Shares of leading Indian defence companies fell sharply on July 10, dragging the Nifty India Defence index down by 1.4% to 8,739, as investors reacted to valuation concerns, easing geopolitical tensions, and new analyst commentary on sector leaders like Bharat Dynamics Limited (BDL).

The fall comes after a massive rally in defence stocks earlier this year, driven by geopolitical conflict, emergency procurement expectations, and strong government push for indigenisation.

Motilal Oswal Gives 'Neutral' View on BDL

Bharat Dynamics Ltd (BDL) was the worst performer in the sector, falling over 3% to ₹1,917, after Motilal Oswal Financial Services initiated coverage with a ‘Neutral’ rating and a target price of ₹1,900. This represents a downside potential of over 4% from its last close of ₹1,985.

“We like BDL’s business model and its order book growth potential. However, valuations are full, and we would prefer better entry levels,” the brokerage stated.

Motilal Oswal added that BDL is poised to benefit from India’s emergency procurement pipeline, but the recent run-up in the stock has left little margin for near-term upside.

GRSE, HAL, Data Patterns, and Others Follow the Trend

Following BDL, shares of Garden Reach Shipbuilders & Engineers (GRSE) fell over 3% to ₹2,890. Although the stock has dropped 11% in the past month, it still boasts a 96% gain over six months, making it a prime candidate for profit booking.

Other key movers in the defence space:

• Data Patterns, Zen Technologies: Down over 2%

• Hindustan Aeronautics (HAL), Solar Industries, Cochin Shipyard: Also fell 2%+

• Mazagon Dock Shipbuilders, BEL, Paras Defence: Down 0.6% to 1%

• BEML: Marginally in the red

Profit Booking at High Valuations

Analysts note that after an exceptional rally in 2025, many defence stocks are trading at elevated price-to-earnings multiples, prompting caution among institutional investors.

YTD gains in major defence stocks:

• BDL: Up 69%

• GRSE: Up 75%

• HAL: Up 19%

• Mazagon Dock: Up 46%

This stellar performance, while underpinned by strong order visibility and sectoral tailwinds, has left little room for fresh buying, especially in the absence of new triggers.

Easing Global Geopolitical Tensions

Part of the pressure also stems from easing geopolitical tensions, which had previously fueled demand expectations for defence equipment. Key developments:

• US President Donald Trump hinted at progress toward a ceasefire between Israel and Hamas

• Israeli PM Netanyahu’s US visit signals potential diplomatic solutions

• De-escalation between Iran and Israel has lowered defence risk premiums

Earlier this year, stocks soared after India’s Operation Sindoor targeting cross-border terrorism, and continued conflicts like Russia-Ukraine and Israel-Iran escalations had boosted defence sentiment. However, with diplomacy gaining ground, the fear-driven momentum has cooled.

Valuation Risks Flagged by Analysts

Brokerages have started cautioning investors on the rich valuations across the sector:

• Defence stocks are trading well above their historical valuation averages

• Fresh order announcements or new defence policy initiatives will be crucial for further upside

• Without incremental triggers, profit booking may dominate in the near term

While long-term growth drivers like Make-in-India, indigenous production mandates, and export expansion remain strong, short-term valuations appear stretched.

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