Defence stocks extend losses to third day on profit-booking; GRSE, Cochin Shipyard, BDL fall up to 4%

The shares of defence companies dropped in trade on July 14 as investors continued to book profits at elevated levels. The sharp fall in the share prices pushed the Nifty India Defence index down over 0.6 percent to hover around 8,457.70 in the afternoon, extending losses for the third consecutive session.

The defence stocks saw significant rally earlier this year, but analysts now flag high valuations. The shares of the companies came in focus on hopes of higher order inflows, after the Indian military conducted targeted strikes against terrorist outfits in Pakistan under the codename 'Operation Sindoor' in May. As the geopolitical tensions between India and Pakistan eased, the escalations in Russia-Ukraine war continued to support the rally in defence stocks. The rise in tensions between Israel and Iran further boosted the stocks.

However, as geopolitical tensions around the globe continue to ease, the defence stocks declined.

Garden Reach Shipbuilders & Engineers (GRSE) shares were the top loser on the index, dropping nearly 4 percent to trade at Rs 2,698 apiece. Fresh shareholding data released by the company points to a shift in investor sentiment during the April-June quarter. Retail participation saw a noticeable dip, with the number of small shareholders — those holding shares with up to Rs 2 lakh in value — declining to 3.97 lakh from 4.04 lakh in the March quarter. In percentage terms, retail investor ownership fell to 14.89 percent from 16.72 percent previously.

Domestic mutual funds also trimmed their exposure slightly. Their collective holding dropped to 1.4 percent in June, down from 1.64 percent in March. Notably, HDFC Mutual Fund, which featured among shareholders in the March quarter, no longer appears in the list — indicating that its stake has slipped below the 1 percent threshold.

GRSE shares have now fallen over 12 percent in the past one month, after rallying nearly 88 percent in the past six months.

Cochin Shipyard shares followed, dropping nearly 3 percent. Zen Technologies shares declined over 2 percent, while Paras Defence and Mazagon Dock Shipbuilders shares were down nearly 2 percent each.

Additionally, Brazil has reportedly halted negotiations with India to acquire the Akash missile system. According to a report by CNN Brazil, the country is now negotiating a $920 million deal with European defence company MBDA for its Enhanced Modular Air Defence Solutions (EMADS).

Akash missiles are manufactured by Bharat Dynamics (BDL), with key component and systems being developed by Bharat Electronics (BEL). BDL shares fell over 1 percent, while BEL shares were trading in the red with marginal losses.

Bucking the trend, BEML and Astra Microwave shares gained over 1 percent, while Data Patters and Hindustan Aeronautics (HAL) shares were trading in the green with marginal gains.

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"The recent weakness in defence stocks is neither surprising nor alarming. Historically, the sector has witnessed sharp 15–20% corrections following steep multi-month rallies—a pattern that has repeated across multiple market cycles. What’s unfolding now is likely a healthy mean reversion, not a breakdown in fundamentals," said Harshal Dasani Business Head, INVasset PMS.

"Over the past year, India’s defence sector has been propelled by strong structural tailwinds: indigenisation, rising exports, NATO-linked demand spillovers, and a record-high order pipeline estimated at Rs 16 lakh crore. FY24 alone saw defence exports hit a record ₹21,000 crore, rising nearly 32% year-on-year, while ‘Make in India’ initiatives helped lift the self-reliance ratio to around 65%. Such a backdrop supports sustained institutional interest. But markets move in waves—profit-booking after 60–80% rallies over three to six months is a natural phenomenon. In our view, this pullback offers an opportunity for disciplined investors, especially as Q2 and Q3 may bring execution progress on delayed defence orders and fresh export contracts," he added.

Dasani however noted that the structural thesis remains intact — India is transitioning from a net importer to a credible global supplier in the defence ecosystem. "Temporary corrections should be seen in this broader context, not mistaken for trend reversals," he said.

Defence stocks are currently seeing some profit-taking after a sharp rally driven by rising geopolitical tensions and India’s thrust on domestic defence manufacturing, said Ajit Mishra, SVP of Research at Religare Broking. "While near-term volatility is expected due to stretched valuations, the long-term structural story remains intact. With defence spending set to rise and strong policy support in place, the sector offers solid potential. However, investors should stay selective—focusing on companies with strong financials, robust order books, and proven execution. Chasing short-term momentum may be risky, but fundamentally sound defence stocks remain attractive for long-term portfolios," he said.Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.