Defence stocks in Europe outperformed broad indices by 12–18% in 2025. But this
re-rating story runs much deeper than defence buy rationale. The impact of geopolitical uncertainty is reshaping how investors view entire industries, from defence and energy to manufacturing, technology, logistics, and consumer businesses.

In unstable geopolitical situations, CFOs, CXOs and startup promoters have been highly focused in understanding the sector valuation during war, as valuation isn’t just about revenue growth, profitability or market share. Investors are increasingly looking at companies in terms of resilience, strategic importance, supply chain stability, and ability to deal with uncertainty.

A war economy is not a simple matter of winners and losers. It alters the fundamental assumptions of valuation models. Some sectors gain strategic importance reassuring investors, while others are under valuation pressure due to demand uncertainty, rising costs or operational issues.

For businesses, the key question is not only “How is the company performing today?” but also “How will investors value their business in a changing global environment?”

What “Re-Rating” Actually Means (And Why It’s Different from a Stock Price Move) 

There is often confusion between a sector re-rating and a stock price movement. In valuation terms, a re-rating refers to a structural change in what multiple investors are willing to pay for a company or an entire sector.

A stock price can move because of short-term market sentiment. A re-rating happens when investor expectations around future earnings, risk, and growth potential fundamentally change.

For example, a company with an 8x EV/EBITDA may get a higher multiple during war, if investors think that this industry has better growth visibility, higher strategic importance, or lower long-term risk.

Two important valuation metrics explain this:

EV/EBITDA multiple	Price/Revenue multiple
Enterprise Value compared to EBITDA. This helps investors understand how much they are paying for a company’s operating earnings	A measure of a company’s market value relative to its revenue. It is widely used for companies that are growing fast and yet to be profitable

 

When geopolitical disruptions occur, investors ask questions such as:

• Does the company operate in a strategically relevant sector?
• Can it sustain margins through disruption?
• Is it a recipient of government spending or policy support?
• How reliable is the supply chain?

These factors determine whether a company receives a valuation premium or experiences multiple compression.

The ValAdvisor Re-Rating Matrix: Sector Valuation during War for Major Industries

There are variations in sector performance in a war economy. While some companies benefit from more strategic relevance, others are under pressure because of shifting consumer behavior, supply issues, or uncertainties.

Sector	Immediate Impact	3-Year Structural Direction	Valuation Multiple Movement	Key Drivers
Defence & Aerospace	Higher investor attention and stronger order visibility	Long-term premium potential	Higher EV/EBITDA multiples	Government contracts, defence spending, strategic security
Energy & Commodities	Increased volatility and pricing uncertainty	Stronger positioning around energy security	Premium for resilient players	Resource availability, energy independence
Manufacturing & Industrial	Supply chain restructuring	Growth opportunity through diversification	Higher multiples for strategic manufacturers	China+1 strategy, friend-shoring
Technology	Mixed impact based on exposure	Growth in cybersecurity, AI, and automation	Premium for critical technology companies	Digital security, infrastructure
Consumer & Retail	Demand sensitivity	Recovery depends on consumer confidence	Pressure on discretionary valuations	Inflation, spending patterns
Logistics & Supply Chain	Increased complexity	Greater importance in global trade networks	Premium for specialized companies	Supply chain optimization

Potential impact on sector valuation during war conditions are highlighted in this matrix. But the advantage isn’t given automatically. Companies that exhibit long-term strategic relevance, operational resilience, and sustained competitive advantages are rewarded by investors.

The Winners: Industries that Benefit from War Economy 

Defence and Aerospace: Strategic Importance Drives Valuation Expansion

Defence has become one of the most visible examples of sector re-rating during geopolitical uncertainty.

Increased government spending, multi-year procurement initiatives, and improved income visibility are the main reasons of the defence sector valuation premium.  Unlike many cyclical industries, defence sector often benefits from long-term contracts that provide predictable cash flows.

However, not every company in this sector automatically benefits from defence sector valuation premium. Investors evaluate multiple factors including:

• Backlog of orders
• The ability to use technology
• Capacity for production
• Visibility of contracts
• Performance history

Higher valuation multiples are more likely to be assigned to businesses with scalable operations, significant government ties, and proprietary technology.

This change has led to what many investors refer to as an EV/EBITDA sector war premium, in which companies exposed to strategic sectors are expected to be valued higher due to the investor perception that their future earnings are more predictable.

Energy and Commodities: Reliability Becomes a Valuation Driver

Geopolitical changes have a direct impact on energy markets. Commodity prices, supply availability, and investment priorities can be affected by conflicts.

Investors are now evaluating energy companies beyond short-term commodity cycles, which is reflected in the concept of energy company valuation conflict.

As long as they have diversified assets, strong infrastructure, capacity for renewable energy, and reliable supply networks, energy companies are increasingly viewed as strategic assets.

Manufacturing and Industrial: The Friend-Shoring Opportunity

Global supply chains are undergoing a major transformation as companies reduce dependency on concentrated production locations.

Manufacturers who are adopting global diversification plans have higher valuation potential.

Investors are rewarding companies that can offer supply chain reliability and faster turn-around-time. In a war economy friend-shoring impact on manufacturing valuation is positive and increasingly becoming an important consideration.

Manufacturers in the following sectors are increasingly benefiting from this trend:

• Electronics
• Automotive components
• Industrial equipment
• Engineering services
• Specialized production

Investors are looking for businesses with:

• Scalable operations
• Global customer relationships
• Technology adoption
• Production reliability

A manufacturer may get a higher valuation than a rival, subject to frequent disruptions even if it has slightly lower margins but a more robust supply chain.

