Defence stocks enter overheated zone, says Share.Market expert, suggests strategy for GRSE, Cochin Shipyard & 3 others

The US-China trade truce has improved global risk sentiment and the agreement introduces the possibility of a ‘Buy China, Sell India’ trend, where investors might reallocate funds to Chinese markets, Om Ghawalkar, Market Analyst at Share.Market said, as he reiterates that the uncertainty in Nifty would continue. This analyst spells-out strategy in previous week’s major movers viz. GRSE, Cochin Shipyard, Raymond and 3 more stocks. Excerpts:

US striking trade deals with countries especially China seems to have turned on the markets this week with Nifty closing with over 2% uptick. Do you think the negative impacts are priced-in now and with more deals coming through, things will only get better from here?
Following the recent breakthrough in US-China trade negotiations, both countries have agreed to significantly reduce tariffs for an initial 90-day period, effective May 14, 2025. The United States will lower its overall tariffs on Chinese goods from 145% to 30%, while China will reduce its tariffs on American products from 125% to 10%. This agreement marks a substantial de-escalation in trade tensions and is expected to influence global trade flows.

For India, these changes could impact the demand for Indian products in both the US and Chinese markets, as lower tariffs may make Chinese goods more competitive. Additionally, the evolving US-China trade relationship could affect the ongoing US-India trade negotiations. If a US-India deal is finalized, it could have significant implications for key Indian sectors such as textiles, pharmaceuticals, and IT, which are closely tied to US trade policies.

Furthermore, the announcement of a ceasefire between India and Pakistan also provided a boost to market sentiment, fueling a rally that saw the Nifty close over 2% higher this week. The combination of easing geopolitical tensions and positive global trade developments has contributed to the recent uptick in Indian equities.

What are important levels to watch out for Nifty and Bank Nifty?
As of the latest close, the Nifty 50 is trading at 25,019. Immediate resistance for the index is seen in the 25,200–25,350 zone, with key levels at 25,207 and 25,268. On the downside, immediate support is expected around 24,800–24,750, with stronger support at 24,650 if selling intensifies. The index remains above its key moving averages, and the short-term trend continues to favor the bulls, although some consolidation is likely near resistance levels.

Bank Nifty is currently trading near its all-time high at 55,534. Immediate resistance is at the 56,000–56,500 zone, which aligns with its previous highs. Support is seen at 54,800, with a stronger floor near 54,000, a level the index has tested several times in recent sessions. Sustained trade above 55,250 would maintain bullish momentum, while a break below 54,000 could trigger further downside.

Defence stocks had a stellar last week with the Nifty Defence index rising 17%. Over the last three months, it has surged 53%. Is this a signal to stop or one should ride the momentum?
India’s defence sector has seen a sharp surge in investor interest, driven by growing geopolitical stability and robust policy support. The recent India-Pakistan ceasefire and successful Operation Sindoor have underscored India’s rising defence capabilities, enhancing global confidence.

Prime Minister Modi’s continued push for indigenisation, marked by the Rs 7 lakh crore defence budget and the ‘Made in India’ defence manufacturing initiative, has added strong tailwinds to the sector. Major order wins, including BrahMos missile exports to over 15 countries and the Rs 63,000 crore Rafale deal with France, further highlight India’s emergence as a key defence player.

In a significant Indo-German collaboration, Thyssenkrupp Marine Systems and Mazagon Dock Shipbuilders moved forward with a $5.2 billion deal in February 2025 to manufacture six advanced submarines for the Indian Navy. This reflects India’s growing global defence partnerships, bolstered by technology sharing, joint exercises, and logistics pacts.

International collaboration is also rising, as seen in Paras Defence’s MoU with Israel’s HevenDrones—highlighting increasing demand for Indian defence tech abroad.

While the sector's momentum remains strong, some stocks appear overextended. Investors are encouraged to book partial profits where appropriate, monitor fresh breakouts, and maintain disciplined risk and position management strategies.

FIIs are back but with the US-China agreement, do you see a repetition of ‘Buy China Sell India’ trade?
Foreign Institutional Investors (FIIs) have made a notable comeback in Indian equities, investing Rs 23,778 crore in May 2025. This resurgence follows a period of heavy selling in the first quarter and a modest return in April.

