Shares of defence companies including Garden Reach Shipbuilders & Engineers (GRSE), Bharat Dynamics Ltd (BDL) and Mazagon Dock Shipbuilders among others came under pressure on Wednesday, falling up to 5 percent amid profit-booking.
The Nifty Defence index, which had gained over 1 percent in the previous session, erased all the gains today, making it one of the top sectoral losers.
Seventeen of the 18 constituents in the index traded in the red, with Cyient DLM being the sole gainer, rising more than 3 percent during the session.
Analysts have cautioned that while the sector continues to benefit from structural tailwinds, healthy order books and capacity expansion, the sharp rally in defence stocks has stretched valuations, warranting a more measured approach.
Defence stocks call for optimism -- with a bit of caution
DCX Systems was the worst performer in the pack, shedding over 5 percent. Zen Technologies and Dynamatic Technologies also declined sharply, falling up to 4.7 percent.
Among other major losers, GRSE dropped 4.15 percent, Data Patterns (India) fell 3.53 percent, and BDL declined 3.47 percent.
Mazagon Dock Shipbuilders and Cochin Shipyard were down between 2.6 percent and 2.7 percent.
The defence index had rallied nearly 42 percent since the beginning of April, driven by expectations of strong order inflows and improved execution. The gains were supported by geopolitical tensions, including the India-Pakistan situation, the ongoing Russia-Ukraine conflict and increased defence spending by European countries amid fears of further Russian aggression.
Investor sentiment received an additional boost last month after the defence ministry cleared the Execution Model for the Advanced Medium Combat Aircraft (AMCA) programme. The model allows both public and private players to compete for defence contracts on equal footing, leading several defence stocks to scale fresh highs.
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