The Losers: Sectors Facing Structural Valuation Pressure

Consumer Discretionary: Demand Visibility Challenges

Consumer firms are highly vulnerable to shifts in consumer behavior, inflation, and uncertainty.

Consumers prioritise necessary spending above frivolous items under protracted geopolitical unpredictability. This may influence valuation multiples and revenue visibility.

However, the impact of valuation is dependent on the strength of the company. Companies may recover more quickly than those without differentiation, if they have strong brands, pricing power, and loyal customers.

Import-Dependent Manufacturers: Supply Chain Risk and Margin Pressure

Businesses dependent on imported components, raw materials, or concentrated suppliers can face valuation challenges during periods of disruption.

Higher logistics costs, currency movements, and procurement uncertainty can affect profitability expectations.

Supply chain disruption valuation consideration becomes important at this stage. A company’s operational flexibility, supplier diversity, and alternative sourcing strategies are becoming more and more important for investors.

Businesses that evolve their supply chains and can navigate disruptions are able to maintain higher valuations, whilst those who are unable to do so may face pressure for a longer time.

Tourism and Hospitality: Recovery Depends on Visibility

Global mobility, economic conditions, and consumer confidence have a major effect on the tourism and hospitality industries.

A short-term drop doesn’t mean a permanent drop in value. Investors can identify the difference between temporary disruption and structural weakness.

The valuation impact depends on whether the business has the ability to recover demand and maintain profitability over time.

The India Angle: Friend-Shoring, China+1, and Manufacturing Re-Rating

India is increasingly positioned as a beneficiary of global supply chain diversification as companies adopt China+1 strategies.

This shift is creating opportunities for Indian companies operating in:

• Manufacturing of electronics
• Consulting services
• Auto parts
• Industrial production 
• Custom fabrication

The friend-shoring impact on manufacturing valuation is particularly evident as investors are valuing businesses based on their future strategic importance, not on current financial performance.

Valuation benefits are more likely to accrue to companies that are scalable, export capable, technologically savvy and operationally reliable.

The valuation conversation is moving from:

“Is this company profitable today?”

to:

“How strategically important can this company become in the future economy?”

 

What This Means If You’re a Promoter: Positioning Your Company’s Valuation Story

For promoters, a sector re-rating is an opportunity to strengthen the valuation story of the company.

However, being in a high-growth sector is not enough in itself to justify a premium valuation. Investors want evidence that the company can transform industry tailwinds into long-term growth.

Businesses may improve their valuation positioning by focusing on:

1. Resilience: the ability of the company to navigate uncertainty and continue its operations
2. Strategic significance: how the company is supporting a vital industry or supply chain
3. Visibility of the growth: if future opportunities are supported by market demand
4. Risk management: how well the company manages operational and financial risk

A defensible valuation links today’s performance to tomorrow’s opportunity.

Second-Order Effects: What Most Analysts Are Missing

During geopolitical uncertainty, the biggest valuation changes occur beyond the obvious winners.

Defence and energy get the headlines, but there are a lot of industries that are impacted due to broader change in capital allocation.

Governments and investors are increasingly focused on sectors that are related to national security, infrastructure, manufacturing capability and technology independence.

This creates policy-driven valuation premiums for companies that are aligned with long-term strategic priorities.

The change also impacts private companies. For start-ups and mid-sized firms, the ability to raise funds is increasingly being assessed on the basis of resilience, market relevance and strategic positioning.

The future valuation question is becoming:

Not only “How much revenue does this company generate today?”

But also:

“Why will this company matter in the future economy?”

Conclusion: Why Sector Re-Rating Matters for Business Valuation

The war economy alters the way markets perceive value. The greatest impact is not just on stock prices, but also in the ways investors think about risk, opportunity and long-term potential.

Sector valuation during war environment tells us that industries can have significant change in valuations based on strategic importance, resilience of supply chain and visibility of future growth.

Structural tailwinds may benefit defence, energy, manufacturing and technology companies, while companies with demand uncertainty or operational risk exposure may have negative effect on their valuation.

For CFOs, CXOs and startup promoters, it is important to understand these changes because valuation is no longer just a reflection of financial performance. It is a sign of future relevance.

ValAdvisor helps companies understand the changing valuation drivers and build stronger valuation narrative, in sync with investor expectations and long-term value creation.

Frequently Asked Questions (FAQs)

1. How does a war economy impact company valuation?

A war economy changes company valuations by changing investor expectations of growth, risk and future cash flows. Companies exposed to uncertainty may come under pressure on valuation, whereas firms operating in strategically important sectors may be given higher valuation multiples.

2. Which sectors lose valuation in prolonged conflict?

The sectors which lose valuation in a prolonged conflict are those with high exposure to demand weakness, supply disruption and cost pressures. A continuation of uncertainty could put valuation pressure on the consumer discretionary, import-reliant manufacturing and tourism sectors.

3. Why do defence companies receive higher valuation multiples?

Defence companies often receive higher valuation multiples because they benefit from government contracts, predictable demand, and strategic importance. The defence sector valuation premium is influenced by revenue visibility, technology capability, and long-term procurement programs.

4. How does supply chain disruption affect valuation?

Supply chain disruption affects valuation by influencing revenue predictability, margins, and perceived business risk. Companies with diversified sourcing and resilient operations may receive stronger valuation outcomes.

5. How does friend-shoring influence manufacturing valuations?

Friend-shoring has an impact on manufacturing valuation as companies become strategically important in the restructuring of the global supply chain. The reliable manufacturers with strong production capacity and global customer relations may get boost in investor confidence.