Defence Stocks Tumble on Budget Day Despite 18% Capex Hike

Indian defence stocks saw sharp losses on Budget 2026 day, with the Nifty India Defence index falling over 4% (down to -6% intraday) despite an 18% year-on-year increase in defence capital expenditure to ₹1.8 lakh crore for FY27. The sell-off reflected unmet market expectations, as investors had priced in more aggressive spending—Jefferies had anticipated a rise of over 25%—and awaited major project-specific announcements. The Budget introduced targeted structural measures rather than large procurement triggers: A customs duty exemption on raw materials imported by defence PSUs for manufacturing aircraft parts used in MRO (Maintenance, Repair & Overhaul). Income tax exemption for disability pensions of armed forces personnel invalided out due to service-related injuries. Continued exclusion of the Ministry of Defence from standard financial delegation and asset disclosure norms, preserving administrative autonomy. However, the lack of directly actionable contracts or policy boosts for private-sector OEMs weighed on sentiment. The customs relief was limited to public sector units, offering minimal near-term benefit to listed players. Meanwhile, broader equity market weakness—driven by a hike in securities transaction tax and risk-off trading—amplified the selloff. Analysts noted that while the capex boost reinforces long-term focus on indigenous manufacturing, strategic preparedness, and self-reliance, the absence of fresh order visibility led to profit booking after a strong pre-Budget rally. As Saurabh Bansal of Finatwork observed, the Budget supports India’s global export ambitions in defence, but for now, markets wanted faster translation into corporate earnings—which this Budget didn’t deliver.