Defence stocks recorded strong losses on June 25, as the possible ceasefire between Iran and Israel dampened investors' hopes for higher order inflows. The sharp fall in the share prices pushed the Nifty Defence index down over 1.2 percent, extending losses for the second consecutive session.
Data Patterns shares plunged nearly 4 percent to trade at Rs 2,818 apiece. Paras Defence shares followed, dropping over 3 percent to trade at Rs 1,597 apiece. Zen Tech shares meanwhile fell over 2 percent.
Garden Reach Shipbuilders & Engineers (GRSE) and Solar Industries shares tumbled around 1.8 percent each, while those of Bharat Electronics (BEL), Cochin Shipyard and Mazagon Dock Shipbuilders were trading over 1 percent lower each. BEL is currently the top loser on the Nifty 50 index.
Hindustan Aeronautics (HAL), DCX India and Bharat Dynamics (BDL) shares were trading in the red with marginal losses. Bucking the trend, BEML shares were trading in the green with marginal gains, while Cyient DLM shares were up more than 2 percent.
"The recent profit-taking in defense-related counters over the past two trading sessions can be attributed to news of a potential ceasefire between Iran and Israel, as these stocks had previously surged on news of escalating tensions," said Ajit Mishra, SVP of Research at Religare Broking.
He added that further profit-taking appears likely and would be considered healthy, given the significant rally in recent weeks. "Traders are advised to maintain strict stop-losses on their existing long positions and avoid adding to loss-making trades until clear signs of a reversal emerge," he said.
US President Donald Trump on June 23 announced that Israel and Iran have reached a "complete and total" ceasefire agreement. Iran initially discredited the claim, with Iran's Supreme Leader Ayatollah Ali Khamenei saying, "Those who know the Iranian people and their history know that the Iranian nation isn’t a nation that surrenders."
Israeli Prime Minister Benjamin Netanyahu later said on June 24 that his country has accepted the bilateral ceasefire with Iran after a proposal put forth by US President Donald Trump. Iranian President Masoud Pezeshkian then said that his country has successfully ended the war, and reportedly told Saudi Crown Prince Mohammed bin Salman that Tehran was ready to resolve differences with the US.
The defence stocks had seen significant surge earlier this month after the initial hostilities broke in the oil-rich Middle East, as investors expected the companies to see higher order inflows amid heightened geopolitical tensions. However, the latest ceasefire has likely dampened investor sentiment, and thereby leading to a fall in share prices.
Notably, analysts have flagged the high valuations in defence stocks for a long time, which have remained in focus since Operation Sindoor. "The sharp rally has brought valuation concerns, making near-term volatility likely. Investors should remain selective, focusing on companies with robust order books, sound financials, and strong execution. While the momentum may fluctuate, the long-term outlook for India’s defence sector remains structurally attractive in an increasingly uncertain global landscape," said Ajit Mishra, SVP, Research, Religare Broking.
Some analysts however still see defence stocks as an attractive investment opportunity. Harshal Dasani, Business Head of INVasset PMS, said that the recent fall shouldn't be linked to the fading war fears post ceasefire, as the recent rally was driven by structural shift in India’s defence ecosystem.
"This dip, then, is not the end of the story. It's a temporary blip. As I often say: 'Defence stocks didn’t rise because of war. They’re correcting now because of peace — and that makes it a buyable dip.' The correction may have come on the heels of geopolitical headlines, but the growth is being driven by strong order flows, Make in India momentum, and decades-in-the-making policy support," he added.
"Just look at the numbers. GRSE recently received a ₹25,000 crore order on top of its existing ₹25,000 crore book — while trading at a market cap of only ₹35,000 crore. Another ₹70,000 crore in orders is on the horizon. Mazagon Dock is reportedly in line for contracts worth ₹1 lakh crore. Cochin Shipyard could emerge a big beneficiary if India moves ahead with its third indigenous aircraft carrier — a strategic necessity. On the missile defence side, Bharat Dynamics’ Aakash system proved its mettle in intercepting UAVs and rockets, reducing the need for imports. Even with some delivery delays, HAL’s order pipeline remains strong. What we’re seeing is not a sentiment rally, but a long-term structural re-rating. With national security, indigenisation, and capital allocation all aligned — this sector is no longer just a tactical play. It’s turning into one of India’s biggest long-term investment themes," he said.
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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.
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