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Defence stocks deliver up to 68% returns ahead since last Budget; 4 picks to watch in 2026
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With the Union Budget 2026 set to be presented tomorrow, defence stocks have shown resilience, rising as much as 23% in January even as broader markets remained volatile.
An analysis shows that a majority of stocks in the Nifty India Defence index have outperformed the benchmark Nifty since Budget 2025. The sector is expected to stay in focus, with stock-specific moves likely to depend on announcements by Finance Minister Nirmala Sitharaman in the upcoming Budget.
Budget buzz
The Nifty India Defence Index has gained nearly 7% over the past month, buoyed by expectations of key announcements in the Union Budget to be presented on February 1.
MTAR Technologies has emerged as the top performer, delivering returns of 24%, followed by Bharat Electronics (BEL) and Solar Industries, which have posted double-digit gains of up to 15%.
Stocks such as Mishra Dhatu Nigam, Garden Reach Shipbuilders & Engineers (GRSE), Hindustan Aeronautics (HAL), Bharat Dynamics (BDL), Zen Technologies, Mazagon Dock Shipbuilders, Astra Microwave Products, Data Patterns (India) and Paras Defence and Space Technologies have recorded single-digit returns during the month.
Meanwhile, Dynamatic Technologies, Cyient DLM, Unimech Aerospace and Manufacturing, BEML and Bharat Forge have lagged the broader defence pack.
Returns from Budget 2025
MTAR Technologies led the rally with gains of 68.13%, followed by Bharat Electronics (BEL) and Garden Reach Shipbuilders & Engineers (GRSE), which returned 61% and 58%, respectively. Solar Industries rose 38%, while Astra Microwave Products and Paras Defence advanced 33% and 30%.Among other notable gainers, Bharat Dynamics (BDL) climbed 25.26%, Data Patterns added 24.30% and Bharat Forge rose 24.16%. Mishra Dhatu Nigam and Hindustan Aeronautics also posted strong returns of 23.46% and 22.49%, respectively.
However, the rally was uneven across the sector. Dynamatic Technologies (12.25%), Cochin Shipyard (10.47%) and Mazagon Dock Shipbuilders (5.29%) recorded modest gains, while BEML ended marginally lower. Sharp corrections were seen in Zen Technologies (-24.08%), Cyient DLM (-28.61%) and Unimech Aerospace (-34.27%), highlighting divergent, stock-specific performance within the defence space after the Budget.
Budget expectations
Brokerage firm JM Financial has pegged the defence allocation at Rs 1,85,400 crore for FY27E, a 9% uptick over the previous budget. This is likely to be maintained at 0.5% of the GDP, the note said.
Nuvama Institutional Equities expects an 8% growth in defence capex with higher allocation towards R&D, UAV/drones, anti-drone systems etc. “The incremental budget will be sought in the backdrop of Operation Sindoor as well as some key large programmes in pipeline (QRSAM, P-75I, Pinaka, etc) are likely to materialise, skewed towards Air Force and Navy,” the brokerage said.
Anand Rathi Research expects over 15% rise in capital outlay for capital goods & defence on the back of a strong pipeline of DAC clearances and a strong need for modernisation of defence equipment with hostile neighbours. If the ‘capital-heavy + domestic-first’ posture holds, then awarding pipeline is expected to be across platforms, munitions and network-centric capabilities, this brokerage noted.
What to do with defence stocks?
The likely FY27 defence budget hike will be structurally positive, accelerating the shift towards execution-led earnings, Nuvama said. Stock selection remains critical with preference for players offering faster execution, higher localisation and superior cash conversion rather than headline order book growth alone, it is recommended.
Stocks to buy
Axis Securities has recommended MTAR and BEL as preferred picks in the pack, while Anand Rathi bets on Solar Industries or HAL.
(Disclaimer: The recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times.)
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