Indian defence stocks are experiencing a mixed trading session as of May 20, 2025, with some companies extending losses after a recent rally, while others show resilience. This follows a period of significant gains in the sector, spurred by increased investor interest due to geopolitical events and government policies favoring domestic defence manufacturing.

Profit Booking and Market Correction

After a strong run-up, several defence stocks are facing a correction as investors engage in profit booking. This comes after a rally that saw the Nifty Defence index rise significantly, adding ₹1.8 lakh crore in market value to defence-related stocks since May 9. The pullback is attributed to profit-taking after a dramatic rally sparked by the Indian military's successful demonstration of indigenous missile and drone capabilities during "Operation Sindoor".

Shares of major players like Cochin Shipyard, Mazagon Dock Shipbuilders, Hindustan Aeronautics Ltd (HAL), and Garden Reach Shipbuilders & Engineers (GRSE) have fallen by as much as 6%. For instance, Cochin Shipyard dropped by 6.9% to ₹1,847.60 on the BSE, while GRSE declined by 5.1% to ₹2,356.05. Mazagon Dock Shipbuilders lost 3.1% to ₹3,303.20. This decline follows a period where these stocks recorded double-digit percentage gains, with Cochin Shipyard and GRSE climbing over 40% between May 9 and May 17.

Paras Defence Under Pressure

Paras Defence and Space Technologies is underperforming, with shares sinking around 5% on May 20. This decline is primarily attributed to stake sales by promoters through bulk deals. Sharad Virji Shah, Anish Mehta, and Kaajal Bhansali offloaded a total of 13.34 lakh shares, representing 3.3% of the company's total outstanding shares and 5.8% of the promoters' total holdings.

Specifically, Sharad Virji Shah sold 900,000 shares at ₹1,682.87 apiece, while Anish Mehta and Kaajal Bhansali sold 217,159 and 217,049 shares, respectively, at prices around ₹1,664. The promoter stake sale has added pressure to the stock, contributing to the broader sell-off in the defence sector. Despite the recent downturn, Paras Defence has been a strong performer, with the stock more than doubling since March 3, rising 106% from a closing of ₹834.95.

Factors Driving the Defence Sector

The Indian defence sector has experienced a surge in investor interest, fueled by recent geopolitical events and government policies favoring domestic defence manufacturing. The success of "Operation Sindoor," which showcased India's indigenous military capabilities, has further boosted confidence in the sector.

Additionally, expectations that the Indian government may increase defence spending beyond the Union Budget 2025–26 have contributed to the positive sentiment. India's locally manufactured defence products are attracting growing global interest, with defence exports reaching a record high of ₹23,622 crore in FY24-25. The government aims for annual exports worth ₹50,000 crore by 2029, strengthening its global footprint.

Analyst Views and Market Outlook

Despite the recent correction, analysts remain positive on the long-term prospects of the Indian defence sector. Sanjeev B Zarbade of Antique noted the strong order outlook, a robust policy framework favoring indigenization, and substantial government investment in the sector. He pointed to the ₹8.45 lakh crore in Defence Acquisition Council (DAC) approvals between FY22–25, which is over 3.3 times the amount cleared in the previous three years.

However, experts caution about stretched valuations and potential profit booking, advising investors to maintain valuation discipline. Ajit Mishra from Religare Broking suggested traders maintain a disciplined approach with clear exit strategies and avoid contrarian positions without strong supporting evidence.

Individual Stock Performances

While some defence stocks are facing a downturn, others demonstrate resilience. Garden Reach Shipbuilders & Engineers (GRSE) has shown resilience, remaining above key moving averages despite a recent decline. Cochin Shipyard reported a 37% increase in revenue in Q4 FY25, driven by progress in the ASW Corvette and NGMV projects, along with strong performance in the ship repair business. The company’s shares traded with positive momentum following the results.

Overall, the Indian defence sector is undergoing a period of recalibration after a significant rally. While profit booking and promoter stake sales have led to a temporary downturn, the sector's long-term outlook remains positive, supported by government initiatives, increased defence spending, and growing export opportunities.