Cochin Shipyard, Mazagon, HAL slip up to 4% as defence stocks retreat after last week’s rally cools

India’s defence stocks retreated on Monday, as investors locked in profits following last week’s sharp gains. Shares of Cochin Shipyard, Mazagon Dock Shipbuilders, Hindustan Aeronautics Ltd (HAL), and Garden Reach Shipbuilders & Engineers (GRSE) fell as much as 4%, pausing a spectacular run-up driven by bullish sentiment around new order flows and the success of Operation Sindoor.

Shares of Mazagon Dock slipped 4.2% to Rs 3377.40 on the BSE, while Cochin Shipyard declined 3.7% to Rs 1960.05. HAL dropped as much as 3% to Rs 4972.10, and GRSE fell 4.4% to Rs 2372.20. All four stocks had logged double-digit percentage gains in the previous week, with Cochin Shipyard and GRSE climbing over 40% from May 9 to May 17.

The pullback reflects profit-taking after a dramatic rally sparked by the Indian military’s successful demonstration of indigenous missile and drone capabilities during Operation Sindoor. The rally added Rs 1.8 lakh crore in market value to defence-related stocks since May 9. Drone-maker ideaForge Technology surged 56%, while Cochin Shipyard and GRSE notched up 41% and 40% gains, respectively.

Defence PSU HAL, which shared its FY26 guidance during its earnings call held post-market on Friday, had gained 16% last week.

Despite Monday’s decline, analysts remain optimistic about the sector’s long-term prospects. Antique Stock Broking expects a sharp acceleration in order flows over the next two years, particularly for shipbuilders like Mazagon Dock, GRSE, and Cochin Shipyard. “We see large orders being placed in FY26–27 led by the ordering of six submarines under P75I, three Kalvari-class submarines, next-generation Corvettes, and P-17B Frigates, besides a host of smaller vessels,” the brokerage said.

Antique projects that the combined order books of the three shipbuilders could more than triple by FY27. It has a ‘buy’ rating on Mazagon Dock and GRSE, and a ‘hold’ on Cochin Shipyard due to uncertainty around the scale and timing of the proposed second indigenous aircraft carrier (IAC-II).

The brokerage estimates strong visibility on Rs 2.12 lakh crore worth of orders expected to be awarded over FY26–27. These include Rs 36,000 crore for three additional Kalvari-class submarines expected in FY26, Rs 70,000 crore for the P75I submarine program likely to be finalised by FY27, Rs 36,000 crore for next-generation corvettes equipped with BrahMos missiles, and Rs 70,000 crore for the P-17B frigate program.

The Defence Acquisition Council has approved Rs 8.45 lakh crore in orders between FY22 and FY25—more than triple the amount cleared in the preceding three years.

While Cochin Shipyard awaits clarity on IAC-II, Antique said this overhang does not alter its broader bullish view. “Looking beyond FY27, we see the next wave of large-scale orders led by Project-18 destroyers and the indigenous Project-76 submarine program,” the brokerage noted.

The recent run is not without precedent. The Nifty Defence index surged 350% between July 2022 and July 2024, only to correct 38% by February 2025 amid investor caution. The success of Operation Sindoor has since reignited interest, but Monday’s declines suggest that near-term volatility may persist, even as the structural story remains intact.

Also read | Defence stocks detonate in Rs 1.8 lakh crore boom. Is a ceasefire on the charts?

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)