Budget 2026: Defence stocks pin hopes on higher allocation from FM Nirmala Sitharaman

Defence sector stocks are in focus ahead of the Union Budget on Sunday, February 1, amid expectations of a higher capital outlay.

Shares of Bharat Electronics (BEL), Hindustan Aeronautics (HAL), Garden Reach Shipbuilders & Engineers (GRSE), Mazagon Dock, Bharat Dynamics, and others are drawing investor attention.

In the drones and unmanned aerial vehicles (UAV) segment, stocks such as Zen Technologies, Astra Micro, Apollo Micro, 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.

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.

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.

Last year's Budget set aside ₹1.48 lakh crore for the modernisation of the armed forces, along with ₹31,277 crore for research and development and infrastructure.

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.

Note To Readers

Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.