Pre-Budget selloff! Defence stocks fall up to 14% in Jan; Data Patterns, BEML lead losers

Despite high hopes of double-digit growth in defence sector allocations in Union Budget 2026, defence as a pack has see pre-Budget selloff, even as analysts largely remained positive on the sector prospects. DCX Systems Ltd, Data Patterns (India) Ltd, BEML Ltd, Cochin Shipyard Ltd and Astra Microwave Products Ltd have led the losers, falling 6-15 per cent.

DCX Systems Ltd shares plunged 14.77 per cent to Rs 164.70 apiece in January. Data Patterns (India) Ltd plummeted 12.54 per cent to Rs 2,294.60. BEML tanked 9.56 per cent to Rs 1,682.35. Cochin Shipyard Ltd, Astra Microwave Products Ltd, Garden Reach Shipbuilders & Engineers Ltd and Paras Defence And Space Technologies Ltd declined 5-8 per cent against a 4 per cent drop in the Nifty 500 during the same period.

Garden Reach Shipbuilders & Engineers Ltd (GRSE), Paras Defence And Space Technologies Ltd, Mazagon Dock Shipbuilders Ltd, Zen Technologies Ltd, Unimech Aerospace and Manufacturing Ltd, Bharat Forge Ltd, Bharat Dynamics Ltd (BDL), Hindustan Aeronautics Ltd (HAL) and Mishra Dhatu Nigam Ltd fell up to 6 per cent.

MTAR Technologies Ltd, Bharat Electronics Ltd (BEL) and Solar Industries India Ltd bucked the weak trend rising up to 5 per cent during the same period.

InCred Equities sees Budget 2026 to focus on indigenisation, with further expansion of the ‘Positive Indigenisation List’ to boost domestic procurement. It also sees focus on emerging tech, with targeted funding for AI, semiconductors, and space tech to encourage private sector R&D. 

Analysts noted that defence capital outlays and procurement spending remain the primary drivers of this growth supporting force capability enhancement and indigenous manufacturing. In the Union Budget for FY26, the Ministry of Defence (MoD) was allocated Rs 6.81 lakh crore, marking a strong year-on-year increase from Rs 6.22 lakh crore. 

Nomura said it expected a high single digit to 20 per cent increase in allocations to the defence sector in the FY27 Budget. The brokerage said it saw scope for a higher capital outlay focused on domestic procurement, modernisation and research and development.

Motilal Oswal Financial Services or MOFSL said it expected the upcoming Budget to place strong emphasis on emerging priority sectors that could drive long term growth and strategic resilience. It said defence and allied industries were likely to receive heightened focus, building on recent momentum in start ups and the Centre’s formation of a dedicated committee to nurture allied defence capabilities.

Nirmal Bang in its Q3 preview note said it remained bullish on defence electronics companies, including BEL, Astra Microwave, and Data Patterns, given their significant contribution to major platforms. BEL remains
the key integrator, while Astra Microwave and Data Patterns are key subsystem suppliers that are gradually moving up the value chain toward becoming Tier-1 suppliers, it said. 

"With the approval received, QRSAM orders are expected to be received in 4QFY26 with BEL, BDL, and Astra Microwave expected to be major beneficiaries. We remain structurally positive on the defence sector. Our top picks— HAL, BEML, Data Patterns, and Solar Industries are expected to deliver strong performance in the second half of FY26.," it said.

UBS analysts are expecting a pick-up in budgeted defence expenditure to align with strong DAC (Defence Acquisition Council) approvals over the past two years.