Defence Sector Sees Sustained Selling Amid Valuation Concerns
India’s defence-related stocks witnessed continued selling pressure on May 20, as investors booked profits following an exceptional multi-week rally driven by geopolitical developments and sectoral optimism. The Nifty India Defence index dropped by over 1.9 percent to hover around 8,047.65, marking the second consecutive session of notable declines. This ongoing correction has raised concerns about inflated valuations across the defence segment, which had recently touched historic highs.
The broader decline comes as many of these richly-valued stocks had surged significantly over the past two months. Defence companies benefitted from investor enthusiasm following heightened tensions between India and Pakistan, especially after the execution of ‘Operation Sindoor’. Between February and mid-May, the combined market capitalization of 18 listed defence firms soared by nearly 50 percent—from Rs 6.95 lakh crore to Rs 11.23 lakh crore, reflecting strong buying interest across the board.
Highlights:
Nifty India Defence index fell 1.9% to 8,047.65 on May 20.
Sector had rallied 50% from February to mid-May due to geopolitical tensions.
Analysts caution against excessive valuations in defence stocks.
Paras Defence Sees Sharp Decline After Promoters Offload 13.34 Lakh Shares
Paras Defence and Space Technologies Ltd bore the brunt of the market correction, with its shares tumbling nearly 5 percent following large block sales by its promoters. According to data available on the National Stock Exchange (NSE), three promoters offloaded a combined 13.34 lakh shares, triggering additional selling pressure on the counter.
Promoter Sharad Virji Shah sold 9 lakh shares at Rs 1,682.87 each, while Anish Mehta and Kaajal Harsh Bhansali each sold 2.17 lakh shares at Rs 1,664.62 and Rs 1,662.62, respectively. The transaction accounts for around 3.3 percent of the company’s equity. Despite the recent fall, the stock remains significantly up, having gained nearly 55 percent over the past month.
As of March 2025, the promoters held a 57.05 percent stake in Paras Defence, while the general public retained 42.95 percent. The latest bulk deals indicate some degree of profit realization by insiders, which has further intensified investor caution.
Highlights:
Promoters sold 13.34 lakh shares worth nearly Rs 225 crore in block deals.
Paras Defence stock had surged 55% in one month before the decline.
Promoter stake stood at 57.05% as of March 2025.
Shipyard Stocks Hit Hardest in Sector-Wide Correction
Shipbuilding companies were among the most affected in Monday’s selloff, as Cochin Shipyard shares plunged by 6 percent to trade at Rs 1,863.20. Other notable names like Garden Reach Shipbuilders and Engineers (GRSE), BEML, and DCX Systems also experienced sharp declines of over 3 percent.
Mazagon Dock Shipbuilders, Bharat Dynamics (BDL), and Hindustan Aeronautics Ltd (HAL) recorded declines of around 2 percent each, while Cyient DLM and Data Patterns slipped nearly 1 percent. The broad-based nature of the fall suggests growing investor unease about valuations across the entire defence manufacturing value chain, especially among public sector undertakings (PSUs) which had been leading the rally.
This marked pullback in shipyard and aerospace-related companies reflects a reassessment of short-term investment strategies, even as long-term growth prospects in India’s defence manufacturing remain intact.
Highlights:
Cochin Shipyard shares dropped 6% to Rs 1,863.20.
GRSE, BEML, and DCX India fell over 3%.
BDL, Mazagon Dock, and HAL declined around 2%.
BEL and Zen Technologies Show Resilience Amid Sector-Wide Decline
Not all defence stocks were dragged lower. Bharat Electronics Ltd (BEL) and Zen Technologies defied the bearish trend to post marginal gains, indicating selective buying interest in companies seen as better positioned for future growth and with more reasonable valuations.
BEL, one of India’s largest defence electronics manufacturers, has consistently delivered strong quarterly results and holds a robust order book, making it a relatively safer play in a volatile sector. Similarly, Zen Technologies, with its niche focus on training and simulation systems, continues to attract investor interest due to its specialized product offerings and government contract wins.
These stocks’ ability to remain in the green despite sector-wide weakness underscores the divergence in investor perception when it comes to individual fundamentals versus overall thematic trends.
Highlights:
BEL and Zen Technologies gained marginally on May 20.
Both companies seen as fundamentally strong with better valuations.
Selective buying continued despite overall market weakness.
Analysts Warn of Overheated Valuations Amid Geopolitical Tailwinds
Analysts have increasingly warned that the defence segment, despite its promising long-term outlook, may be entering overheated territory. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, highlighted that while the sector holds significant growth potential, the recent valuations may not be sustainable.
“An important trend in the market is the sharp rally in defence stocks. Even though this segment has bright medium to long-term prospects, their valuations have become excessive and therefore, investors have to be extremely cautious. Some profit booking in this segment would be appropriate,” he noted.
With India’s increasing emphasis on indigenization under the ‘Atmanirbhar Bharat’ initiative and rising defence budgets, the long-term structural narrative for domestic defence companies remains intact. However, the recent surge in stock prices, propelled by geopolitical catalysts, has made some investors wary of short-term froth.
Highlights:
Analysts flag valuation concerns in defence sector.
Profit booking recommended after sharp run-up.
Sector fundamentals remain strong, but near-term risks persist.
Market Participants Monitor Upcoming Defence Orders and Budget Allocations
Investors and analysts are closely watching upcoming defence procurement orders and policy announcements, including potential budgetary allocations in the next Union Budget. These developments are expected to influence sentiment in the sector, particularly for companies with high exposure to government contracts.
Defence sector participants are also awaiting clarity on the next phase of the ‘Make in India’ push, which could include more private sector participation and foreign joint ventures. Developments on export orders and international partnerships are likely to drive the next leg of movement in these stocks, assuming current valuations undergo necessary correction.
Highlights:
Budget allocation and new defence contracts closely watched.
Export orders and private sector participation in focus.
Next phase of ‘Make in India’ defence strategy to be key trigger.
