Defence Stocks Crash On Jan 20; BEL, HAL, BDL, Data Patterns, Others Fall, Can Budget 2026 Drive Fresh Rally?

Majority of defence stocks witnessed sharp selling pressure on January 20, despite India and UAE signing key trade deals to strengthen their military sector. At the time of writing, the Nifty India Defence index plunged by 1.2% and emerged among top losers on the NSE. The case was similar on BSE as well. Up to 5% decline was recorded in mega defence players like Hindustan Aeronautics (HAL), Bharat Electronics (BEL), Bharat Dynamics (BDL), Mazagon Dock Shipbuilders, Cochin Shipyard, and Data Patterns, among others.

It needs to be noted that defence stocks will be in focus due to the upcoming Union Budget 2026, which will be announced on February 1, 2026. Investors are eyeing record budget allocation to drive this sector ahead.

Defence Stocks Crash On January 20:

At the time of writing, Nifty India Defence index plunged by 1.17% to trade at 7,679.60. The index touched an intraday low of 7,641.20.

Top 3 defence players are HAL, BEL and BDL. These three stocks are down by 1.2% to 2.9%. Further, defence stocks like Midhani, Mtar Technologies, Paras Defence & Space Technologies, Mazagon Dock Shipbuilders, Bharat Forge, GRSE, BEML, Dynamatic Technologies, Data Patterns, Zen Technologies, and Cochin Shipyard tumbled by 1.5% to nearly 5%.

Also, stocks like Cyient DLM and Unimech Aerospace were down by over 1% each. However, amidst the steep decline, stocks like Astra Microwave Products and Solar Industries breathed in the green zone; however, their performance was limited between marginal gains to nearly 0.5% surge.

India-UAE Defence Deal:

The latest bearish tone in defence stocks is despite the strategic alliance announced between India and the United Arab Emirates (UAE). On January 19, Prime Minister Narendra Modi held one of the shortest meetings with the President of the United Arab Emirates, His Highness Sheikh Mohamed bin Zayed Al Nahyan, during his 3-hour visit to India.

In the meeting, the two leaders highlighted deep respect for each other's sovereignty and territorial integrity and the importance of strategic autonomy.

They acknowledged steady and strong bilateral defence and security cooperation as a core pillar of the Comprehensive Strategic Partnership.

Accordingly, both countries welcomed the momentum generated by the recent exchange of visits by the respective service chiefs and commanders of the army, navy, and air force of both countries and the successful conduct of bilateral military exercises.

Further, they signed a Letter of Intent towards the conclusion of a Strategic Defence Partnership.

It needs to be noted that the performance of defence stocks for the past month has been volatile. That is because the majority of these defence stocks are already trading with double-digit growth in 1 year, outperforming benchmarks like Sensex and Nifty.

Defence Stocks 1-Month Performance:

Data from NSE showed that in the past 30 days, the Nifty India Defence index surged by 3.3%.

Nifty India Defence Index Performance In 1 Month (Image Source: NSE)

The major drivers of the index are:

- HAL and BEL stocks surged by 5% as of now.

- Their rival Bharat Dynamics emerged as the third-best performer in 1 month, by soaring nearly 10%.

- Solar Industries stock is the fourth-best performer from December 20, 2025, to January 20, 2026, on the index. The stock rallied by over 8.5%.

- MTAR Tech skyrocketed to become the second-best-performing defence stock in 1-month duration. This stock jumped over 13.1%.

- But the best-performing defence stock in the past month is Midhani (Mishra Dhatu Nigam), which holds Miniratna status and is among the top producers of alloys in the country. Midhani shares are up by a whopping 22%.

Stocks like Paras Defence, Mazagon Dock, GRSE, and BEML gained by 1% to 4% as well.

However, among the underperformers are --- Cochin Shipyard, Bharat Forge, Zen Technologies, and Data Patterns, who plunged by 2% to 4%. But they weren't the worst performers, because that title belongs to Cyient DLM and Dynamatic, who nosedived by 8.5% to 9% in 1 month.

Could Budget 2026 Spark Fresh Record Rally In Defence Stocks?

According to Gaurav Garg, Research Analyst at Lemonn Markets Desk said, the Union Budget 2026 is expected to be a cautious, tightly balanced budget focused more on strategic prioritization than big announcements. With tax revenues under pressure due to last year's income-tax relief, the government's major focus will be to fund rising needs, especially defence, renewable energy, and semiconductors-without breaking fiscal discipline.

Analysts at Kotak Institutional Equities predict a 20% hike in defence spending during Union Budget 2026.

Data from ICRA showed that the YoY surge of 28%, or Rs. 1.4 trillion in the GoI's capex in April-November FY2026 stemmed from Defence (+Rs. 406 billion), MoRTH (+Rs. 302 billion), and the Department of Food and Public Distribution (DFPD; +Rs. 421 billion).

In the previous budget, Finance Minister Nirmala Sitharaman allocated Rs 6.81 lakh crore budget for defence sector for FY 2025-26. This touched a new record high in allocation from Rs 6.22 lakh crore that was allotted in FY 2024-25.

A strong hike in budget allocation is seen as a key positive for defence stocks.

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