Nifty Defence index slips 12% in July: Why are defence stocks falling?

Thus far in the month of July, Nifty India Defence index has underperformed the market by falling 12 per cent, as against 3.3 per cent decline in Nifty 50.

Defence companies share price

 

Shares of defence companies were under pressure, with the Nifty India Defence index falling over 2 per cent on the National Stock Exchange (NSE) in Monday’s intra-day trade.

 

Paras Defence and Space Technologies (down 10 per cent at ₹704.70) and Zen Technologies (down 5 per cent at ₹1,690.70) were locked in their respective lower circuits on the NSE. 

 

Apollo Micro Systems, Data Patterns (India), Dynamatic Technologies, Mazagon Dock Shipbuilders, BEML, DCX India, Cochin Shipyard, Garden Reach Shipbuilders & Engineers (GRSE), MTAR Technologies, BEL and Bharat Dynamics (BDL) were down in the range 3 per cent to 5 per cent.

 

At 02:03 PM; Nifty India Defence index, the top loser among indices, was down 2.5 per cent, as compared to 0.68 per cent decline in the Nifty 50.

 

Thus far in the month of July, the Defence index has underperformed the market by falling 12 per cent, as against 3.3 per cent decline in the benchmark index. Nifty Defence index has corrected 15 per cent from its all-time high level of 9,195.15 touched on June 6, 2025.  ALSO READ | These defence stocks cracked up to 28% from recent highs; correction over?

 

Why defence stocks underperformed the market?

 

Defence companies Paras Defence and Zen Technologies reported lower than expected June quarter (Q1FY26) earnings.

 

Paras Defence reported its Q1FY26 results the operational revenue increased by 11.5 per cent year-on-year (YoY) (down 13.9 per cent quarter-on-quarter (QoQ)) to ₹93.19 crore. Earnings before interest, taxes, depreciation, and amortization (EBITDA) decreased by 9 per cent YoY (down 22.4 per cent QoQ) to ₹21.95 crore while EBITDA margin stood at 23.6 per cent (v/s 28.9 per cent in Q1FY25). Profit after tax (PAT) was up by 1.1 per cent YoY (down 31.5 per cent QoQ) to ₹14.27 crore. 

 

The revenue increase was led by a 12.6 per cent YoY (₹50.69 crore) increase in the defence engineering segment revenue which now consists of 54 per cent of the revenue (v/s 48 per cent in Q1FY25), ICICI Securities said in a note.

 

Meanwhile, Zen Technologies management said Q1FY26 results reflect moderation in topline growth. They believe this is a temporary adjustment phase with a much stronger long term growth trajectory. Despite this temporary moderation, the company’s business fundamentals remain strong. The company’s consolidated order book stands at₹754 crore and maintains a debt free balance sheet.

 

Zen Technologies revenue for the quarter decreased by 37.9 per cent YoY (down 51.3 per cent QoQ) to ₹158.2 crore. EBIDTA margin stood at 40.9 per cent (down 284 bps YoY, down 156 bps QoQ). Subsequently, EBIDTA was up down by 41.9 per cent YoY (down 53.1 per cent QoQ) to ₹64.7 crore. PAT down 33.2 per cent YoY and 53.3 per cent QoQ at ₹53.07 crore.

 

The company also made a strategic acquisition during the quarter by acquiring 74 per cent stake in TISA aerospace which focuses on designing and manufacturing advanced loitering munitions and unmanned aerial vehicles (UAVs) for defence.

 

However, looking ahead to H1FY26, the management said they remain confident in achieving order inflow guidance of ₹800 crore. Out of which the company has secured orders amounting to ₹150 crore till date, with the remaining ₹650 crore expected to materialize within the first half. In addition, the management expects orders to be placed under the government’s emergency procurement plan, particularly for anti-drone systems.

 

While FY26 is likely to be a year of consolidation, Zen Technologies said the company remains focused on executing its long-term strategy and are confident in maintaining targeted cumulative revenue of ₹6,000 crore over the next 3 financial years.

 

Key risks for the defence sector companies include a decline or reprioritization of the Indian defense budget, termination of existing contracts or failure to succeed in tendering projects, changes in procurement rules and regulations of the MoD and the government, and supply-chain-related issues.