Defense Stocks: There was a sharp decline in defense sector companies after the budget announcements on Sunday 1 February. Nifty Defense Index fell by almost 9 percent to the level of 7,458.65. At the same time, the prices of many shares fell by 12 to 14 percent. Market experts say that the allocation of capital expenditure (capex) made for the defense sector was less than the market estimates, due to which there was a huge fall in defense stocks.
Presenting the budget, Finance Minister Nirmala Sitharaman fixed the defense expenditure for the financial year 2026-27 at Rs 5.94 lakh crore, which is higher than Rs 5.68 lakh crore for the current financial year 2025-26. The government said that the capital expenditure of the defense sector has increased by 21 percent on an annual basis, while the allocation for defense modernization has increased by 24 percent from last year.
However, the stock market was expecting a much higher and bigger budget for the defense industries. Especially in view of this, the Indian Army had taken major action last year under ‘Operation Vermillion’ against the terrorist bases built in Pakistan and Pakistan Occupied Kashmir. It was believed that after ‘Operation Sindoor’, there would be a big jump in the defense budget.
Heavy selling in these defense stocks
After the budget, among the large cap stocks, the most pressure was seen on the shares of Bharat Dynamics (BDL), which fell by about 10 percent and were seen trading around Rs 1,384. Shares of Garden Reach Shipbuilders & Engineers and Data Patterns India fell around 14 per cent. Paras Defense shares also fell by about 12 percent.
Apart from this, shares of Mazagon Dock Shipbuilders, Hindustan Aeronautics, Cochin Shipyard and Bharat Electronics also saw a decline of about 10 percent. Whereas BEML shares fell by about 11 percent. The fall in all these stocks pushed the Nifty Defense index into deep losses.
Why were investors’ hopes dashed?
Market analysts say that given the current geopolitical situation, rising border tensions and emphasis on domestic defense production under Aatmanirbhar Bharat, the market was expecting much stronger capex support for the defense sector. Although an increase was definitely shown in the budget, this increase was considered weak compared to market expectations.
What do experts say
Varun Gupta, CEO, Grok Mutual Fund, says that capital-based defense spending is not limited to just security needs but has a big economic multiplier. This strengthens indigenous manufacturing, technology development and skilled employment. He believes that continued emphasis on domestic sources in defense capital expenditure could strengthen India’s strategic autonomy and support industrial growth in the long run.
According to Jaikaran Chandak, Director of Balu Forge Industries, Budget 2026 has presented an ambitious roadmap for the manufacturing sector. Capacity building will be boosted by a record infrastructure capex of Rs 12.2 trillion and a strategy to increase the share of manufacturing in GDP. He said the allocation of about Rs 5.95 lakh crore for defense research, land-based systems and equipment gives a positive sign for precision engineering and high-value domestic production.
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