₹7.85 lakh crore defence outlay in budget fails to cheer markets; NIFTY India defence index plunges nearly 9%

Shares of defence equipment makers were trading sharply lower in Sunday's special Budget trading session after the government increased its spending on defence to ₹7.85 lakh crore for financial year 2026-27 from previous year Budget estimate of ₹6.81 lakh crore, up 15%.

The measure of defence equipment makers on the National Stock Exchange, Nifty India Defence index, dropped as much as 8.86% or 725 points to hit an intraday low of 7,458.65. 16 of eighteen shares in the NIFTY India Defence index were trading lower as most analysts and industry leaders were of the view that defence spending will be the priority sector in the budget and expected up to 25% growth in the capital outlay.

Bharat Dynamics was top loser in the NIFTY India Defence index, the stock fell nearly 9%. Garde Reach Shipbuilders, Paras Defence and Space Technologies, Mazagon Dock Shipbuilders, Mishra Dhatu Nigam, Cochin Shipyards, Data Patterns, Zen Technologies and Bharat Electronics shares also fell between 4%-7%.

The stocks came under selling pressure as Budget failed to enthuse investors and dashed their hopes of higher spending on defence sector.

Rajkumar Singhal, CEO, Quest Investment Managers, in an interview with Upstox News, said that defence is a primary candidate for enhanced support, with expectations of 20–25% growth in capital outlay to drive indigenisation in high-tech areas like UAVs and anti-drone systems.

Echoing similar views, Sonam Srivastava, founder and fund manager at Wright Research PMS, said continued emphasis on indigenisation, higher domestic procurement, and long-term order visibility for private players would strengthen India’s defence manufacturing ecosystem.

Budgetary support for R&D and exports could further improve margins and reduce dependency on imports, supporting sustained earnings growth for the sector.

Samir Sheth, Managing Partner, Deal Advisory, BDO India, said that the defence manufacturing ecosystem in India is considering Budget 2026 as the point of critical indigenisation. There is an anticipation of more visibility into the long-term procurement pipelines, accelerated contracting processes and ongoing encouragement of participation in the private sphere.

"In our view, predictability in defence expenditure is important as compared to the headline allocations. This is what allows domestic players to invest in scale and technology due to the stable order visibility," Sheth added.

"The share of capital expenditure in total government expenditure may be increased further, but changing its composition in favour of advanced technology sectors such as AI, GenAI, space, robotics and advanced infrastructure, as well as defence capital expenditure, is desirable," the EY Economy Watch report said.

As of 2:46 pm, NIFTY India Defence index was among the top sectoral losers, down 3.76%, underperforming the NIFTY50 index which was down 1.12%.