HAL, BEL, BDL, Paras Defence, Zen, Cochin Shipyard, GRSE: Time to book profits?

Defence stocks such as Paras Defence And Space Technologies Ltd, Data Patterns (India) Ltd, Garden Reach Shipbuilders & Engineers Ltd (GRSE), Mishra Dhatu Nigam Ltd (MIDHANI), Cochin Shipyard Ltd, Astra Microwave Products Ltd and Bharat Dynamics Ltd (BDL) have climbed up to 71 per cent since Pahalgam terror attack on April 22. 

Stock analysts said a sectoral rotation is at play. Besides, the strong domestic defence manufacturing capability, as displayed in Operation Sindoor, has lifted momentum for defence plays. They are, however, mixed over how to approach the defence pocket, following the recent surge. They suggested traders to have a clear exit strategy for these momentum plays. 

"The market is again in the grips of irrational exuberance with the market quick to discount any half-baked narrative (defense being the latest one). The market’s recurring tendency to buy into narratives is astonishing given the history of narratives. Many had emerged and collapsed in the past 2-3 years," Kotak Institutional Equities said in a note.

Vijayakumar, Chief Investment Strategist at Geojit Investments  said even though the defence 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 said.

Data showed Paras Defence has rallied 71 per cent since April 22. Data Patterns India soared 46.47 per cent, GRSE 42 per cent and MIDHANI 41 per cent during the same period. Against this, the BSE Sensex is up a mere 4 per cent. 

Cochin Shipyard, Astra Microwave Products Ltd, BDL and DCX Systems saw their shares climbing 27-36 per cent. 

Mazagon Dock Shipbuilders Ltd, Zen Technologies Ltd, Bharat Electronics Ltd, Hindustan Aeronautics Ltd and BEML Ltd are other prominent gainers, rising 16-27 per cent.

"Thematic plays like defense have shown exceptional performance in recent weeks and may continue to offer opportunities. However, traders should maintain a disciplined approach, including clear exit strategies while pursuing momentum trades, and avoid taking contrarian positions without strong supporting," said Ajit Mishra – SVP, Research, Religare Broking Ltd.

Antique Stock Broking is positive on the Indian defence shipyards sector given strong order outlook, a robust policy framework favoring indigenisation, and substantial government investment.

"The DAC has approved orders worth Rs 8.45 lakh crore over FY22–25, which is almost 3.3 times the same number for the preceding three years. We expect this to translate into significant order inflows in FY26–27 for defence shipyards" it said.