Budget 2026: Major defence stocks staged a sharp rally during the Budget week, with several counters gaining as much as 26%, as expectations built that the defence sector could emerge as a key beneficiary of Budget 2026.
Defence stocks such as Bharat Electronics, Hindustan Aeronautics, Garden Reach Shipbuilders, BEML, Data Patterns, Cochin Shipyard, Apollo Microsystems and Bharat Dynamics moved higher as investors priced in the possibility of a sizeable jump in defence capital expenditure, with analysts anticipating an increase of up to 20%.
The key areas expected to receive higher allocations include missiles and ammunition, unmanned aerial vehicles and counter-UAV systems, electronic warfare, air defence, network-centric systems and technology-driven force-multiplier equipment.
Defence stocks outperform in budget week
The gains were broad-based across the sector. During the Budget week, MTAR Technologies surged 26%, while Garden Reach Shipbuilders rose 23%. Data Patterns advanced nearly 23%, Apollo Microsystems gained 15% and Mazagon Dock climbed around 12%. Shares of Bharat Dynamics and Cochin Shipyard were both up about 10%. Bharat Electronics added 9.5%, BEML rose 9% and Hindustan Aeronautics jumped 7%. The strong performance underscored investor confidence that execution visibility and order inflows could improve materially if Budget allocations surprise on the upside.
Defence Sector: Budget 2026 expectations
Brokerages remain optimistic on the outlook for the defence sector ahead of Budget 2026, expecting a disciplined fiscal approach alongside higher capital allocation to strategic areas. With modernisation needs rising and policy focus shifting towards indigenisation and advanced technologies, analysts believe defence spending could see a meaningful step-up, supporting earnings visibility across the sector.
Motilal Oswal said the Budget arithmetic is likely to be realistic, assuming nominal GDP growth of around 10.1%. Under the broader “Viksit Bharat” framework, it does not expect populist measures or direct tax cuts, but sees room for higher capex allocations to strategic sectors such as defence, nuclear energy and critical minerals. The brokerage expects defence expenditure to rise by about 15% over the estimated ₹1.8 lakh crore spending in FY26, even after factoring in a one-time emergency procurement of ₹40,000 crore this year.
Nuvama echoed the positive outlook, projecting double-digit growth in defence capital outlay as the modernisation drive accelerates. It expects large programmes in the pipeline to start materialising from FY27, with sustained focus on indigenisation, higher R&D spending and exports. UAVs, drones, anti-drone systems and advanced technologies are likely to remain priority areas, while initiatives such as iDEX are expected to gather momentum. The brokerage also highlighted the need to fast-track programmes such as QRSAM, naval platforms and missile systems, with a bias towards the Air Force and Navy, paving the way for execution-led earnings growth.
Budget 2026: Stocks to buy
Emkay Global said a sharper focus on aerial warfare would be positive for Zen Technologies, Astra Microwave Products, Data Patterns and Paras Defence. The brokerage noted that the government is expected to roll out the Drone Shakti Mission, featuring a five-year incentive programme of ₹10,000 crore. It also flagged opportunities in shipbuilding, pointing to an already approved ₹69,800 crore package, and said long-term, low-cost financing for ports and shipbuilding would be critical. Cochin Shipyard, Mazagon Dock and Larsen & Toubro were seen as key beneficiaries.
Meanwhile, Motilal Oswal said higher defence capex would benefit DPSUs such as Bharat Electronics, Bharat Dynamics and Hindustan Aeronautics, while Axis Securities highlighted Bharat Electronics and MTAR Tech as preferred defence plays ahead of Budget 2026.
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.
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