Budget 2026: Defence stocks led by Bharat Dynamics fall up to 6% awaiting allocation details for FY27

Shares of Bharat Electronics (BEL), Hindustan Aeronautics (HAL), Garden Reach Shipbuilders & Engineers (GRSE), Mazagon Dock, Bharat Dynamics, fell as much as 6% Finance Minister Nirmala Sitharaman continued her Budget speech on the floor of the Lok Sabha.

The Nifty India Defence Index has cooled off further from the highs of the day, currently trading with losses of 3%.

Bharat Dynamics is the top loser on the Nifty India Defence Index, declining over 6%. Shares of Shipbuilders, Garden Reach, Mazagon Dock, Cochin Shipyard are down between 3% to 5.5% during the budget speech. This is the biggest fall seen in Bharat Dynamics in a year.

In the drones and unmanned aerial vehicles (UAV) segment, stocks such as Zen Technologies, Astra Microwave, Apollo Micro Systems, ideaForge, and Data Patterns are also likely to remain on investors' radar.

On Friday, defence stocks ended on a strong note, with the sectoral index recording its biggest weekly gain since May 2025. The Nifty India Defence Index rose over 1.5% to an intraday high of 8,193.50 and has already surged more than 21% since the previous Union Budget.

Union Budget 2025 allocated ₹6.81 lakh crore to the defence sector, representing a 9.5% increase from the previous year. Since 2020, India's defence expenditure has risen by over 40%, averaging annual growth of about 9.2% over the past five years.

India’s capital expenditure on defence rose 57% in April to November 2025, compared to an budgeted increase of 13% over the previous financial year, according to data from Jefferies.

The growth is coming off a high base. The Ministry of Defence had signed contracts worth $23 bn in FY25 – a record and around twice the previous high, the report added.

Brokerage firm Emkay said that recent geopolitical developments have left the government with limited flexibility, making higher defence spending necessary.

The brokerage expects defence expenditure to grow between 12% - 13% year-on-year over the next three to four years. Nuvama Institutional Equities also estimates that the upcoming Budget will accelerate spending in the sector.

However, PRS Legislative Research pointed out that the share of defence spending directed toward capital outlay has declined, falling from 32% in FY14 to below 30% in FY26.

Former Defence Secretary Giridhar Aramane has indicated that future allocations could be higher, with capital expenditure potentially rising to 15-20% or more.

Speaking to CNBC-TV18 during Budget Vision 2026, Aramane said that if industry capacity is ready, overall spending could be substantial, adding that the government has already eased funding for emergency procurement.

Finance Minister Nirmala Sitharaman is set to present her ninth consecutive Union Budget on February 1, laying out a closely watched fiscal roadmap for India's defence sector.

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