Defence stocks, Budget 2026: BEL, Data Patterns, Mazagon Dock, HAL, BDL shares among top bets

Union Budget 2026: Defence has been anticipated to be among the biggest themes this Budget, as stock analysts bet on an 8-20 per cent surge in defence allocations, backing defence-linked plays such as Bharat Electronics Ltd (BEL), Bharat Dynamics (BDL), Hindustan Aeronautics (HAL), Data Patterns (India) Ltd, Astra Microwave Products Ltd, Mazagon Dock Shipbuilding Ltd, and Paras Defence and Space Technologies Ltd, among others.

Defence stock bets
Choice Broking, which has BEL, BDL, and Data Patterns as its key stock picks, said geopolitical tensions, force modernisation, and the indigenisation policy may drive a 20 per cent YoY increase in defence spending for FY27. The brokerage sees spending diversification towards systems, sub-systems, and lifecycle components to reduce episodic revenue dependence.

Tejas Mk-2, QRSAM, and MRSAM programmes are likely to receive execution approvals, providing multi-year revenue visibility, it said, adding that Project-75 (I) submarines and follow-on orders may anchor a long-duration capex cycle.

Emkay Global said any increased focus on aerial warfare would be positive for Paras Defence and Space Technologies LtdAstra Microwave Products Ltd, Zen Technologies Ltd, Data Patterns (India) Ltd. Any announcement on Shipbuilding is seen positive for Cochin Shipyard, Mazagaon Dock, and Larsen and Toubro.
Axis Securities said it liked BEL and MTAR Technologies as its top defence bets.

Defence budget as % of GDP

To be sure, the peak defence budget as a percentage of India’s GDP came in 2009 at 2.9 per cent. The figure has since remained between 1.9 per cent and 2 per cent, against the parliamentary committee’s recommended 3 per cent.

This, however, does not mean a drop in actual spending, said Sunny Agrawal, Head of Fundamental Research at SBI Securities.

FY26 Defence budget allocation vs actual
In the FY26 Budget, the total defence allocation stood at Rs 6.81 lakh crore, with a capital outlay of Rs 1.8 lakh crore. In contrast, the value of defence project awards or approvals reached a record pipeline of Rs 3.3 lakh crore as of late 2025, nearly double the annual capital budget, Agrawal said in the BTMarkets Budget 2026 survey.

“We may witness a structural shift, with a large part of defence spending coming through in the form of capex by PSEs in the defence sector. The Budget is likely to see further enhancement, considering the ongoing geopolitical tensions,” he said.

Defence: Key focus areas
Emkay said it sees scope for a Rs 10,000 crore incentive programme linked to drones. “The government is expected to launch the Drone Shakti Mission, featuring a 5-year, Rs 10,000 crore incentive program to position India as a global manufacturing hub,” Emkay Global said.

The brokerage noted that the government had already approved a Rs 69,800 crore package focused on shipbuilding and said Budget 2026-27 presents an opportunity to build further momentum.

“The first requirement is long-term, low-cost financing for ports and shipbuilding, scale-up support for the maritime ecosystem through an expanded Sagarmala 2.0 program for driving port modernization, inland waterways, shipbuilding, repair, and coastal development over the next decade, complementing the existing maritime sector package,” it said.

Nomura India said it sees a high single-digit to 20 per cent increase in the defence budget, with a larger capital outlay for domestic procurement, modernisation, and research and development.

Motilal Oswal Financial Services said defence capital outlay is expected to remain on a high trajectory, noting that defence has been among the largest contributors to recent capital expenditure growth. It said this supports continued focus on indigenisation of major platforms and defence electronics, along with expanding opportunities for private-sector participation.

“Higher allocation for defence capex would be positive for defence companies such as Bharat Electronics, Bharat Dynamics, and Hindustan Aeronautics, among DPSUs. The budget should aim to cut the compliance burden and speed up approvals for manufacturing and defence projects, as these remain major constraints on private capex,” MOFSL said.

Nirmal Bang Institutional Equities said that following the Rs 6.8 lakh crore defence budget in FY26, which was up 9.5 per cent year-on-year, the upcoming budget is expected to see a 10-15 per cent year-on-year increase. It added that some estimates suggest defence spending could gradually edge closer to 2 per cent of GDP, supporting long-term modernisation and capability enhancement amid heightened border and geopolitical tensions.

“We expect capital allocation to increase to Rs 2.1-2.3 lakh crore, implying a 20-30 per cent YoY growth, with the share potentially moving closer to 30 per cent of total spending,” it said.