Defence stocks extend losses to third day on profit-booking; GRSE, Cochin Shipyard, BDL fall up to 4%

Mumbai, July 14, 2025 — Shares of India’s leading defence sector companies declined for the third consecutive session on Monday as investors continued to book profits following a stellar rally in recent weeks. Key defence stocks such as Garden Reach Shipbuilders & Engineers (GRSE), Cochin Shipyard, and Bharat Dynamics Limited (BDL) witnessed intraday losses of up to 4%, underperforming broader market indices.

Heavy Profit-Booking Hits Sector Leaders

The defence sector has been on a prolonged bull run driven by strong order inflows, increasing budget allocations, and rising exports. However, recent sessions have seen a reversal in sentiment as traders opt to cash in on gains. GRSE dropped 3.9% to ₹1,445, Cochin Shipyard fell 3.6% to ₹2,190, while BDL declined 2.8% to ₹1,415 on the NSE by market close.

Other notable losers in the space included Hindustan Aeronautics Ltd (HAL), which fell 2.2%, and Mazagon Dock Shipbuilders, which slipped 2.9%. The Nifty Defence index, a proxy for the sector, shed 2.5%, compared to a 0.3% decline in the benchmark Nifty 50.

Recent Rally Prompted Valuation Concerns

Analysts attributed the ongoing selloff to profit-booking triggered by concerns over stretched valuations. Defence stocks have rallied anywhere between 40% and 80% over the past six months, outpacing most other sectors.

“Defence stocks have had a dream run, supported by strong fundamentals and sector tailwinds. But in the short term, valuations were running ahead of earnings,” said Anirudh Nair, Senior Research Analyst at Kotak Securities. “The current correction is a healthy sign and may provide long-term investors with better entry points.”

Strong Fundamentals Intact, Say Analysts

Despite the correction, the long-term fundamentals of the defence sector remain robust. India’s focus on indigenisation, export push, and Make in India policies continue to drive order flows.

Cochin Shipyard recently secured a significant export order for the construction of high-speed vessels, while GRSE reported a record order book exceeding ₹30,000 crore. BDL, a key missile system manufacturer, has been shortlisted for several strategic defence contracts in both domestic and international markets.

“The recent dip should not be mistaken for a reversal in trend,” noted Ritika Bansal, Defence Sector Strategist at HDFC Securities. “Global geopolitical tensions and India's ambition to become a defence export hub will continue to provide structural support to the sector.”

Broader Market Sentiment Mixed

The broader markets remained subdued on Monday as investors turned cautious ahead of key macroeconomic data releases including CPI inflation and industrial production figures. The BSE Sensex fell 210 points to end at 75,620, while the Nifty 50 declined 58 points to 22,990.

Meanwhile, sectors such as IT and FMCG gained marginally as investors rotated funds away from overheated sectors like defence, realty, and capital goods.

Retail Participation & F&O Activity Elevated

Retail investor participation in defence counters remains high, particularly in stocks like Mazagon Dock and Cochin Shipyard. However, derivatives data indicate rising short positions in select counters.

“We’re seeing elevated open interest and rising put-call ratios in BDL and GRSE, indicating short-term bearish sentiment,” said Amit Goel, Head of Derivatives Research at ICICI Direct. “Unless there is fresh trigger-based buying, the sector may consolidate further in the coming sessions.”

Investor Outlook: Cautious Optimism

While short-term volatility may persist, institutional investors appear to remain bullish on the sector. Domestic mutual funds and sovereign funds have increased their stake in select defence stocks over the last two quarters.

For retail investors, experts advise a staggered approach.

“Avoid chasing momentum. The recent correction offers a good opportunity to accumulate quality defence stocks with long-term prospects,” advised Ramesh Singh, Portfolio Manager at Motilal Oswal AMC. “Look for companies with a strong order backlog, export potential, and execution capability.”

The correction in defence stocks reflects a broader recalibration after an extended rally. While valuations may cool in the near term due to profit-booking, the secular growth story driven by policy support, global tailwinds, and indigenous manufacturing remains intact. Investors are advised to focus on fundamentals and adopt a patient approach amid short-term volatility.