The recent rally in defence stocks on Dalal Street has paused, with shares dropping due to profit booking and concerns over elevated valuations. This pullback follows a significant surge that pushed many defence companies to record highs.
Shares of Paras Defence and Cochin Shipyard fell over 6% each, while the Nifty India Defence index dropped about 1.4% by mid-morning. This marked the second consecutive day of declines after weeks of strong gains.
Since February, the defence sector’s total market value soared nearly 50%, reaching around Rs 11.2 lakh crore by mid-May. This rally was largely fueled by optimism around ‘Operation Sindoor’—a government push to boost indigenous defence manufacturing—and increased investor interest in India’s local defence production capabilities.
Looking back further, the Nifty Defence index saw an impressive 350% rise between July 2022 and July 2024, before slipping 38% by February 2025 amid cautious market sentiment. The launch of Operation Sindoor reinvigorated the sector, sparking renewed gains in recent months.
Kranthi Bathini, Equity Strategist at WealthMills Securities, noted the pace and scale of the rally has been unusually sharp:
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Defence stocks have surged 30-40% on average recently, leading to profit booking in the medium to short term.
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The sector has gained 40-50% from recent lows in just the past two weeks, entering a phase of consolidation.
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Bathini advises short-term investors to book profits now, but highlights that the long-term outlook remains bullish due to strong order books and earnings visibility.
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He suggests long-term investors hold their positions, and view any dips as buying opportunities.
In summary, while short-term profit-taking is causing some weakness in defence shares, the underlying fundamentals and government support point to a positive long-term trajectory for the sector. Investors who have benefited from the recent rally might consider taking some profits, but the consensus remains that defence stocks are well-positioned for sustained growth over the coming years.
