The easy money in the Defence stocks has been made. Now comes the hard part. In 2024 or 2025, the investment advice was easy: buy Defence PSUs. And it worked. Stocks such as HAL, BEL, and Mazagon Dock paid off multi-bagger returns and transformed small retail portfolios into gold mines. However, with the onset of Budget 2026, everything has been different.
It is no longer a story of Government Allocations. It is about “Execution.” The order books are already priced in by the market, and now it desires to see what is delivered. The Defence Index is presently trading at all-time highs, making blind buying in 2026 a wealth-destroying strategy.
Retail investors are stampeding to purchase the headlines at a time when the smart money is changing its strategy, and this is a dangerous trend, as Jarvis Invest, a SEBI Registered Investment Advisor, sees it. This is the AI-supported reality check you will require prior to the commencement of the speech by the Finance Minister on February 1st.
The Big Picture: From “Import” to “Export”
To see the expectation of the Budget 2026, consider the path.
- FY24: It concentrated on the Import Substitution (Negative Indigenization Lists).
- FY25: It was centered on the Order Book Swelling.
- FY26: It is about “Exports and Deep Tech.”
The government has set an ambitious goal of 50,000 Crore in yearly defence exports by 2028-29. During the FY25 alone, exports reached an all-time high of 23,622 Crore. Budget 2026 is set to heavily invest in the ecosystem that will sustain this export engine; in this case, it will look at the markets in Africa, Armenia, and Southeast Asia.
The Trap: The majority of investors continue to purchase companies that do not sell to other customers other than the Indian Army. The actual alpha in 2026 will be a result of the companies that are attracting contracts with foreign armies.
Budget 2026 Expectations: Where Will the Money Go?
Our AI-based stock trading India model predicts that the Finance Minister will probably shift the pattern of spending in 3 main areas:
1. The R&D “Deep Tech” Push
Budget 2026 is set to make this operational for Defence startups, previously announced by the government as a ₹1 Lakh Crore corpus in the private sector R&D.
Why it is important: PSUs are traditional and excel in production, but they are not good at innovating. The Budget will likely encourage private actors’ involvement in Drone Swarms, AI-based surveillance, and Space Defence.
The Pivot: Don’t look at “Metal Benders” (companies that only make shells/ships). Begin to investigate Code Writers (firms that develop the software to guide the missiles).
2. The “Trump-Proofing” Strategy
As the global geo-political landscape changes, namely the so-called Trump 2.0 policies of trade protectionism, India is becoming an ideal MRO (Maintenance, Repair, and Overhaul) partner to the US platforms such as the Predator Drones or GE Engines.
Expectation: MRO hubs’ incentive in India. It is an enormous source of revenue to the ancillary players who deliver components to the global OEMs.
3. Allocation Realism
Do not anticipate a 20% increase in the Capital Outlay. Fiscal prudence is the theme. Analysts are looking at an increase of 8-10% in the defence budget.
The Risk: When the market is valuing a “Super Budget” and receives a “Normal Budget the high-PE stocks are going to plummet. Here, Jarvis AI comes into play, helping you to differentiate between hope and value.
The “K-Shaped” Rally: PSUs vs. Private Sector
This is the most imperative insight for 2026. The Defence rally is drifting into two directions.
Path A: The Overcrowded PSUs. A good number of large PSUs are trading at 40x-60x multiples of P/E. They have full order books for the next 5 years, but their execution capacity is limited.
Caution: With a company with orders of ₹80,000 Cr and a manufacturing capacity of ₹5,000 Cr worth of goods per year, the price of stocks will reach a stagnant point. Our AI for Indian stock market has already raised the Overvaluation signal on some of the big-cap defence stocks.
Path B: The Agile Private Sector. The epic growth is moving to the supply chain, to the MSMEs and the mid-caps that provide the parts to the PSUs.
The Opportunity: These businesses have less base effects and higher execution speeds. The PLI (Production-Linked Incentive) scheme for these component makers is likely to be expanded in the 2026 budget.
Jarvis Strategy: These are companies where the Book-to-Bill ratios are high and that are also actively increasing the factory floor capacity.
