Paras Defence, BEL, GRSE tumble up to 8% as profit booking drags defence stocks

India’s defence stocks declined on Monday amid profit booking and subdued broader market sentiment, following a sustained rally that had positioned the sector among the market’s top performers in recent months. The Nifty India Defence index dropped 1.5%, signalling a potential pause in momentum.

Paras Defence and Space Technologies led the slide, tumbling 8%. Garden Reach Shipbuilders & Engineers fell 2.7%, Bharat Electronics and Bharat Dynamics each declined 2.5%, while Zen Technologies and Astra Microwave Products lost 2.2% and 2.3%, respectively.

Meanwhile, a handful of stocks managed to stay in the green. DCX Systems, Unimech Aerospace and Manufacturing, BEML, Cyient DLM, and Hindustan Aeronautics (HAL) were the only gainers in the Nifty India Defence index.

The sell-off comes on the heels of a stellar six-month performance, with the defence index returning 34.82%, far outpacing the Nifty’s 5.49% gain. In comparison, sectors like IT and pharma declined 12.18% and 6.43%, respectively, over the same period.

A large part of this rally was led by state-owned defence majors like HAL, BEL, and BDL, buoyed by robust order books, healthy execution, and margin expansion.

“PSU defence companies like HAL, BEL, and BDL have reported healthy order books, margin expansion, and earnings growth. Additionally, heightened geopolitical tensions have further increased interest in the sector, both domestically and globally,” said Sagar Shinde, VP of Research at Fisdom.

Retail interest fuels fund performance

The sector’s performance has translated into strong returns for mutual funds focused on defence. Over the past three months, defence-themed funds have delivered returns of up to 39%, with the category average at 36.98%.

The Motilal Oswal Nifty India Defence ETF gained 38.58%, followed closely by the Groww Nifty India Defence ETF FOF (38.32%) and Groww Nifty India Defence ETF (38.48%). The HDFC Defence Fund, the only actively managed fund in the category, posted a 30.04% return.

Despite the gains, financial advisors urge caution. “These sectors often experience cyclical performance and require timely entry and exit to capitalize on momentum, which can be difficult for most investors to navigate. Chasing current momentum in such sectors is not advisable,” said Hrishikesh Palve of Anand Rathi Wealth.

Export potential and global cues support outlook

Indian defence manufacturers are also drawing strength from the global backdrop. A recent NATO pledge to increase defence spending over the next decade is seen as an opportunity for Indian exporters, particularly those integrated into international supply chains.

India’s target of reaching Rs 5,000 crore in defence exports by 2025, backed by bilateral deals across Africa, Southeast Asia, and the Middle East, has further bolstered confidence in the sector’s long-term potential.

Valuations stretched, say analysts

Still, some analysts warn that the sector may be entering a phase of consolidation. “The optimism around future order wins, export growth, and policy tailwinds may already be priced in,” said Palve. “A phase of mean reversion would not be surprising.”

As of mid-2025, India’s defence sector remains supported by strong fundamentals, policy push, and investor interest. But with valuations running high, Monday’s decline may signal the start of a more cautious phase for this once-red-hot theme.

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