High valuations and cooling geopolitical tensions trigger profit booking in defence stocks; Nifty India Defence index falls 1.8%

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BDL, Data Patterns, HAL Among Top Losers Sector Outlook Turns Cautious as Valuations Peak Trading View & Key Stocks to Watch

Defence sector stocks extended their losing streak on July 18, with investors continuing to lock in gains after a sharp run-up earlier this year. The Nifty India Defence index dropped by 1.8%, hitting an intraday low of 8,211, marking the third consecutive session of losses. The index has now declined in six out of the last seven trading sessions, as fading global geopolitical risk premium and stretched valuations weighed on sentiment.

The recent surge in defence stocks had been fueled by expectations of large order inflows following India’s ‘Operation Sindoor’ in May, a cross-border military action that spurred short-term bullish bets across the defence pack. Ongoing conflicts like the Russia–Ukraine war and Israel–Iran tensions had added further momentum. However, as tensions de-escalate globally, traders are now trimming exposure to overbought defence names.

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BDL, Data Patterns, HAL Among Top Losers

In the day’s trade, Bharat Dynamics (BDL) and Data Patterns shares were the worst performers, each sliding by nearly 4%. Hindustan Aeronautics (HAL) and Cochin Shipyard followed with losses of over 2%. Selling pressure was also seen in BEML, Astra Microwave Products, and BEL, all of which fell between 1.5% to 2%.

Mazagon Dock Shipbuilders, Solar Industries, Paras Defence, and Garden Reach Shipbuilders (GRSE) also recorded declines ranging from 1% to 1.8%, reflecting a broader sector-wide unwinding.

Market participants noted weak delivery volumes and high open interest unwinding in defence futures contracts, indicating short-term traders exiting positions amid a lack of fresh triggers.

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Sector Outlook Turns Cautious as Valuations Peak

Analysts caution that while the long-term defence theme remains intact, the recent valuation froth in stocks like HAL, BDL, and BEL is prompting institutional profit booking. Brokerages have flagged that most defence counters are trading at rich P/E multiples, leaving little room for upside unless supported by fresh order announcements or policy boosts.

A senior analyst at a domestic brokerage said, “Defence stocks had factored in a lot of optimism post-Operation Sindoor and from India’s push for indigenisation. However, without immediate order visibility, short-term corrections were overdue.”

Trading View & Key Stocks to Watch

The Nifty India Defence index faces critical support near 8,150, with next resistance pegged at 8,450. A breakdown below this range could trigger deeper consolidation across defence counters.