BEL, GRSE, Paras Defence, HAL: Defence stocks on investors’ radar ahead of Union Budget

Defence stocks remain in the spotlight on Sunday, February 1, ahead of the Union Budget 2026-27 presentation amid high expectations for the sector following the India-EU deal and encouraging Q3 numbers by companies.

Shares like Bharat Electronics (BEL), Mazagon Dock, Garden Reach Shipbuilders & Engineers (GRSE), Data Patterns, Cochin Shipyard, Paras Defence, Hindustan Aeronautics, and Bharat Dynamics will be investors’ focus on Sunday. The market participants will keep a keen watch on the budget allocations for the sector.

The Nifty India Defence index, which consists of 18 defence stocks, has gained 33% in a year. In contrast, the SENSEX and NIFTY50 indices since the last budget have advanced 6.14% and 7.82%, respectively, despite uncertainties around tariffs, geopolitical tensions, the exodus of foreign capital and subdued earnings posted by the Indian corporates.

According to a report by data intelligence platform Tracxn, India's defence technology sector marked 2025 as a landmark year, recording its highest-ever annual capital inflow of $247 million (about ₹2,270 crore). With this surge, the sector's cumulative funding milestone has reached $711 million (about ₹6,535 crore).

Budget expectations for the defence sector:

Most analysts and industry leaders are of the view that defence will be the priority sector in the budget and expect up to 25% growth in the capital outlay.

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.

Further, EY India has also pitched for a hike in capital expenditure in defence and advanced technology sectors in the Union Budget for 2026-27, while targeting a fiscal deficit of about 4% of GDP as the government balances growth imperatives with fiscal consolidation amid global headwinds.