Defence Stocks Underperform Market: Why are Defence-Related Stocks Falling?

The Nifty India Defence index has fallen 12% in July, with shares of defence companies such as Paras Defence and Zen Technologies down 10% and 5% respectively. The index has corrected 15% from its all-time high level of 9,195.15. Defence companies have reported lower than expected Q1FY26 earnings, with operational revenue increasing by 11.5% YoY but EBITDA decreasing by 9% YoY.

The Nifty India Defence index has experienced a significant downturn in July, with the index falling 12% from its recent highs. Key players in the sector, such as Paras Defence and Zen Technologies, have seen their shares decline by 10% and 5% respectively. This correction comes on the heels of lower-than-expected Q1FY26 earnings reports from several defence companies, highlighting operational challenges and a slowdown in revenue growth.

Key Developments

# Paras Defence and Space Technologies
Paras Defence shares have plummeted 13% over two trading sessions, following a 25% decrease in its consolidated net profit for the first quarter. The company's revenue also decreased by 14% compared to the previous year, leading to a 10% decline in its stock price. Despite these setbacks, Paras Defence has shown a 40% year-to-date return, indicating resilience in the face of recent earnings disappointments [3].

# Zen Technologies Limited
Zen Technologies, a leading player in anti-drone technology and defense training solutions, reported a moderation in topline growth for Q1FY26. However, the company maintained strong EBITDA and PAT margins, reflecting operational discipline and cost efficiency. Zen Technologies has expanded into the UAV and loitering munitions segment, aligning its portfolio with global defense requirements. Despite a temporary slowdown in revenue growth, the company remains confident in achieving its order inflow guidance for the first half of FY26 [2].

Market Sentiment and Trading Strategies

Analysts have advised investors to focus on stock-specific and sectoral opportunities rather than broader index moves, given the volatile market conditions. The Nifty India Defence index has shown signs of weakness, with support at 24,500 and resistance at 25,200–25,500 levels. Pharma and healthcare sectors are expected to outperform, presenting potential accumulation opportunities in stocks such as Biocon, Cipla, and Torrent Pharma [1].

Outlook

The Nifty India Defence index is expected to trade within a range of 24,600–25,250 in the coming weeks, with a decisive breakout above 25,250 needed to resume the uptrend. Investors are advised to stay cautious and focus on defensive sectors, with a particular emphasis on pharma and healthcare stocks [1].

Conclusion

The recent downturn in the Nifty India Defence index reflects the operational challenges faced by defence companies in the first quarter of FY26. Despite these setbacks, the sector's resilience and potential for long-term growth remain intact. Investors are encouraged to stay informed and consider strategic investments in promising sectors and stocks.

References
[1] https://economictimes.indiatimes.com/markets/stocks/news/nifty-resistance-seen-at-around-25500-levels-analysts/articleshow/122942241.cms
[2] https://www.tipranks.com/news/company-announcements/zen-technologies-reports-q1fy26-results-expands-into-uav-segment
[3] https://economictimes.indiatimes.com/markets/stocks/news/paras-defence-shares-plunge-13-in-2-days-on-lackluster-q1-earnings/articleshow/122950531.cms