Budget 2026: Defence Stocks Poised for Spotlight as Investors Await Allocation Announcements
As the Union Budget 2026 is set to be unveiled today, defence stocks are firmly positioned on investors' radar. Key players such as Bharat Electronics Ltd (BEL), Mazagon Dock Shipbuilding Ltd, Hindustan Aeronautics Ltd (HAL), Bharat Dynamics Ltd (BDL), Astra Microwave Products Ltd, Data Patterns (India) Ltd, and Paras Defence and Space Technologies Ltd are expected to remain in focus. Market participants are actively building positions in anticipation of a moderate increase in defence allocations, coupled with continued policy emphasis on indigenisation and domestic manufacturing.
Geopolitical Tensions and Strategic Importance
Heightened geopolitical tensions across various regions, including developments involving the United States, Venezuela, and ongoing conflicts in the Middle East, have reinforced the strategic importance of defence preparedness. This backdrop has already translated into strong price action in defence counters ahead of the Budget announcement. In the previous Budget for FY26, the government allocated ₹6,81,210.27 crore for the Ministry of Defence, marking a significant 9.5% rise over the prior year.
Brokerage Expectations and Sector Outlook
Brokerages expect the government to maintain fiscal prudence while still raising capital allocations toward strategic sectors such as defence. Analysts believe defence outlay could see a meaningful increase, improving earnings visibility for companies with robust order books and execution capabilities. Among defence PSUs, HAL is viewed as a beneficiary due to its aircraft and engine manufacturing pipeline. BEL continues to be seen as a proxy for defence electronics, radars, and communication systems. BDL is expected to draw interest given its role in missile systems, while shipbuilders such as Mazagon Dock and Garden Reach Shipbuilders are also in focus amid naval modernisation efforts.
Projected Increases and Focus Areas
Nomura India has projected a high single-digit to 20% rise in the defence budget, with a larger share expected to go toward domestic procurement, modernisation, and research and development. Meanwhile, Nirmal Bang believes capital allocation could rise to ₹2.1–2.3 lakh crore, implying a 20–30% year-on-year increase, with the share potentially moving closer to 30% of total defence spending. Motilal Oswal expects defence expenditure to increase by around 15% over the estimated ₹1.8 lakh crore spending in FY26, even after accounting for a one-time emergency procurement of ₹40,000 crore undertaken this year.
Nuvama noted that double-digit growth in defence capital outlay could accelerate modernisation, with major programmes expected to start translating into earnings from FY27. The brokerage expects continued focus on indigenisation, higher R&D spending, and exports. Priority areas are likely to include:
- UAVs and drones
- Anti-drone systems
- Missile systems
- Naval platforms
with particular emphasis on the Air Force and Navy.
Policy Push and Specific Initiatives
Emkay Global believes a sharper policy push toward aerial warfare systems would directly benefit companies involved in electronics, radar systems, and defence technologies. The brokerage also pointed to opportunities in shipbuilding, highlighting the already approved ₹69,800 crore package and the need for long-term, low-cost financing support for ports and shipyards. Emkay Global stated, "The government is expected to launch the Drone Shakti Mission, featuring a 5-year, ₹10,000 crore incentive program to position India as a global manufacturing hub."
Defence Stocks to Watch
Based on brokerage recommendations, here are some defence stocks to consider:
- Emkay Global: Zen Technologies, Astra Microwave Products, Data Patterns, Paras Defence, Cochin Shipyard, Mazagon Dock, Larsen & Toubro
- Motilal Oswal: Bharat Electronics, Bharat Dynamics, Hindustan Aeronautics
- Axis Securities: Bharat Electronics, MTAR Technologies
Recent Performance and Investor Confidence
The rally in defence counters during the Budget week has been broad-based. Key performances include:
- MTAR Technologies surged 26%
- Garden Reach Shipbuilders advanced 23%
- Data Patterns gained nearly 23%
- Apollo Microsystems rose 15%
- Mazagon Dock climbed around 12%
- BDL and Cochin Shipyard were up about 10% each
- BEL added 9.5%
- BEML rose 9%
- HAL gained 7%
This strong performance across the sector reflects investor confidence that higher allocations and faster execution could translate into stronger order inflows and earnings momentum if Budget announcements meet expectations.
Disclaimer: 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.
