Budget 2026: Defence stocks plunged after Budget speech; what analysts say

Defence stocks, which were trading higher ahead of the Budget 2026, took a beating post Finance Minister Nirmala Sitharaman's Budget 2026 speech, even as a rise in defence capex largely met market expectations. Bharat Dynamics Ltd led the Nifty India Defence losers, plummeting 10.41 per cent to Rs 1,378. on NSE. Garden Reach (GRSE), Paras Defence, Mazagon Dock Shipbuilders Ltd, Zen Technologies and Data Patterns were some other stocks plunging 7-9 per cent. Other losers included Bharat Electronics Ltd (BEL), BEML and Hindustan Aeronautics Ltd (HAL), among others.

A large share of the defence budget to the tune of Rs 2,19,306.47 lakh crore has been allotted for capital expenditure against Rs 1.80 lakh crore in FY26. Out of this, Rs 1.85 lakh crore is earmarked for capital acquisition, which is approximately 24 per cent higher than the capital acquisition budget for FY26. A total of Rs 1.39 lakh crore has been allocated for domestic industries, including private players.

"All major indices ended in the red, as the market wished for incremental positive measures for sectors such as infrastructure or real estate. Expectations of higher allocations to defence, for instance, were not reflected in the Budget speech. However, the Budget figures reveal a 24 per cent YoY jump in defence spending," said Amar K Ambani, Executive Director at YES Securities.

Analysts were largely expecting the focus areas to be missiles and ammunition, UAVs and counter-UAV systems, electronic warfare, air defence, network-centric systems, and technology-driven force-multiplier equipment.

Maulik Patel, Head of research, Equirus Securities noted that aircraft and aero-engines category remained the largest line item at 29 per cent of the proposed capex, though this was a moderation from the 39 per cent seen last year. "A standout structural reform is the new customs duty exemption on raw materials for aircraft parts (including civil aircraft). This is a strategic move to position India as a global MRO hub, incentivizing domestic servicing of both military and commercial fleets," Patel said.

Patel said the defence budget continued its strong trajectory with a capital outlay of Rs 2.19 lakh crore, 18 per cent increase over FY26 revised estimates, while effectively limiting revenue expenditure growth to just 3 per cent.

The Budget proposed customs duty exemption on components and raw materials used for manufacture, repair, and overhaul (MRO) of defence aircraft, significantly lowering input costs and supporting domestic defence aviation ecosystems. Exemption on capital goods and tooling provided by foreign entities to Indian toll manufacturers in bonded zones will further accelerate Make-in-India defence electronics and equipment manufacturing. Additionally, extension of customs duty exemptions for nuclear power projects till 2035 and incentives for critical minerals processing strengthen long-term defence and strategic infrastructure readiness.

"These measures collectively improve competitiveness of Indian defence manufacturers, encourage global OEM partnerships, and boost exports," said Arihant Capital Markets.

Varun Gupta, CEO, Groww Mutual Fund said the higher allocation to defence underscores the government’s twin priorities of strategic preparedness and domestic capability-building.

"Beyond immediate security needs, capital-led defence spending has a powerful economic multiplier—supporting indigenous manufacturing, technology development and skilled employment. A sustained shift towards domestically sourced defence capital can strengthen India’s strategic autonomy while creating durable growth opportunities across the broader industrial ecosystem.”