Defence rally showing signs of froth; expert recommends short term caution

Defence stocks, which had been on a remarkable run in recent months amid escalating global tensions, witnessed a sharp correction on Tuesday as geopolitical concerns appeared to ease following news of a ceasefire between Iran and Israel.

Abhishek Basumallick, Co-Founder and Fund Manager at Shree Rama Managers PMS, believes the recent rally in defence counters may have already factored in much of the optimism. “A large part of the upward move in defence stocks is probably priced in right now,” the market expert told Business Today, cautioning investors about potential froth in the short term.

He emphasised that the broader structural theme around defence spending remains intact, driven by sustained global demand. “If you see Europe, China, India and the Middle East, everyone is going to invest significantly for building up their defence capabilities. So, it is not a short-term story — it’s a 5- to 10-year kind of a story,” he said.

However, Basumallick reiterated that the sector may have entered a euphoric phase in the near term. “Defence on the longer term is a very interesting story … but for the short term, I think a large part of the immediate upmove is already priced in. The sector could be in a frothy stage and one needs to be careful about investing freshly in defence news,” he added.

Frontline defence stocks reflected this caution today, giving up a part of their recent gains. Garden Reach Shipbuilders & Engineers Ltd (GRSE) led the declines, plunging 8.80 per cent to close at Rs 3,185.10. Paras Defence and Space Technologies Ltd dropped 4.97 per cent to Rs 1,648.25, while BEML Ltd lost 7.05 per cent to settle at Rs 4,449.60.

Other key names also ended in the red such as Hindustan Aeronautics Ltd (HAL) fell 2.81 per cent to Rs 4,885.75, Bharat Dynamics Ltd (BDL) slipped 4.12 per cent to Rs 1,851.80 and Bharat Electronics Ltd (BEL) declined 0.56 per cent to Rs 418.55. Among smaller defence players, Mazagon Dock Shipbuilders Ltd fell 1.76 per cent, Data Patterns (India) Ltd dropped 3.04 per cent, Cochin Shipyard lost 2.98 per cent and Zen Technologies was down 3.10 per cent.

Additionally, Jigar S Patel, Technical Research Analyst at Anand Rathi Shares & Stock Brokers, recommended booking profits in HAL and BEL stocks.