Bharat Dynamics, GRSE, HAL, other defence stocks decline up to 3%: Here are the likely triggers

Shares of major Indian defence companies including Bharat Dynamics Ltd (BDL), Garden Reach Shipbuilders & Engineers (GRSE), and Hindustan Aeronautics Ltd (HAL) witnessed a sharp decline of up to 3% in intraday trading on Wednesday. The fall came amid a broader market consolidation, rising geopolitical concerns, and investor profit-booking after a sustained rally in defence sector counters over the past few months.

Key Stock Movements

• BDL fell by 2.7% to ₹1,426.75 on the NSE

• HAL declined 2.5% to ₹4,158.30

• GRSE dipped 3% to ₹930.50

• Cochin Shipyard was also down 2.1%

• BEL (Bharat Electronics Ltd) shed 1.8%

This decline comes after these stocks had delivered significant gains year-to-date, with most outperforming the Nifty Defence index and broader market indices.

What’s Triggering the Dip?

1. Profit Booking After a Strong Rally

Market participants attribute the current fall to profit booking. Defence stocks had seen a sharp rally since January 2025, largely driven by strong order inflows, the government’s “Make in India” defence push, and export orders from friendly foreign nations. For instance, HAL had rallied nearly 45% over the past six months, while BDL was up over 38% before today’s correction.

“Many investors are now cashing out to lock in profits, especially as valuations start to look stretched in certain names,” said Rahul Sen, senior research analyst at JM Financial. “This is a healthy correction, not a structural reversal.”

2. Delay in Big-Ticket Defence Approvals

Reports suggest that some expected approvals for large defence procurement projects might be deferred to Q3 FY26, possibly due to post-election budget realignments and changes in policy focus. This could delay revenue realization for some public sector defence companies.

“There is some near-term nervousness around visibility of order execution timelines,” said Sonal Mehta, a defence sector analyst at ICICI Securities. “Investors are reacting to the slight slowdown in policy decisions after the new cabinet formation.”

3. Weak Global Cues and Rising US Bond Yields

Global equity markets, including defence peers in Europe and the US, are under pressure as US bond yields rise, reducing risk appetite across emerging markets. Concerns around US-China tensions and a sluggish outlook in global defence budgets are also weighing on sentiment.

Additionally, the upcoming US Fed commentary on interest rates has made investors cautious across sectors that have already priced in substantial growth.

Analyst Commentary

Despite the short-term volatility, most analysts remain constructive on the sector’s long-term outlook.

“India’s defence capex is expected to grow at a CAGR of 8-10% over the next five years. The government’s commitment to indigenous production and strategic exports remains intact,” said Rajat Kapoor, Head of Research at Motilal Oswal Financial Services.

“Defence PSUs offer predictable cash flows, strong order books, and are beneficiaries of a shift towards Atmanirbharta in defence,” noted Preeti Sharma, defence analyst at HDFC Securities. “But the recent rally has made some names vulnerable to tactical corrections.”

Market Context

The broader Nifty 50 traded flat around 25,570, while the Nifty Defence index was down 1.9% in intraday trade. The pullback in defence names is seen as sector rotation, with investors moving into banking and infra names ahead of the upcoming earnings season.

Foreign institutional investors (FIIs), who had turned net buyers in June, are also seen to be cautious this week, potentially rebalancing portfolios amid global cues.

Investor Outlook: Correction or Trend Reversal?

For long-term investors, analysts advise using the dip to accumulate high-quality defence stocks with robust order books and low debt levels.

“We continue to like HAL and BEL for their consistent earnings trajectory, export potential, and favourable government policy tailwinds,” said Amit Pathak, Fund Manager at Axis Mutual Fund. “Volatility will remain, but the structural story is unchanged.”

Brokerages such as Nuvama, Kotak Securities, and Axis Direct have maintained their “buy” or “accumulate” ratings on select defence names despite the current slide.

The drop in defence stocks like BDL, GRSE, and HAL reflects short-term headwinds rather than a change in long-term fundamentals. As India continues to prioritize defence self-reliance and export capability, public-sector defence companies remain central to that strategy. Investors should view the current pullback as an opportunity for selective accumulation rather than panic selling.