Shares of defence stocks such as Hindustan Aeronautics, Bharat Dynamics, Cochin Shipyard, and Mazagon Dock Shipbuilders were on the defence in Thursday's session.

What Happened: Experts are pointing out that the investors might be booking profit in the sector after its stellar run in the market. Most of the stocks are trading in the red despite reports of them winning further orders and strong brokerage comments.

Mazagon Dock and Garden Reach are reportedly in play for a ₹70,000 crore order for warships for the Indian Navy and ICICI Securities shared a bullish note for the sector. 

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Chris Wood, Global Equity Strategist of Jefferies said that if the Russia-Ukraine conflict is resolved will lead to a correction in the defence stocks. "Let’s say that there is a sudden resolution of this conflict, maybe the defence stocks will correct and that might be an opportunity to add”, Chris Wood added in a CNBCTV18 interview.

“Investors getting cautious ahead of the budget after witnessing continued rallies in defence-related companies pushing valuations to the peak,” Prashanth Tapse, senior VP research analyst at Mehta Equities told Benzinga India.

“The weakening trend in share prices has come amid profit-booking attempts as investors choose to be on the safer side based on stretched valuations. The sector has recorded tremendous growth in FY2024, as the domestic defence sector has touched a key milestone valued at over ₹1 trillion for the first time in history,” he explained further.

He added that long-term stories would remain intact, but cautioned that it is difficult to justify the present valuations. Tapse advises investors to wait and watch earnings growth matching the rise in prices and key parameters to watch the execution of the accumulated order book in coming quarters.

Despite the correction, market experts believe the sector has still more firepower to run. Prashant Rao, Director and Head- Equity Capital Markets, Anand Rathi Investment Banking said the increasing defence production and exports coupled with strong order books of the companies provide good promising prospects for the sector.

"In FY24, defence production in the country stood at ₹ 74,739 crore with defence exports at ₹ 21,083 crores which is a 32% increase from the previous year's exports. This has given guidance on the long-term revenue visibility driven by the strong order books in the listed defence space. With order books expected to grow in the coming years and ongoing capital expenditures by these companies, the prospects look promising for the sector", Rao added.

Price Action: Shares of Hindustan Aeronautics were down 4.75% to ₹5,076. 

Shares of BDL fell 3.13% to ₹1,551.70.

Shares of Mazagon Dock slipped 2.91% to ₹5,247.70.

Shares of Cochin Shipyard dipped 3.22% to ₹2,655.

Shares of BEML fell 2.45% to ₹4,844.

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