Defence stocks crashed in early trade on Tuesday on profit booking at higher level following between Israel and Iran.

Despite the upward momentum of equity benchmark indices, Nifty defence index shed over 2 per cent on Tuesday to close at 8850 level. The broader marker indices ended with marginal gains, Sensex was up 158 pts and Nifty 50 72.45 pts.

Shares of Garden Reach Shipbuilders Ltd (GRSE) slumped 8.80 per cent to ₹3,185.10 on the BSE.

BEML followed with 7.05 per cent depreciation to ₹4,449.60. Mishra Dhatu Nigam Ltd (Midhani) ended 5.35 per cent lower at ₹438.90.

Paras Defence,Astra Microwave, Bharat Dynamics, Zen Technologies and Data Patterns tanked 3-5 per cent.

Additionally, Cochin Shipyard, HAL, and Mtar Technologies declined close to 3 per cent, while Unimech, DCX Systems and Mazagon Dock dropped by 2 per cent.

BEL and Solar Industries closed flat.

Kunal Kamble, Sr. Technical Research Analyst at Bonanza, noted that the sector rallied approximately 45.43 per cent since April 2025, significantly outperforming the Nifty 50, which has gained only around 9 per cent during the same period.

“This clear outperformance was fueled initially by the India-Pakistan conflict, followed by strong expectations that the upcoming budget will include a record-high allocation to the defence segment—leading to sentiment-driven buying across the sector,” Kamble added/

“Despite the strong uptrend, the sector appears to be showing signs of exhaustion. In today’s early session, the Nifty Defence Index corrected by around 2 er cent.”

Investors are realising that defence stocks are not just a straightforward play on India’s Atmanirbhar Bharat push; they are also a high-beta trade on global instability, stressed, Tarun Singh, MD and Founder, Highbrow Securities.

However, the long-term case for defence remains robust, fuelled by rising domestic procurement, modernisation 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, Singh added.

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

A latest report by InCred Equities highlighted that defence sector plays a pivotal role in ensuring national security and sovereignty, driven by the strategic oversight of the Ministry of Defence.

InCred Equities estimated the defence budget to grow by 10 per cent y-o-y in FY27, driven by rising geopolitical pressure, particularly in the Indo-Pacific region and along India’s borders with China and Pakistan.

The private sector has also played a pivotal role, particularly in exports, with its share in defence exports rising from 13 per cent in 2016-17 to 62 per cent in 2023-24. Total defence exports have skyrocketed at an annual growth rate of 46 per cent, reaching ₹210.83 billion in 2023-24, driven by items like missiles, radars, and armoured vehicles exported to over 85 countries, it added.

It also emphasised that defence exports are relatively very low, a mere 0.2 per cent to global exports in 2020-24, but there is a headroom for growth.

InCred bullish on BEL, HAL

It said, among the defence public sector undertakings (DPSUs), Hindustan Aeronautics (HAL) and Bharat Electronics (BEL) stand out as the leading contributors, collectively accounting for 50 per cent of the total production.

InCred assigned add rating at a target price of ₹6,325 on HAL, emphasising it as a clear beneficiary of indigenisation with robust growth.

BEL’s proven execution as a battle-tested leader with strong order pipeline makes it a compelling buy at a target price of ₹459, it said.

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Published on June 24, 2025