Despite heightened tensions between India and Pakistan following 'Operation Sindoor' by Indian forces, defence stocks saw sharp profit booking on Wednesday, with some scrips falling as much as 5%. Shares of Bharat Dynamics and Mazagon Dock Shipbuilders closed 5% lower on Wednesday while those of Garden Reach Shipbuilders, Cochin Shipyard and HAL fell between 1 and 2%. The fall resulted in an over 1% drop in the Nifty defence index.
The Street had anticipated another surge in defence stocks after India conducted a series of missile strikes on Pakistani territory under "Operation Sindoor," targeting nine militant bases. However, investors instead rushed to book profits, capitalizing on a sharp rally that followed last month’s deadly attack on tourists in Pahalgam.
Before Wednesday, some defence stocks had surged up to 50% in the past one month, pushing their valuation to an expensive level. Experts advised investors to remain cautious in the short term even as the long term outlook remains intact.
“Long-term investors should keep a watchlist of stocks or sectors they are looking at, to allocate capital to. There is no need to hurry or get into a panic mode or FOMO mode,” said Vikas Gupta, CEO & Chief Investment Strategist at OmniScience Capital. Gupta added that the focus is naturally getting back on the defence stocks following India’s avenging of the Pahalgam attack.
Anirudh Garg, Partner & Fund Manager at Invasset PMS, said that the defence sector in India is experiencing significant growth, primarily driven by the government’s focus on increasing defense spending and indigenizing defence capabilities. Companies such as Bharat Electronics Ltd. (BEL), Hindustan Aeronautics Ltd. (HAL), and Mazagon Dock Shipbuilders are benefiting from large government contracts and expanding order books. For instance, BEL has reported an order book worth over Rs 40,000 crore, and HAL is seeing increasing demand for its aircraft and helicopters.
“Government initiatives like ‘Make in India’ and the push for self-reliance in defense production have created a long-term tailwind for these companies…The outlook for the sector remains positive as India continues to increase its defense budget and modernize its forces. Investors should focus on companies with a solid order book and the capability to execute projects on time," added Garg.
While defence stocks witnessed profit booking, India’s equity market showed resistance with the benchmark indices – Sensex and Nifty - closing in green. In contrast, the Pakistan Stock Exchange crashed on Wednesday with its benchmark - KSE-30 Index – falling as much as 6%.
“Indian equity markets exhibited strong resilience amid recent Indo-Pak border tensions. The measured market response indicated that geopolitical risks were largely priced in and expectations of de-escalation are prevailing among investors. At the same time, the progress on the India–UK FTA further buoyed investor optimism, driving gains in key sectors such as textiles, automobiles, and information technology,” said Vinod Nair, Head of Research, Geojit Investments.