MFs, FIIs load up defence stocks in Q4. Time for retail to act amid Indo-Pak tensions?
Defence stocks have had a stellar run for the past year, though they lost some momentum last year on valuation concerns and profit booking as domestic and global factors weighed in on the markets.
Amidst rising India-Pakistan tensions, defence stocks have surged, attracting heightened investor interest. Mutual funds increased holdings in 11 of 18 Nifty India Defence Index stocks in the March quarter, with BEML, Solar Industries, and MTAR Technologies leading the pack. While FIIs also increased stakes in several defence companies, some stocks experienced profit booking and selling pressure.
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Defence stocks' performance and outlook
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With escalating tensions between India and Pakistan, defence stocks have surged sharply, rallying 25% over the past week. An ETMarkets analysis shows heightened investor interest throughout this year, with mutual funds increasing their holdings in 11 out of 18 stocks within the Nifty India Defence Index in the March ended quarter, signalling growing institutional confidence in the sector's long-term prospects.The top mutual fund buy in the quarter that ended on March 31, 2025 was BEML where MFs raised their holdings by 1.6% over the December quarter. The next in line were Solar Industries India MTAR Technologies and Zen Technologies which saw a hike of 1.2%, 0.96% and 0.65%, respectively.Other stocks in which MF holdings went up include Astra Microwave Products Bharat Dynamics (BDL), Mazagon Dock Shipbuilders Dynamatic Technologies and Garden Reach Shipbuilders & Engineers (GRSE). The stakes went up between 42 bps and 1 bps.Out of these 11 stocks, Astra Microwave, Mishra Dhatu Nigam, BDL, Mazagon Dock, Paras Defence, Dynamatic Technologies and GRSE witnessed a rise in holdings of the foreign institutional investors (FIIs).Two more stocks viz. Bharat Electronics (BEL) and DCX Systems also witnessed FII buying during the January-March quarter though MFs sold their holding in the same period in both these stocks.Not all stocks managed to find favour with mutual funds as they sold partial stakes in 7 stocks in the March quarter. BEL faced a sweet-chin-music as MFs sold over 1% in the company to bring the total holding to 15.02%. DCX Systems, Cyient DLM , Data Patterns (India), Unimech Aerospace and Manufacturing Hindustan Aeronautics (HAL) and Cochin Shipyard witnessed selling between 81 bps and 25 bps.FIIs were also sellers in nine stocks viz. BEML, Solar Industries India, MTAR Technologies, Zen Technologies, Cyient DLM, Data Patterns, Unimech, HAL and Cochin Shipyard. The highest selling of 126 bps was seen in Cyient, while lowest was in Cochin Shipyard.Defence stocks have had a stellar run for the past one year, though they lost some momentum last year on valuation concerns and profit booking as domestic and global factors weighed in on the markets.At the index level, Nifty India Defence has delivered 39% returns in the past one year versus Nifty's 8% returns in the same period. Mazagon Dock is the top gainer with 155% returns. Paras, GRSE, BDL have given returns between 91% and 51%. HAL which has the highest weightage in the index has returned 15% in the said period.Meanwhile, Cyient, Mishra Dhatu, MTAR, Dynamatic and Data Patterns have seen share price decline in double-digits over a year period.On Wednesday, defence stocks witnessed some profit booking as stocks fell up to 5% in the morning trade. GRSE, Bharat Dynamics and DCX Systems were top losers.On Tuesday, the Indian government gave armed forces complete freedom to decide mode, targets and timing of the response.Market expert Nischal Maheshwari said that the recent trade in defence stocks has been on account of the geopolitical situation. "Having said that, last especially in March there were a lot of orders which have gone out to all these companies and that is also getting reflected. These stocks had underperformed for some time initially, and sort of a catch-up game, but at these prices once again the valuations are going to now start looking pretty expensive for most of them. So, you need to be cautious. Yes, it is a good trade, but for long-term buying this is not the point," he said.(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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