Budget spending.
India has evolved from a largely import-dependent military force to one increasingly focused on self-reliance and indigenous production.
There are many defence companies, especially those in high-tech segments such as sensors, radar, missiles, and drones, that the stock market expects to perform well.
Critical minerals (mining)
Critical minerals have emerged as a key policy priority for the central government in recent years, given their strategic importance across clean energy, electronics, and defence.
With India currently lagging in both extraction and processing capabilities, the government has moved to ease availability by cutting customs duty to zero on 12 critical minerals, along with cobalt powder and waste and scrap of lithium, lead, and zinc.
Further strengthening the push, the Union cabinet in January 2025 approved the National Critical Mineral Mission (NCMM), allocating ₹16,300 crore to build a robust framework aimed at achieving self-reliance in the critical mineral ecosystem.
India’s clean energy transition is also heavily dependent on the availability of key minerals such as copper, cobalt, graphite, lithium, nickel, neodymium, and silicon, collectively referred to as energy transition critical minerals.
Apart from these green technologies, critical minerals also play an important role in national defence, information technology, semiconductors, aviation, and space research.
The stock market expects sustained policy support and higher investments in this space. With strong policy backing, rising domestic demand and increased focus on self-reliance, companies operating in the critical minerals space should be closely watched.
Nuclear energy
India's electricity demand is growing at a rapid pace. Rising industrial activity, urbanisation, expanding data centres, and electrification are driving the need for reliable power.
To meet this demand while reducing dependence on fossil fuels, the government is placing great emphasis on nuclear energy. Under the Nuclear Energy Mission, India has set a target of achieving 100GW of nuclear power capacity by 2047.
This initiative is expected to play an important role in strengthening the country's energy security and supporting its long-term climate goals.
This opportunity extends beyond power generation companies. The expansion of nuclear power capacity will require significant investments in reactors, engineering services, power equipment, and supporting infrastructure.
As a result, several companies are witnessing stronger order inflows and better growth visibility. So, companies involved in reactor construction, engineering services, heavy equipment manufacturing, and power infrastructure will be in focus in the stock market.
Nuclear projects are capital-intensive and often have long gestation periods. Regulatory approvals, project execution timelines, and policy developments will continue to influence the pace of growth.
Companies with strong balance sheets, proven execution track records, technological capabilities, and clear expansion plans should be watched.
Conclusion
Well, this was a list of the three sectors we think could potentially produce good investments as long as investors get their stock selection right.
We hope this editorial has triggered your curiosity to dig deeper and find fundamentally strong stocks.
But before you do so, a fair warning. Investors should not go overboard on any sectoral trend.
Do not allocate most of your funds into any one sector. Ensure sufficient diversification of your portfolios. Also, do your due diligence before investing in any stock.
Investors should evaluate the company's fundamentals, corporate governance, and stock valuation as key factors when conducting due diligence before making investment decisions.
Happy investing.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com