According to reports from Business Standard, Defence Secretary Rajesh Kumar Singh expressed confidence in full utilisation of the ₹1.85 trillion FY27 modernisation allocation, which represents a 24% increase from FY26 budget estimates. Singh noted that the Ministry of Defence exhausted the military modernisation budget for the first time in five years during FY25, positioning the ministry to approach the finance ministry for a larger share of gross domestic product for defence spending. The Union Budget 2026 reversed the declining trend in defence's share of GDP, bringing it to nearly 2%. The defence sector has emerged as one of the most promising wealth-generating themes in equity markets, driven by increased geopolitical tensions, the government's push for an ambitious "Make in India" policy, growth in defence exports, and capital expenditure allocation.
As reported by Business Standard, the army's modernisation budget has demonstrated significant volatility over the FY20-FY26 period. The final allocation diverged from budget estimates by more than 20% in four of seven years, with the sharpest cut of 33.72% in FY22 and the largest upward revision of 27.52% in FY25. Despite this volatility, the army maintains consistent utilisation rates between 96.48% and 100.25%, with a cumulative utilisation of 99.07% across the period. The retail participation in PSU and defence sectors has gained momentum, with several individuals viewing the defence sector as a sure-shot multibagger, leading to speculation around themes including drones, AI-based warfare, anti-drone systems, and missile defence systems.
According to Business Standard analysis, the Indian Air Force commands the highest cumulative modernisation allocation at ₹3.62 trillion, representing approximately 15% more than the navy's ₹3.15 trillion and nearly double the army's ₹1.86 trillion. The IAF's budget estimates have grown from ₹36,409.89 crore in FY20 to ₹59,646.83 crore in FY26, with upward revisions in five of seven years, including an exceptional 33.79% increase in FY21. Among the top defence stocks in India, BEL emerges as the safer choice with a stellar ROCE of 38.88%, reflecting efficient capital utilisation and excellent management execution, while trading at a P/E multiple of 51.08 due to steady earnings outlook and criticality in India's defence modernisation efforts.
As reported by Business Standard, the navy's budget estimates have nearly tripled from ₹21,117 crore in FY20 to ₹62,975.97 crore in FY26. The service recorded the largest upward revisions of 44.43% in FY21 and 40.11% in FY22, with the high FY26 allocation indicating the navy's primacy in current modernisation priorities. While the navy and army have consistently demonstrated full absorption of allocations, the IAF has achieved this in four of five years with a five-year cumulative utilisation of 103.08%. HAL managed to generate the highest sales among the three listed companies and reported a significant net profit increase of 29.65%, with the company's operation remaining efficient due to high EBITDA and a relatively low share price of ₹34.35 despite an impressive capitalisation of ₹3.05 lakh crore.
According to Business Standard, the track record of consistent utilisation across all three services bodes well for future defence spending goals. The analysis suggests that sustained utilisation rates will be crucial for India's medium-term objective of increasing defence spending to 2.5% of GDP from the current 1.9%, an imperative that has gained urgency amid growing geopolitical uncertainty and border security challenges. However, investors should be aware of key risks including valuation risk, delayed government orders, earnings volatility, and sharp retracements driven by overly optimistic markets. The Indian defence industry has become one of the most potent wealth generation topics in share markets, with the increase in defence spending, government initiative for self-reliance, growth in export prospects, and modernisation of military infrastructure enhancing investor trust significantly.
