Defence index falls 2.5% on Tejas crash, Russia-Ukraine peace talks; Mishra Dhatu Nigam, BEML lead losses

The two sides said in a joint statement they had drafted a "refined peace framework" after talks in Geneva on Sunday, although they did not provide specifics. The White House separately said the Ukrainian delegation had told them it "reflects their national interests" and "addresses their core strategic requirements”.

The initial 28-point proposal put forth by US last week called on Ukraine to cede territory, accept limits on its military and abandon its plans to join NATO. Those terms would amount to capitulation for many Ukrainians after nearly four years of fighting in Europe's deadliest conflict since World War II.

European allies said they were not involved in developing the original plan, and they released a counter-proposal on Sunday that would ease some of the proposed territorial concessions and include a NATO-style security guarantee from the United States for Ukraine if it is attacked. Notably, Europe's defence stocks extended their fall Monday. Shares of German defence company Rheinmettal fell 4 percent, and Renk and Hensoldt fell 3 percent each. Shares of Swedish company Saab AB dropped over 2 percent. Overall, the Stoxx 600 Aerospace and Defense Index was about 1 percent lower.

The latest developments increased hopes for Russia and Ukraine concluding its much-awaited peace deal, putting an end to the war. These would likely act as a negative for defence stocks.

What analysts say:

"India's defence cycle is structurally driven—order books across major manufacturers remain robust, with multi-year visibility backed by indigenous procurement, rising exports, and the government’s push for self-reliance,” Sajee said, adding that a single accident does not materially alter long-term demand for fighter platforms, especially when HAL’s broader pipeline, including upgrades and export opportunities, remains intact.

“The proposed peace plan may ease global supply pressures, but it does not diminish India’s capex commitments, which continue to rise across aerospace, missiles, naval systems, and electronics. In the near term, defence stocks may see downward pressure, but the medium-term outlook stays strong, supported by execution visibility and policy continuity,” the analyst concluded.

Following the Tejas fighter plane crash at the Dubai Air Show, Indian defense equities suffered a significant setback that resulted in a strong sell-off across important sector names, said Nitin Jain, Senior Research Analyst at Bonanza, who noted that the fall in defence stocks indicates a general apprehension over possible harm to India's domestic defense capabilities.

"This sentiment-driven action emphasizes that there is currently no proof of a systemic design problem in the Tejas program. To ascertain if the setback is an isolated incident or reveals more serious problems, the market's immediate attention is still on the crash investigation's findings. Longer-term support is provided by India's policy push for defense indigenization and HAL's strong order book, which includes recent significant Tejas contracts, notwithstanding the volatility. The impact on the basics of the defense sector is anticipated to be transient unless the investigation uncovers serious issues. However, until technical clarity is achieved, short-term risk perception and export prospects will continue to be closely examined," he said.

India is an emerging defence exporter, with exports reaching a record high of Rs 23,622 crore (approximately $2.8 billion) in the financial year 2024-2025. India now exports to over 85 countries, including Russia.

"A peace deal between Russia and Ukraine would probably cause a short-term drop in Indian defence stocks as investors shift their focus away from conflict-driven industries and the war premium diminishes. Due to rising international defense spending and the perceived requirement for military readiness, Indian defense equities like Bharat Dynamics Ltd., Hindustan Aeronautics Ltd., and Bharat Electronics Ltd. have historically outperformed the market during times of elevated geopolitical tension. However, as peace chances improve, these companies usually experience a 3% decline as profit booking and risk-off attitude take hold," he added.

Jain however noted that India's ambitious goals for defence indigenization and exports, strong policy support from 'Atmanirbhar Bharat' initiatives and healthy order pipelines will contribute to the positive prognosis for Indian defense equities. "The negative consequences of lowering international tensions are probably going to be countered by domestic demand and ongoing government emphasis on military modernization. Therefore, it is anticipated that the long-term development trajectory of Indian defense stocks, which is fueled by localization and structural reforms, will remain intact even though a peace agreement would limit speculative upside and maybe curb short-term gains," he said.

"The Tejas crash and headlines around a potential Russia–Ukraine peace deal are clearly weighing on investor sentiment, triggering short-term volatility in defence stocks. But structurally, the narrative hasn’t changed — India’s defence manufacturers continue to benefit from strong order books, indigenisation policies, and export ambitions. While risk perception is elevated now, these are strategic, long-duration plays. If HAL and peers deliver on execution and communicate clearly, this phase may end up being a buying opportunity rather than a lasting drag on valuations," said Siddharth Maurya, Founder & Managing Director, Vibhavangal Anukulakara.

Top defence losers:

BEML, GRSE and Astra Microwave Products shares fell around 4 percent each, while Bharat Electronics (BEL) shares closed more than 3 percent lower to emerge as the top Nifty 50 loser.

Hindustan Aeronautics (HAL) shares closed more than 3 percent lower at Rs 4,443 apiece. Earlier during the day, the stock tumbled as low as 9 percent to its day’s low on BSE. Analysts however say that the shares of Hindustan Aeronautics (HAL) still hold strong upside potential despite seeing some short-term volatility after the Tejas fighter crash in Dubai last week.

Solar Industries and Zen Technologies shares fell nearly 3 percent each, while Bharat Dynamics (BDL), Paras Defence and Mazagon Dock Shipbuilders shares fell more than 2 percent each. Cochin Shipyard shares were down over 1 percent.

Follow all LIVE updates from the stock markets here.

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.