
Defence stocks, which led top gainers at BSE500 ever since the Iran-Israel conflict broke out, were on a back foot in Tuesday's trade after the US President Donald Trump announced a ceasefire between the two nations, signalling ease of geopolitical tensions in the Middle East.
To be sure, Garden Reach Shipbuilders & Engineers Ltd (GRSE) was the top BSE500 index gainer since June 13, rising 17 per cent during the period. The Iran-Israel conflict started on July 13, and stocks like BEML Ltd, Bharat Electronics Ltd, Zen Technologies Ltd and Cochin Shipyard Ltd gained 5-14 per cent during the same period.
But on Tuesday, GRSE dived 6.23 per cent to hit a low of Rs 3,274.50. Paras Defence and Space Technologies Ltd tumbled 4.61 per cent to Rs 1,654.45 on BSE. BEML Ltd shares tanked 5.03 per cent to Rs 4,546. Hindustan Aeronautics Ltd fell 2.21 per cent to Rs 4,916.05.
Bharat Dynamics Ltd (BDL) was down 2.88 per cent at Rs 1,875.70. Bharat Electronics Ltd (BEL) slipped 0.72 per cent to Rs 417.85. Mazagon Dock Shipbuilders Ltd, Data Patterns (India) Ltd and Cochin Shipyard declined 2 per cent each, while Zen Technologies dropped 3 per cent.
Stock analysts are, however, positive on the sector's prospects.
Divam Sharma, Founder & Fund Manager of Green Portfolio PMS said India is currently witnessing a period of geopolitical change that is likely to impact how technology is shared and developed globally. As part of this shift, India is expected to play a more central role, especially in sectors related to defense and strategic manufacturing.
"Technology transfers to India will increasingly be tied to specific agreements, which will include conditions for higher domestic manufacturing. This is expected to lead to a steady increase in local production over the coming years," he said.
Starting from the second quarter, Sharma expects a visible improvement in the performance numbers for companies in this space.
Several countries that have built closer ties with India are looking to diversify their defense procurement, and this opens up export opportunities for Indian firms, he said adding that: "At the same time, rising defense budgets in India will lead to a sustained demand environment for companies operating in the sector."
"Given the combination of increased local production, export potential, and continued government spending, the business environment for this sector is expected to remain strong. While valuations may appear high in some cases, they reflect the future growth prospects and the structural changes underway," Sharma said.
"For investors looking at a time horizon of three to five years, defence sector offers a chance to participate in long-term value creation. The market could reward companies that are able to scale, manage execution well, and align with the evolving global and domestic policy landscape," Sharma added.
InCred Equities said it is positive on HAL and BEL. While initiating coverage on HAL, InCred said the stock's valuations may remain at a premium, given HAL's strong order book, coupled with ongoing indigenization and modernization initiatives that underpins a stable growth trajectory. It suggested a target price of Rs 6,325 on HAL.
In the case of BEL, InCred talked about its robust order book, coupled with expected orders’ long-term visibility, which provides strong revenue and growth confidence. InCred Equities initiated coverage on the stock with a target price of Rs 459.