Defence shares advanced on Friday, with the sectoral index logging its biggest weekly gain since May 2025, amid expectations of higher capital outlay in the upcoming Union Budget on February 1.
The Nifty India Defence Index rose over 1.5 percent to an intraday high of 8,193.50. The index is up 8.9 percent so far this week, marking its strongest weekly rise since May 2025, when India-Pakistan border tensions had flared.
The rally comes ahead of the Union Budget, with analysts expecting a substantial increase in defence capital spending.
Om Ghawalkar, Market Analyst, Share.Market (PhonePe Wealth), noted "the Nifty India Defence Index is flashing strong bullish signals as it prepares for a major breakout from a Double Bottom pattern. Currently trading at 8,184, the index has gained 8% this week, significantly outperforming the broader market. This momentum is supported by a Golden Crossover, where the 10-day and 21-day moving averages have climbed above the medium-term trend, confirming a new uptrend. With a rising MACD and prices holding well above all key moving averages, the technical setup suggests that buyers are firmly in control."
"The index's strength is further highlighted by its position relative to long-term trend lines. It is currently trading comfortably above its 50-day SMA and its 200-day SMA, which indicates a robust primary trend. The recent "Golden Crossover" specifically saw the short-term averages move past the 100-day SMA, providing a clear technical "buy" signal for momentum traders looking at the medium-term horizon. Looking ahead, the index faces immediate hurdles at 8,350 and 8,450. A clean break above these resistance levels could trigger a fresh rally toward previous record highs. On the downside, the 7,300–7,400 zone provides a solid support floor, protecting against sudden volatility. As the Union Budget 2026 approaches on February 1, this pre-budget momentum highlights the sector's strength and its role as a key growth theme for investors in the current market.
Hemant Sood, Managing Director, Findoc, said "The sharp rally in defence stocks reflects strong investor expectations of a higher defence allocation in the upcoming Union Budget, driven largely by evolving global geopolitical tensions and rising security concerns. With ongoing international conflicts, markets are factoring in increased focus on defence preparedness and modernization."
"Within the sector, aerial combat technologies and drone manufacturing are likely to remain key beneficiaries, as next-generation warfare increasingly relies on surveillance, automation, and advanced combat systems. Additionally, defence PSU stocks are expected to stay in focus, given their direct linkage to government spending and execution. From a valuation standpoint, defence stocks are not excessively stretched, which further supports the ongoing momentum. Overall, a favourable budgetary push, combined with strategic importance and reasonable valuations, is driving sustained investor interest in the defence space," he added.
According to Emkay Research, recent geopolitical developments leave the government with limited flexibility, necessitating higher defence outlays. The brokerage has forecast a 12–13 percent year-on-year growth in defence spending over the next three to four years. Nuvama Institutional Equities also expects the Budget to accelerate spending in the sector.
Macquarie said India could raise defence expenditure to 2.5 percent of GDP by fiscal 2027 from 1.9 percent in the current fiscal, with a sharper focus on indigenisation. The defence index has gained 5.15 percent so far in January, compared with a 3.3 percent decline in the benchmark Nifty 50.
The Nifty India Defence Index had fallen 1.2 percent in the previous session but recovered those losses on Friday. All its 18 constituents were trading in the green.
Dynamatic Technologies emerged as the top gainer, rising 8 percent to Rs 8,790 per share. Garden Reach Shipbuilders & Engineers and MTAR Technologies followed, advancing 7.37 percent and 7.19 percent, respectively.
MTAR Technologies reported a strong performance in the December quarter, supported by healthy execution across segments and operating leverage. The company’s net profit more than doubled to Rs 34.6 crore in the third quarter of FY26 from Rs 15.9 crore a year ago, while revenue rose 56.9 percent year-on-year to Rs 273.7 crore. EBITDA jumped 80.7 percent to Rs 59.8 crore, with operating margin improving to 22 percent from 19 percent in the corresponding quarter last year.
"GRSE is mirroring the Nifty Defence Index’s bullish structure, currently trading at ₹2,764. Technically, the stock is primed for an uptrend as it forms a Double Bottom pattern with strong volume accumulation. While ₹2,100 serves as a solid support floor, the stock faces its next major test at the ₹3,000 psychological resistance level. MTAR Technologies is witnessing a powerful technical breakout, surging past the critical Rs 2,700 resistance to reach Rs 2,931. This move is validated by a massive volume spike and a bullish MACD crossover, signaling that the stock has shifted from consolidation to an aggressive growth phase. Mazagon Dock Shipbuilders is showing early signs of a bullish reversal as it successfully closed above its 50-day moving average this week," added Ghawalkar.
Shares of Paras Defence and Space Technologies, Cochin Shipyard, Mazagon Dock Shipbuilders, Bharat Electronics and Hindustan Aeronautics also gained up to 3 percent.
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