Shares of defence companies fell sharply on June 24, snapping a two-day rally, as easing geopolitical tensions in West Asia prompted profit booking by investors.
The decline came after US President Donald Trump said a ceasefire agreement has been reached between Israel and Iran, signalling a possible end to the recent flare-up in the region. The statement also led to a drop in global crude oil prices and reduced concerns over a wider conflict.
Vishnu Kant Upadhyay, AVP - Research & Advisory, Master Capital Services, noted that despite this short-term correction, the long-term outlook for the Indian defence sector remains structurally positive, supported by the government’s commitment to increasing defence expenditure to 3–4% of GDP and achieving export targets of Rs 25,000 crore by FY26.
"Going forward, investors are advised to track geopolitical cues carefully, as further clarity will determine whether the current weakness is a temporary pause or the beginning of a deeper retracement. Additionally, valuations across the sector appear elevated, warranting a cautious approach in the near term," he added.
The pullback highlights the market’s sensitivity to geopolitical developments, with easing tensions dampening near-term expectations for accelerated defence spending and fresh order flows.
The Nifty India Defence index, which had gained over 4 percent between June 20 and 23 amid rising tensions between Israel and Iran, was down down 2.2 percent in June 24 session. Investors had earlier bet on higher defence spending and increased order flows to Indian companies in the event of prolonged conflict.
On Tuesday, 17 of the 18 constituents of the index traded in the red. Cyient DLM was the sole gainer, rising over 1 percent.
Among major losers, shares of Garden Reach Shipbuilders & Engineers slumped 6.92 percent to an intraday low of Rs 3,251 on the NSE. BEML and Mishra Dhatu Nigam declined 6.07 percent and 5.35 percent, respectively.
Other notable laggards included Astra Microwave Products, Paras Defence and Space Technologies, Zen Technologies, Bharat Dynamics and Data Patterns (India), which fell between 2 percent and 5 percent.
Heavyweights such as Cochin Shipyard, Hindustan Aeronautics, Mazagon Dock Shipbuilders and Bharat Electronics also lost ground, slipping up to 3 percent.
Tarun Singh Founder & MD, Highbrow Securities, said "The recent correction in defence stocks triggered by easing Middle East tensions reveals a deeper, often ignored truth. This sector’s performance is as much about market psychology as it is about fundamentals. While emergency orders and conflict-driven demand can spark rapid rallies, they also inflate valuations beyond sustainable levels, leaving stocks vulnerable to sudden downturns when headlines shift. Investors are realizing that defence stocks aren’t just a straightforward play on India’s Atmanirbhar Bharat push; they’re also a high-beta trade on global instability. The sharp sell-off indicates a market reassessing whether these stocks are truly priced for long-term growth or merely riding a wave of speculative fervor. This volatility underscores the sector’s dual nature; a mix of structural promise and short-term unpredictability."
"Yet, for discerning investors, this turbulence opens a strategic window. The long-term case for defence remains robust, fueled by rising domestic procurement, modernization budgets, and India’s ambitions to become a defence export hub. Companies with strong execution capabilities, like Data Patterns, could emerge stronger post-correction. However, given the sector’s sensitivity to geopolitical shocks and policy delays, a selective approach is crucial. Diversification into more stable sectors may help balance risk, while staggered accumulation in high-quality defence names could capitalize on irrational sell-offs. The key takeaway? Defence investing demands patience, a stomach for volatility, and a clear-eyed view of what’s priced in; beyond the hype of war and peace cycles. The recent pullback serves as a timely reminder that sustainable returns come not from chasing momentum, but from disciplined valuation and a clear-eyed view of long-term fundamentals," he added.
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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