West Asia conflict fuels defence stocks. Now comes the harder test

India's defence sector has surged in 2026, with the Nifty Defence index up nearly 20% year to date against an 8% decline in the Nifty 50, fuelled by renewed West Asia conflict and India's push for self-reliance. The Defence Acquisition Council approved procurements worth nearly Rs 16.6 trillion between FY24 and FY26, largely under indigenisation categories, with defence exports at Rs 384 billion in FY2026 targeting Rs 500 billion by FY2029. However, valuations have run ahead of near-term earnings, with the Nifty Defence index P/E expanding from 51.8x to 56.5x, shifting the investor debate to whether fresh order wins or execution capabilities will drive the next leg of the rally.