As India prepares for the Union Budget 2026 to be presented on Sunday, defence stocks continue to outperform the broader market. January alone saw gains of up to 23 per cent in several counters even as benchmark indices faced turbulence.
A closer look at the Nifty India Defence index shows that most of its constituents have delivered stronger returns than the Nifty since Budget 2025.
Budget 2026: Defence stocks in focus
At a time when autonomous drones, precision algorithms and cyber warfare shape modern battlefields, Budget 2026 will indicate how strongly India intends to finance its military transformation despite limited fiscal room. In this evolving defence landscape, attention repeatedly turns towards two industry giants that anchor India’s strategic capabilities: Bharat Electronics (BEL) and Hindustan Aeronautics (HAL).
Major defence companies such as Bharat Electronics, Hindustan Aeronautics, Garden Reach Shipbuilders and Engineers, Mazagon Dock and Bharat Dynamics have attracted strong investor interest. The momentum is equally visible in the drones and UAV segment where Zen Technologies, Astra Micro, Apollo Micro, ideaForge and Data Patterns remain in focus for market participants.
Sector records strongest weekly jump since May 2025
On Friday, the defence pack closed firmly in the green with the sectoral index notching its biggest weekly jump since May 2025. The Nifty India Defence Index advanced over 1.5 per cent to hit an intraday peak of 8,193.50 and has already climbed more than 21 per cent since last year’s Budget. This steady rise highlights renewed optimism around defence manufacturing and modernisation.
Rising defence allocations boost market sentiment
The Union Budget 2025 earmarked Rs 6.81 lakh crore for defence, marking a 9.5 per cent rise from the previous year. India’s defence spending has grown over 40 per cent since 2020 and has maintained an average annual growth rate of nearly 9.2 per cent across the past five years. The emphasis on strengthening domestic production and reducing import reliance continues to influence investor confidence.
Last year’s Budget allocated Rs 1.48 lakh crore for modernisation of the armed forces along with Rs 31,277 crore for research, development and infrastructure. However, PRS Legislative Research noted a declining share of capital outlay within defence expenditure. The proportion has dropped from 32 per cent in FY14 to below 30 per cent in FY26, raising questions about the pace of long-term capability enhancement.
Union Budget 2026
Finance Minister Nirmala Sitharaman is set to make history by presenting her ninth consecutive Union Budget on Sunday for the 2026-27 fiscal year, surpassing most predecessors in continuity under Prime Minister Narendra Modi, though former PM Morarji Desai holds the overall record with 10 budgets across stints (six from 1959-1964 and four from 1967-1969). P Chidambaram presented nine budgets non-consecutively, Pranab Mukherjee eight, and Manmohan Singh five straight ones from 1991-1995. Appointed India’s first full-time woman Finance Minister in 2019 after Modi’s second term- and retaining the role post-2024- she has delivered eight straight budgets, including an interim in 2024, with her 2020 speech holding the record for length at two hours and 40 minutes.