Defence Stocks Remain Under Pressure Amid Profit Booking
Defence stocks continued to face selling pressure for the third consecutive session on Tuesday, even as analysts maintained a constructive medium-term view on the sector. The Nifty Defence index fell around 1.5 percent during the session, taking its three-day cumulative decline to over 2 percent, reflecting broad-based profit booking after a strong rally earlier in the year.
Out of the 18 stocks in the Nifty Defence index, as many as 16 were trading in the red, underscoring the widespread nature of the correction. Market participants attributed the weakness largely to valuation concerns and short-term positioning, rather than any deterioration in sector fundamentals.
A senior market strategist said, “This is more of a consolidation phase after a sharp run-up. The sector has delivered strong returns, so some cooling off was inevitable.”
Mazagon Dock, Solar Industries Lead the Decline
Among individual stocks, Mazagon Dock Shipbuilders emerged as the top laggard, slipping as much as 4 percent. Solar Industries India declined around 3.5 percent, while Data Patterns (India) fell close to 3 percent during the session.
Other defence names also traded lower, mirroring the broader trend in the index. Analysts pointed out that many of these stocks had witnessed sharp re-rating over the past year, making them vulnerable to near-term profit booking amid volatile market conditions.
Despite the recent correction, most defence stocks remain well above their long-term averages, reinforcing the view that the current decline is technical rather than structural.
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DAC’s Rs 79,000–80,000 Crore Approvals Support Long-Term Visibility
The near-term weakness in defence shares stands in contrast to the strong policy and order visibility signals from the Defence Acquisition Council (DAC). On December 29, 2025, the DAC accorded Acceptance of Necessity (AoN) for procurement proposals aggregating around Rs 79,000–80,000 crore, covering upgrades, overhauls, and fresh procurement across key defence platforms.
Over the past few months, DAC approvals have cumulatively reached around Rs 3.30 lakh crore across the Army, Navy, and Air Force. These proposals span a wide range of categories, including:
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Missiles and air defence systems
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Electronic warfare and sensors
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Unmanned and autonomous platforms
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Naval shipbuilding and upgrades
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Mobility solutions and lifecycle maintenance
These approvals are seen as strengthening India’s defence indigenisation push and improving long-term revenue visibility for domestic manufacturers.
Analysts See Multi-Year Order Pipeline for Defence PSUs
Brokerage PL Capital highlighted that the scale and breadth of DAC approvals provide a strong foundation for multi-year order inflows. While AoNs do not immediately translate into contracts, they significantly reduce execution uncertainty over the medium term.
“We believe these AoNs provide strong multi-year order visibility, support higher localisation and private-sector participation, and improve execution and earnings visibility for domestic defence manufacturers,” PL Capital said in a note.
The brokerage added that recent approvals reinforce the medium-term defence capital expenditure pipeline and are likely to benefit both public sector undertakings (PSUs) and select private players across key sub-segments.
Stock-Specific Opportunities Emerging From Key Approvals
Analysts have also identified stock-specific beneficiaries from the latest round of DAC approvals. According to PL Capital:
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Long-range guided rocket ammunition for the Pinaka system is expected to benefit Solar Industries India
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Astra Mk-II air-to-air missile approvals are likely to support Bharat Dynamics and Bharat Electronics
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Incremental opportunities are expected across drones, radars, naval platforms, and Indian Air Force upgrades
These projects are aligned with India’s focus on domestic manufacturing, reducing imports, and strengthening strategic capabilities.
Motilal Oswal echoed similar views, noting that the approvals span munitions, missiles, air defence systems, surveillance and communication equipment, training systems, and naval support platforms.
Near-Term Volatility Versus Medium-Term Structural Growth
Motilal Oswal cautioned that while AoN approvals are a strong positive, they do not immediately convert into revenue. However, the brokerage stressed that the sheer scale of approvals materially de-risks order inflows over the next two to four years.
“While the AoN approvals do not immediately translate into order inflows, the breadth and scale of the approvals materially de-risk order inflows for key defence PSUs and select private players,” the brokerage said.
This distinction explains the current divergence between short-term stock performance and medium-term analyst optimism.
Why Defence Stocks May Consolidate Before the Next Leg Up
Market experts believe the defence sector could remain range-bound in the near term as investors reassess valuations and await actual contract awards. Rising market volatility, year-end positioning, and profit booking have added to the short-term pressure.
However, the long-term investment thesis remains intact, supported by:
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Sustained increase in defence capital expenditure
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Strong policy push for indigenisation
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Expanding private sector participation
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Multi-year visibility from DAC approvals
A defence sector analyst summed it up by saying, “Corrections like these are healthy. They reset expectations and offer better entry points for long-term investors.”
Investor Takeaway: Short-Term Pain, Long-Term Promise
For investors, the recent decline in defence shares highlights the importance of separating short-term market movements from long-term fundamentals. While near-term volatility may persist, analysts remain confident that defence PSUs and select private players are well positioned to benefit from India’s expanding defence procurement pipeline.
As execution picks up and orders are finalised, market participants expect the sector’s earnings trajectory to reassert itself, potentially reviving investor interest after the current phase of consolidation.
