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The Union Budget 2026 has brought defence spending into the spotlight. The government announced a record budget of INR 7.85 lakh crore, the highest amount ever allocated to the defence sector. This shows the government’s strong focus on national safety, modern weapons, and local manufacturing. Border tensions and lessons from Operation Sindoor have influenced this decision.
A key part of the budget is higher spending on defence equipment. Capital expenditure increased to INR 2.19 lakh crore. This is a rise of more than 24% compared to last year. The funds will support fighter jets, helicopters, submarines, missiles, drones, and smart weapons. The goal is to strengthen the armed forces and reduce reliance on foreign suppliers.
Despite the increase in budget, defence shares experienced a steep fall, surprising many investors. This drop can be attributed to the high market expectations before the budget announcement. Defence stocks had already seen sharp rallies in recent months, prompting investors to expect faster spending plans. However, the disappointment collectively increased the selling pressure.
Large defence companies saw quick reactions. Hindustan Aeronautics shares slipped even after clarity on aircraft and helicopter orders. Bharat Electronics also saw weakness despite strong demand for radars and defence electronics. Mazagon Dock shares fell as well, even though the company has long-term submarine projects. Mid-sized defence firms such as Data Patterns and Astra Microwave also showed sharp price movements.
The defence capex plan still looks strong for the long term. Aircraft and aero engines received INR 63,733 crore. This supports fighter jets and helicopter programs. Naval projects received INR 25,023 crore to boost submarines and warships. Drones, missiles, and counter-drone systems also received fresh funds to support modern defence needs.
Self-reliance remains a major focus. Indigenous defence production has already crossed INR 1.54 lakh crore. The budget supports Indian suppliers through higher local sourcing, support for MSMEs, and help for defence startups. Many defence contracts now require more Indian-made parts. This strengthens local supply chains and reduces imports.
Market experts say the fall in defence stocks does not imply the sector is weak. The budget has built a strong base for future growth, shifting the focus to execution. Companies must timely deliver orders and manage costs. Exports and long-term orders still support the sector.
Union Budget 2026 may not have improved the market sentiment, but it clearly strengthens India’s defence industry. Defence stocks may remain volatile in the short term, but the long-term outlook remains steady.
Also Read: Union Budget 2026 Live: Sitharaman Presents Budget, Pitches Inclusive Growth and Opportunity for All
