As Finance Minister Nirmala Sitharaman prepares for her Sunday Budget presentation, the defence sector is no longer just looking for a higher allocation—it is looking for the liquidity to execute.

Following Operation Sindoor in May 2025, the Ministry of Defence reportedly exhausted 62% of its ₹1.72 lakh crore outlay by November 2025, a major acceleration compared to the historical 40-50% utilisation rate for the same period.

Brokerages project a double-digit jump in defence capex for FY27, noting that sustained spending is critical to maintain the indigenisation momentum for platforms like HAL’s Tejas and BEL’s electronics suites.

R&D and UAVs: New frontline

Nuvama Institutional Equities expects an 8% growth in capital expenditure, with a tilt toward R&D, unmanned aerial vehicles (UAVs), and anti-drone technologies to address the asymmetric warfare requirements identified during recent border skirmishes. Nirmal Bang forecasts capital allocation to surge to ₹2.1–2.3 lakh crore, implying a 20-30% YoY growth to sustain long-term capability enhancement.

Anand Rathi forecasts a 15% rise in capital outlay, citing a strong pipeline of defence acquisition council (DAC) clearances that must be funded to prevent a "modernisation debt." The brokerage stresses that the budget must balance "committed liabilities" for legacy contracts with the need for "new schemes" in C4ISR and electronic warfare.

Industry outlook

The street is no longer satisfied with burgeoning order books; the focus has shifted to execution. Investors are watching for companies with quicker cash conversion and higher localisation levels.

A key monitorable is the potential operationalisation of the previously hinted ₹1 lakh crore deep-tech corpus. If the finance minister provides clear rules for private participation, it could trigger a rerating of mid-cap defence tech firms like Data Patterns and Solar Industries.

Ultimately, India Inc expects Budget 2026 to cement India’s transition from a buyer to a global innovation hub. With the government targeting ₹50,000 crore in exports by 2030, the industry seeks predictable export regimes and tax incentives for MRO (maintenance, repair, and overhaul) hubs to ensure that "Make in India" evolves into "Design in India."

Meanwhile, in the backdrop of the enhanced global focus on defence, it is likely that finance minister Nirmala Sitharaman’s ninth budget will have a major thrust on the sector.