Defence stocks tank up to 14%, index down 5%; analysts flag downside risks

Solar Industries India slipped 14 per cent to ₹19,225 in Tuesday's intraday trade. The Defence index was down 5.48 per cent to 9,190.60.

Defence shares, both private and public sector, saw a sharp decline on Tuesday, led by steep losses in Solar Industries, Apollo Micro Systems, Mishra Dhatu Nigam and Data Patterns, which fell in the range of 7 per cent to 15 per cent.

 

At 02:31 PM, the Nifty India Defence index was down 5.42 per cent at 9.196.75, compared to a 0.82 per cent decline in the Nifty 50. In intraday trading, the Defence index was down 5.48 per cent to 9,190.60.

 

Sunny Agrawal, deputy vice president, fundamental research at SBI Securities, noted that the Nifty Defence Index is down predominantly for two reasons. First, HAL, BEL and Solar Industries together account for more than 50 of the index weight. All three stocks are under pressure today, with HAL and BEL down around 3–3.5 per cent, while Solar Industries has declined nearly 14 per cent.

 

 

“The pressure on the large-cap defence companies is primarily because there was an expectation last week that, on the sidelines of the BRICS summit, there could be a major defence deal announcement between India and Russia. That expectation has not materialised, leading to some profit booking in these stocks amid an otherwise weak market,” he added.

 

However, for Solar Industries, Agarwal noted that the company recently made a large acquisition in Africa, which the market has not reacted favourably to. “At the same time, Solar Industries has been a strong outperformer in an otherwise weak market, so we are also seeing some profit booking in the stock today,” he said.

 

Solar Industries India slipped nearly 14 per cent to ₹19,225 in Tuesday’s intraday trade, as investors booked profits after the company announced the acquisition of South Africa-based Omnia Holdings for approximately $1.355 billion (₹12,951 crore) in an all-cash transaction.

 

Vipin Kumar, AVP research at Globe Capital Market, noted that the Nifty Defence index has been forming a series of higher highs and higher lows above its long-term as well as short-term moving averages. With today's sharp decline, the index has breached its 2-month moving average and moved towards swing price support and 6-month exponential moving average support located around the 9,170–9,135 levels. “Moving ahead, a decisive close below the 9,135 level could drag it further down towards the 8,800–8,650 range in the near term,” he said.

  

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