You should buy these defense stocks before Budget 2026
What's the story
Ahead of the Union Budget on February 1, market experts are recommending investors to consider defense stocks. The recommendation comes on the back of expectations that Finance Minister Nirmala Sitharaman may announce a significant increase in India's defense budget for FY25-26. This could be an ideal time to invest in companies such as Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL), Bharat Dynamics Limited (BDL), Garden Reach Shipbuilders & Engineers Ltd (GRSE), and Paras Defence and Space Technologies.
Sectoral boost
Defense sector growth to be accelerated by budget support
Pranay Aggarwal, CEO of Stoxkart, said that the defense sector's growth can be accelerated with stronger budget support for indigenization and exports. He suggested expanding the Positive Indigenization Lists, strengthening the defense industrial corridors with better fiscal incentives and infrastructure. Aggarwal also emphasized simplifying licensing and export procedures while increasing the allocations for R&D, innovation, and technology transfer as key measures to boost this sector.
Investment focus
Aerospace and defense electronics to benefit most
Aggarwal also highlighted that aerospace and defense electronics are likely to benefit the most from sustained capital expenditure (capex) for aircraft, aero-engines, and Air Force modernization. He said technology-intensive systems such as surveillance, communications, and electronic warfare would also be beneficiaries of this budgetary support. Shipbuilding too will continue to benefit from continued support for naval fleet expansion.
Investment strategy
Selectivity and patience are key
Seema Srivastava, Senior Research Analyst at SMC Global Securities, has advised potential investors to be selective and patient when buying defense stocks ahead of Budget 2026. She said the market has already factored in a defense outlay increase of roughly 8% to 10%, which is considered a comfortable expected outcome. Any allocation significantly above this range could boost sentiment, but execution visibility and order conversion timelines are crucial factors for investment decisions.
Strategic alignment
Focus on companies with strong domestic content
Srivastava said defense firms with strong domestic content and exposure to priority areas like missiles, air defense systems, defense electronics, and drones are better placed. She also recommended shares such as HAL, BEL, BDL, GRSE, and select private players with strong indigenization capabilities.