Cochin Shipyard share price snaps 4-day rally, falls 4%. Should you too book profits?

Cochin Shipyard share price: PSU defence stock Cochin Shipyard snapped its four-day winning run on Monday, June 9, as it slid 4% amid profit taking by investors following a 23% rally over four sessions.

The multibagger stock has faced significant gains, rising for four months in a row. Between March and June, Cochin Shipyard's share price is up 65%, with the scrip gaining 19% this month alone.

The rally in Cochin Shipyard shares can be attributed to overall positive sentiment for the defence stocks following the rise in India-Pakistan tensions in light of Operation Sindoor. The Nifty India Defence index is trading at all-time high levels as defence stocks witness strong buying momentum.

Analysts believe that the escalated need for defence equipment and systems has come to the fore, and the focus has now shifted to the execution of the order books to meet this expected demand, which is driving the defence stocks higher.

Omniscience Capital expects the Defence budget to be increased to 3% to 4% of the GDP from the current ~2% level. "With a $10 trillion GDP, the defence budget is expected to grow to more than $300 bn USD or around INR 30 lac crores. This implies a 16-17% annualised growth till 2035," it said.

This surge is underpinned by the company’s robust order book and recent collaborations like the tie-up with Drydocks World to enhance offshore fabrication and ship repair capabilities, targeting both domestic and international markets, said Rajesh Sinha, Sr. Research Analyst at Bonanza.

"Rally in stock can also be linked to the US urging NATO members to increase defence spending, with NATO Secretary General Mark Rutte proposing a 3.5% of GDP target. Despite India not being a NATO member, its strategic ties with NATO nations could indirectly benefit Indian defence companies," Sinha added.

Cochin Shipyard stock: Time to sell?

However, amid a strong rally in Cochin Shipyard share price, technical analysts see a downside in the stock, advising caution for the time being.

Cochin Shipyard rallied over 107% in just 40 days and has now formed a bearish shooting star at the top, followed by a downside move, indicating profit booking, said Anshul Jain, Head of Research at Lakshmishree Investments.

"The recent exhaustion suggests that a short-term correction is underway. The stock is likely to test its previous swing high support zone around ₹2,150," he added. Traders should exercise caution at current levels, as the extended rally now looks due for a healthy pullback before any fresh upmove, Jain advised.

Commenting on the stock outlook, Sinha said that Cochin Shipyard shares are trading at a higher multiple, but looking at the growth prospect, strong orderbook and government focus on defence, we advise investors to remain invested and use any dip to add position in Cochin Shipyard.

Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.