Budget 2026: Here are the defence stocks that will be in focus as market eyes 8-10% defence outlay hike

Analysts note that while higher allocations provide medium-term comfort, stock performance will depend more on how quickly contracts are awarded, projects move from approval to execution and payments flow to manufacturers.

• Defense stocks in focus before Union Budget 2026; moderate outlay anticipated.
• Investors eye execution momentum, order finalisation, and procurement clarity
• Budget favors firms with strong order books and execution, impacting stocks.

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Defence-linked stocks are expected to remain in focus during the Union Budget 2026 on February 1, with investors factoring in a moderate increase in defence outlay alongside continued emphasis on indigenisation. While the market is not pricing in any major surprises on the allocation front, participants are closely watching for signs of execution momentum, faster order finalisation and clarity on procurement timelines rather than just headline budget numbers.

Among defence PSUs, companies with strong order books and execution visibility are likely to stay in focus around the Budget. Hindustan Aeronautics is seen benefiting from its aircraft and engine manufacturing pipeline, while Bharat Electronics continues to be a key play on defence electronics, radar and communication systems. Bharat Dynamics is expected to remain on investors’ radar given its role in missile manufacturing, while shipbuilding names such as Mazagon Dock Shipbuilders and Garden Reach Shipbuilders are also being tracked amid ongoing naval modernisation.

Private sector defence manufacturers are also expected to attract attention as the indigenisation push continues. Larsen & Toubro remains a key beneficiary of large platform and systems  integration projects, while companies such as Bharat Forge, Data Patterns and Astra Microwave are seen gaining from increased localisation of components, electronics and subsystems.

Market participants expect the defence budget to see an 8–10 percent year-on-year increase, broadly in line with recent trends. Analysts note that while higher allocations provide medium-term comfort, stock performance will depend more on how quickly contracts are awarded, projects move from approval to execution and payments flow to manufacturers. The focus is expected to remain on capital expenditure, with domestic sourcing continuing to take priority.

“The market expects improved visibility for the defence sector, with incremental allocations largely directed towards drones, arms and ammunition, defence electronics and indigenisation,” according to, Ankit Soni, AVP Fundamental Research, Mirae Asset ShareKhan adding that while FY26 defence capex approvals are around Rs 3.3 lakh crore, “the key challenge remains execution, with delays in order finalisation pushing timelines and affecting near-term revenue visibility.”

Brokerages say that with much of the optimism already reflected in stock prices, the Budget’s impact on defence equities is likely to be stock-specific rather than sector-wide. Investors are expected to stay selective, favouring companies with clear execution timelines, strong cash flows and long-term earnings visibility. The Union Budget 2026 will be closely watched for signals on policy continuity and the government’s commitment to sustaining defence manufacturing momentum in the coming years.