After posting over 100% gains so far this year, defence-related stocks such as Pipavav Defence and Engineering, BEML, Bharat Electronics and Dynamatic Technologies are expected to extending the rally in the coming year.

The sharp rally in the stocks was mainly driven by the government's increased focus on indigenisation and modernisation of the country's defence forces. While the benchmark indices headed to post their worst losses in fours year in 2015, stocks of companies in the defence sector turned out to be money-spinners for investors.

"What we expect over the next five to seven years is the defence sector itself will offer an opportunity to the tune of about Rs 8 lakh crore, considering that about 55% of that production will happen domestically. From that perspective, many of these companies look interesting," said Pankaj Pandey, HoR,

According to some analysts, stocks in the defence space will offer a "new defensive play" as IT and Pharma shares have witnessed volatility over the past few months. While IT shares struggled due to currency fluctuations, weak demand, and visa fee hikes, pharma companies have faced regulatory issues in the US, which is a major market for them.

Recently, the US government doubled the fee on work visas, which could weigh heavily on the earnings of top Indian IT companies.

"I like the defence space. In the economic slowdown that we are currently in, defence is going to be one of the safe havens," The Economic Times quoted independent market expert Hemindra Hazari as saying.

Hazari called the defence sector "recession-proof". "India's huge defence budget and shifting of a lot of orders from defence PSUs to the private sector will benefit them a lot," he said.

Hiren Ved of Alchemy Capital sees the defence space as one of his "three mega trends" for the stock markets in the coming days.

Experts see long-term growth for the sector supported by the Narendra Modi government assigning more significance to the sector under the "Make in India" programme.

The government had increased its allocation to defence sector by 11% to Rs 2,40,727 crore, or $40 billion, in its previous budget. It also relaxed foreign direct investment (FDI) norms for the sector last month.

"The sector will definitely remain in focus, but the only caution to adopt here is earnings will become visible from 2019. So, this is a bet only for long-term investors," said Parag Thakkar, Head-Institutional Sales, HDFC Securities.