Defence stocks have taken the centre of interest again as India prepares to present the Union Budget 2026-27. The stocks of large defence firms like Bharat Electronics Ltd (BEL), Hindustan aeronautics ltd (HAL), Garden Reach Shipbuilders and Engineers (GRSE) and Paras Defence continued to be on the watch list of the investors due to high anticipations of the increased government expenditure on defence sector.
Budget announcements, and in particular capital expenditure, defence modernisation, and the indigenisation efforts are under close scrutiny by market players and may dictate the direction of the sector in the next few months.
Defence Sector Demonstrates Good Performance in The Market
The defence industry has managed to perform exceptionally well within the past year and has greatly surpassed the markets in general. The Nifty India Defence Index, the index that tracks 18 listed defence companies, has experienced an appreciation of approximately 33 percent year on year.
Comparatively, the relative returns of the benchmark indices like the Sensex and Nifty 50 have maintained relatively low returns of approximately 68 percent over the same time. This sudden performance shows an increasing investor faith in the defense production ecosystem in India.
Most important Defence Stocks on Watchlist of Investors
A number of defence stocks have attracted a lot of attention before the Union Budget:
Bharat Electronics Ltd (BEL)
Since it has a good order book, is defence electronics-oriented and has been able to execute government deals with consistency, BEL remains a favored choice among investors.
Hindustan Aeronautics Ltd (HAL)
The role of HAL has been very important in the aerospace and defence industry in India, and there are continuous projects in the manufacturing of the aircrafts, upgrades and services of the aircrafts.
GRSE Garden Reach Shipbuilders and Engineers
GRSE has enjoyed the long term naval procurements and is considered as a primary beneficiary of higher spending on maritime defence.
Paras Defence and Space Technologies
The niche has made Paras Defence appealing to attention as it has been involved in defence engineering, optics, and advanced technology solutions.
Mazagon Dock Shipbuilders, Cochin Shipyard, Bharat Dynamics Ltd and Data Patterns are other defence stocks that have not stayed behind in the market deliberations.
Anticipations of Budget 2026 Motivate Investor Sentiment
Market analysts feel there is potential in the defence sector in the Union Budget 2026 in favouring the sector. The analysts further believe that the government will still focus on defence modernisation and some estimates are that the defence capital outlay will grow by 20-25%.
The main areas of concern that are likely to be addressed include:
- Fourth, indigenous defence manufacturing.
- High-tech devices like drones, anti-drone, and electronic warfare.
- Enhancement of the local supply chains.
- Procurement visibility in the long-term by defence companies.
The industry pundits have pointed out that the predictable framework of policy will prove to be pivotal towards maintaining growth and attracting the participation of the private sector.
Defence Industry Enjoys The Long-Term Structural Trends
Other than the Budget, the defence sector is still enjoying long-term structural factors that include:
- The Indian quest to become self-reliant (Atmanirbhar Bharat).
- Rising defence exports
- Greater participation of the private sector.
- Increased interest of the world in India as a defence manufacturer.
These are some of the reasons why the inflows of order have been high and earnings visibility enhanced among some of the listed defence firms.
There is a Probability of Short-Term Volatility
Sentiment is still favorable but market analysts are warning of short term volatility in defence stocks in the short term through Budget Day. There are already sharp rallies in some of the stocks in recent sessions that may prompt the possibility of profit-booking after the Budget announcements.
It is recommended that investors pay close attention to:
- Real budgetary allocations.
- Announcement policy in defence procurement.
- Order pipeline information and commentary by the management.
Conclusion
With the upcoming Union Budget 2026, defence stocks are squarely under the limelight given its good performance in the past and high anticipations of the government policy. Although short-term fluctuations cannot be discounted, the defence sector of India has a bright future in the long term due to the long-term policy backing and increasing local strengths.