How an AI Financial Advisor India Filters the Noise
When the Finance Minister declares a new “Tank Project,” thousands of investors will open their terminals and purchase the stock with the name Tank in it. That is how retail money becomes stuck.
Here is how Jarvis Invest handles Budget Day:
Sentiment vs. Substance: Jarvis Invest App is an app that relies on Natural Language Processing (NLP) in order to read the Budget speech. However, it does not respond to keywords, but it looks at the balance sheet impact. Does the company possess the technology that it is bidding for that project?
The Sell Signal: Everybody tells you what to sell. Who tells you when to sell? We use Jarvis Protect, which is our proprietary risk management system, to track institutional activity. When FIIs begin to dump a highly moving defence stock after the Budget, due to the news being out, Jarvis Protect notifies you to book the profits immediately.
Portfolio Hygiene: You do not have 10 defence stocks. You need the right exposure. Jarvis AI makes sure that although you might be a bull in defence, you have not over-diversified your portfolio to one regulatory risk.
Top 15 Defence Stocks on Hot Watchlist for Budget 2026
India’s Union Budget 2026 (expected early Feb 2026) is anticipated to boost defence capex, with analysts projecting 8-10% YoY growth in allocations for procurement, indigenisation, exports, and R&D. Key themes: missile systems, shipbuilding, electronics, avionics, and naval modernisation. Stocks below are frequently cited by brokerages like Jefferies, Goldman Sachs, and PL Capital as top stock picks due to strong order books, execution potential, and Budget sensitivity:
| SN | Stock Name | Ticker (NSE/BSE) | Key Defence Exposure | Budget 2026 Rationale |
|---|---|---|---|---|
| 1 | Hindustan Aeronautics Ltd | HAL | Aircraft, helicopters, MRO | Largest order book; top analyst pick for capex uptick. |
| 2 | Bharat Electronics Ltd | BEL | Radars, electronics, comms systems | Indigenisation leader; frequent buy calls on electronics spend. |
| 3 | Bharat Dynamics Ltd | BDL | Missiles, propulsion | Missile procurement boost; export potential. |
| 4 | Mazagon Dock Shipbuilders | MDL | Warships, submarines | Naval orders acceleration key trigger. |
| 5 | Larsen & Toubro | LT | Engineering, shipbuilding, weapons | Diversified private play on overall capex. |
| 6 | Data Patterns (India) | DATAPATTNS | Avionics, test systems | High-growth electronics; Jefferies/Goldman coverage. |
| 7 | Garden Reach Shipbuilders | GRSE | Naval vessels | Midcap shipbuilder with recent order wins. |
| 8 | Cochin Shipyard | COCHINSHIP | Shipbuilding, repairs | Navy refits and new builds in focus. |
| 9 | Solar Industries India | SOLARINDS | Explosives, ammunition | Munitions/ammo allocation beneficiary. |
| 10 | Astra Microwave Products | ASTRAMICRO | RF/microwave components | Radar/comms refresh programs. |
| 11 | Zen Technologies | ZENTEC | Simulators, training systems | Capability enhancement budgets. |
| 12 | MTAR Technologies | MTARTECH | Precision engineering, aero parts | Strong earnings; aerospace supply chain. |
| 13 | Mishra Dhatu Nigam (MIDHANI) | MIDHANI | Special alloys, metals | Make-in-India manufacturing push. |
| 14 | Paras Defence | PARAS | Optics, UAVs, electro-optics | Drones/sensors modernisation. |
| 15 | PTC Industries | PTCIL | Aero engines, defence castings | Niche high-upside midcap per analysts. |
Conclusion
We have passed the period of Buy anything in Defence Stocks. The winners will be decided by:
- Export Order Wins (Not only domestic).
- Execution Speed (on time).
- Technology Moat (IP ownership).
The Budget 2026 will cause huge volatility. There will be screaming headlines and green and red tickers. You are either the investor who is chasing the bus or one who is already on it.
70% of investors will purchase the wrong defence stocks this year. Make sure you are in the other 30%.
Allow Artificial Intelligence to decode your Budget. Download the Jarvis Invest App or Visit jarvisinvest.com & Align or create Your new Stock Portfolio for Budget 2026 with Jarvis AI.
