Defence stocks extended their decline for a fifth consecutive session on Wednesday, with the Nifty India Defence index falling 0.16% to 9,129.40 according to Business Standard, taking the index's five-session cumulative fall to 8.69%. The latest decline follows a sharp rally that had pushed the index past the 10,000 mark on September 9 driven by optimism around large-scale defence acquisition approvals. The selling pressure comes even as HSBC highlighted strong earnings visibility from a multi-year defence spending cycle, with the brokerage expecting the order cycle to be driven by defence electronics, aerospace, missiles and other defence systems. The continued weakness follows a run-up that culminated on September 8 when the defence index jumped 2.5% after the Defence Acquisition Council cleared acquisition proposals worth ₹1.10 lakh crore across the Army, Navy and Air Force.
Selling was broad-based across the defence sector on Wednesday, with Apollo Micro Systems leading losses at 5.37% and MTAR Technologies sliding 3.12%. As reported by Business Standard, Axiscades Engineering Technologies fell 2.14%, while Garden Reach Shipbuilders & Engineers and Solar Industries declined 1.47% and 1.43% respectively. However, Astra Microwave Products rose 2.45%, and Bharat Electronics gained 1.42%. Other notable performers included Cochin Shipyard up 0.06%, Bharat Forge adding 0.21%, BEML rising 0.04%, and Aequs India marginally higher at 0.16%. The 30-day picture shows the depth of correction, with Bharat Dynamics falling 19.12% over the past month - the steepest decline among index constituents, followed by Mazagon Dock Shipbuilders down 13.79% and Zen Technologies dropping 11.8%.
Despite the recent weakness, HSBC expects a multi-year increase in Indian defence spending to provide strong earnings visibility for the sector, supported by domestic procurement and rising exports. According to HSBC's latest coverage, the brokerage expects the order cycle to be driven by defence electronics, aerospace, missiles and other defence systems, as well as unmanned systems. HSBC initiated coverage on HAL and BEL with 'buy' ratings, started Bharat Dynamics, Astra Microwave Products, Data Patterns and Solar Industries with 'hold' ratings, and initiated Mazagon Dock Shipbuilders with a 'reduce' rating. The recent DAC approvals had strengthened expectations of a sizeable domestic order pipeline, with about 98% of the ₹1.10 lakh crore of acquisition proposals approved on September 7 earmarked for Indian industry, covering equipment across the three armed forces. However, concerns over Solar Industries' ₹12,951 crore acquisition of South Africa's Omnia Holdings spooked investors, with the size of the transaction nearly $1.4 billion raising concerns around funding, valuation and integration risk.
The defence sector's decline contrasted sharply with broader market performance, as reported by Business Standard. The correction has been attributed to profit booking and a broader risk-off mood in equity markets amid rising crude oil prices and elevated bond yields. Despite the recent weakness, the Nifty India Defence index remains up 12% over the past year, with MTAR Technologies being the standout performer, gaining 289.41% on a one-year basis. However, several stocks remain in negative territory over the year, including Bharat Dynamics, down 29.55%, and Cochin Shipyard, down 27.29%. Latest market analysis suggests that Indian stock indices, Sensex and Nifty, have extended their losing streak for a fifth week, with analysts indicating the indices have entered oversold territory, potentially signaling a short-term rebound.