The renewed enthusiasm is attributed to easing geopolitical tensions, including the India-Pakistan ceasefire and a US-China trade truce, which have improved global risk sentiment. However, the US-China agreement introduces the possibility of a "Buy China, Sell India" trend, where investors might reallocate funds to Chinese markets.

Despite this potential shift, India's strong macroeconomic indicators—such as stable inflation, anticipated RBI rate cuts, and projected GDP growth over 6% in FY26—continue to attract investors. While large-cap stocks may face some headwinds, mid- and small-cap segments are likely to benefit from robust domestic participation and sector-specific growth stories.

What are the themes that are catching your attention and why?
While defense has been leading the rally, I see some interesting sectors like Oil & Gas, IT, Renewable and Metal getting some volume spikes. I would look for leading stocks in these sectors for the coming weeks.

While the recent rally has been largely driven by defence sector stocks, other key industries are now showing renewed strength.

The Oil & Gas, IT, Renewables and Metals sectors have all seen notable spikes in trading volume, potentially signaling early accumulation or a shift in investor focus beyond defence. Leading stocks in these areas are attracting significant attention, reflecting growing investor interest and a possible broadening of the market rally.

Increased participation could position top names in these sectors to become key market drivers in the coming weeks.

Overall, evolving patterns in volume and price action point to expanding market breadth.

There were some big winners this week like GRSE, Cochin Shipyard and Rites while Neuland Labs and KPR were among the worst losers. What should investors do with them along with Raymond post the carving out of the realty business?
We can answer this by checking factor scores for these stocks using our Share.Market-powered research, which evaluates them across five key factors: Momentum, Value, Sentiment, Volatility, and Quality.

Each stock is scored out of 5 on these factors, helping investors assess price trends, fair valuation, market perception, risk levels, and financial strength. By using these insights, investors can make informed decisions and identify strong opportunities in the current market.

Garden Reach Shipbuilders & Engineers Ltd. (GRSE)

• Momentum: 4/5 – Strong momentum observed, making it an outperformer in the recent sessions.
• Value: 2/5 – Appears somewhat expensive relative to its valuation metrics.
• Quality: 5/5 – Excellent quality, reflecting strong financial fundamentals and consistent operational performance.
• Volatility: 1/5 – High price fluctuation, indicating significant short-term movement.

Cochin Shipyard Ltd. (COCHINSHIP)

• Momentum: 3/5 – A market-like performer with moderate momentum in recent sessions.
• Value: 1/5 – The stock appears very expensive compared to its underlying fundamentals.
• Quality: 4/5 – Good quality, indicating solid financial health and operational strength.
• Volatility: 2/5 – Notable price fluctuations observed, suggesting moderate volatility.

Rites Ltd. (RITES)

• Momentum: 2/5 – The stock has shown weak momentum, marking it as an underperformer recently.
• Value: 3/5 – Fairly valued, indicating a balanced price relative to fundamentals.
• Quality: 5/5 – Excellent quality with strong financial and operational metrics.
• Volatility: 4/5 – Low price fluctuations, suggesting overall price stability.

Neuland Laboratories Ltd. (NEULANDLAB)

• Momentum: 3/5 – Market-like performer, indicating moderate price momentum.
• Value: 2/5 – Somewhat expensive compared to its fundamentals.
• Quality: 5/5 – Excellent quality, showing strong business fundamentals and financial health.
• Volatility: 2/5 – High price fluctuation, suggesting relatively higher risk or instability.

KPR Mill Ltd. (KPRMILL)

• Momentum: 5/5 – Strong outperformer, showing robust price momentum.
• Value: 3/5 – Fairly valued relative to its fundamentals.
• Quality: 5/5 – Excellent quality, indicating strong financial health and operations.
• Volatility: 5/5 – Low price fluctuation, suggesting lower risk.
• Sentiment: 5/5 – Analysts are very bullish, showing strong positive market sentiment.

Raymond Ltd. (RAYMOND)

• Momentum: 4/5 – Outperformer, indicating strong recent performance.
• Value: 5/5 – Highly undervalued, offering strong potential upside.
• Quality: 4/5 – Good quality, reflecting solid fundamentals.
• Volatility: 3/5 – Slight price fluctuation, moderately stable.

(Disclaimer: Investments in securities are subject to market risks. Read all the related documents carefully before investing. All investors are advised to conduct their own independent research into investment strategies before making an investment decision. Past performance does not guarantee future returns.)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)