Defence Sector Gains Momentum After Higher Budget Allocation

Following the Union Budget 2026–27, global brokerage firm Goldman Sachs has released an optimistic outlook on India’s defence sector. According to the firm, government spending on defence has exceeded prior estimates, creating strong growth prospects for select domestic defence manufacturers.

In Budget 2026, Finance Minister Nirmala Sitharaman announced a total defence allocation of ₹7.85 lakh crore, marking an increase of approximately 15.2% compared to the previous fiscal year’s budget estimate of ₹6.81 lakh crore. Goldman Sachs noted that even revised estimates indicate a year-on-year growth of nearly 7% for FY2027, reinforcing the government’s commitment to strengthening national security and boosting indigenous defence production.

The brokerage had earlier projected defence spending at ₹7.75 lakh crore, meaning the final allocation surpassed expectations — a positive signal for investors and industry stakeholders alike.

Focus on Capital Procurement and ‘Other Equipment’ Category

Goldman Sachs emphasized that a major portion of the defence budget is directed toward capital expenditure, particularly in the “Other Equipment” category. This segment includes critical military hardware such as missiles, ammunition, radars, surveillance systems, and electronic warfare equipment.

The budget estimate for FY2027 shows a 62% jump, raising funding for this category to approximately ₹82,200 crore. This sharp rise highlights the government’s strategy to modernize defence infrastructure and accelerate self-reliance under the Atmanirbhar Bharat initiative.

Stocks Likely to Benefit From Defence Spending Push

Goldman Sachs identified several companies expected to gain from increased defence allocations, including:

• Solar Industries – Benefiting from ammunition and explosives demand

• Bharat Electronics Limited (BEL) – Key supplier of radar and electronic warfare systems

• Bharat Dynamics Limited (BDL) – Specializing in missile systems

• Data Patterns – Supporting electronic and defence technology solutions

• PTC Industries – Manufacturing advanced aerospace and defence components

The brokerage also highlighted Astra Microwave Products as a potential indirect beneficiary due to increased downstream demand from defence projects.

Aerospace Industry Gains Additional Support

Beyond defence manufacturing, Goldman Sachs also pointed to opportunities in the aerospace sector. The government has introduced customs duty exemptions on raw materials used in aircraft, engines, and high-value aviation components.

This move is expected to support companies such as:

• PTC Industries

• Azad Engineering

These firms are engaged in producing high-precision aerospace parts and premium engineering components, and the policy change could enhance cost efficiency and profitability.

Short-Term Market Reaction vs Long-Term Outlook

Despite strong budgetary support, defence stocks faced selling pressure in the immediate aftermath of the budget announcement. The Nifty India Defence Index reportedly dropped by up to 5%, leading to an estimated ₹60,000 crore decline in total market capitalization of defence-related companies.

Market experts suggest this short-term weakness may be due to profit booking and investor expectations, rather than any deterioration in sector fundamentals.

Goldman Sachs remains confident that medium- to long-term growth prospects for the defence sector remain strong, supported by rising government spending, domestic manufacturing push, and expanding export opportunities.

Investor Note

While brokerage reports provide valuable insights, investors are advised to consult certified financial advisors before making any investment decisions.