Budget 2026: Defence, Infra, and Power Stocks in Focus

Introduction to Union Budget 2026

As Finance Minister Nirmala Sitharaman prepares to present the Union Budget for 2026-27 on February 1, the Indian stock market is closely watching for key policy announcements. This budget is anticipated to continue the government's focus on capital expenditure (capex) to drive economic growth while maintaining fiscal discipline. Investors and industry experts expect a strategic allocation of resources towards sectors crucial for national development, including defence, infrastructure, manufacturing, and renewable energy. The budget will be presented against a backdrop of stable domestic economic indicators and global uncertainties, making its policy signals critical for market direction in the upcoming fiscal year.

Government's Key Focus Areas

The central theme of Budget 2026 is expected to be growth driven by investment. The government is likely to prioritize sectors that create long-term assets, generate employment, and enhance India's self-reliance. Key areas expected to receive significant attention include defence modernization, expansion of the national infrastructure pipeline covering roads and railways, and a continued push towards green energy. Additionally, policies supporting domestic manufacturing through Production Linked Incentive (PLI) schemes and measures to boost consumption in rural and urban areas are also on the agenda. The overall approach aims to strengthen the economy's foundations without resorting to major fiscal stimulus, leveraging the robust GDP growth projected for the current fiscal year.

Defence Sector: A Top Beneficiary

The defence sector is poised to be a significant beneficiary of the upcoming budget. Analysts anticipate a substantial increase in the defence allocation, potentially between 10% and 15%, to support the government's 'Make in India' and indigenization initiatives. This increased spending is expected to flow into research and development, procurement of advanced equipment, and modernization of the armed forces. Companies like Hindustan Aeronautics (HAL), Bharat Electronics (BEL), and Bharat Dynamics (BDL) are directly in line to benefit from higher government orders. The performance of defence stocks following previous budgets has been strong, and the market expects this trend to continue as India strengthens its domestic defence industrial base.

Infrastructure and Capital Goods on the Rise

Infrastructure and capital goods remain a core focus for the government, with expectations of continued high outlays for projects under the National Infrastructure Pipeline. Increased investment in roads, highways, railways, metros, and power transmission and distribution (T&D) will directly benefit companies in this space. Major players such as Larsen & Toubro (L&T), ABB, Siemens, Hitachi Energy, and KEC International are well-positioned to gain from new and ongoing projects. The sustained push for infrastructure development is seen as a critical driver for economic activity, creating demand for various ancillary industries and boosting employment.

Cement and Real Estate Sector Outlook

A direct consequence of the infrastructure push is the anticipated rise in demand for cement. An above-average increase in government capex is expected to drive higher consumption, benefiting major cement producers. Stocks like UltraTech Cement, JK Cement, and Dalmia Bharat are on the watchlist of many analysts. In the real estate sector, the budget may bring positive news through an increased allocation to the Pradhan Mantri Awas Yojana (PMAY) and a potential hike in the affordable housing price threshold from ₹45 lakh to ₹70 lakh. Such measures would stimulate demand in the housing market, benefiting developers like Brigade Enterprises, Prestige Group, Sobha, and Godrej Properties.

Powering the Future: Renewable Energy and Utilities

The renewable energy and utilities sector is another area of focus. The budget is expected to expand schemes like PM Surya Ghar Yojana and PM-KUSUM, which promote solar power adoption. Further incentives for upstream solar manufacturing, including solar glass and wafers, could also be announced. These initiatives will support companies like Tata Power, NTPC, JSW Energy, Waaree Energies, and Premier Energies. In the oil and gas segment, the industry hopes for the removal of customs duty on LNG imports and other tax rationalizations, which would benefit gas distribution companies such as GAIL, IGL, Mahanagar Gas, and Petronet LNG.

Key Stocks and Sectors at a Glance

To provide a clear overview, the following table summarizes the key sectors and companies that analysts are monitoring ahead of the budget announcement.

Analyst Commentary and Market Expectations

Brokerage firms like Motilal Oswal have highlighted a broad list of potential beneficiaries, emphasizing that the budget will likely continue its capex-led growth strategy. Analysts widely believe that the government will stick to its path of fiscal consolidation, targeting a fiscal deficit of around 4.2% of GDP. While no major changes are expected in direct taxes like Long Term Capital Gains Tax (LTCG), some targeted measures to boost rural consumption and support MSMEs could be announced. The market is looking for policy stability and clear signals that support long-term investment, particularly in companies with strong execution capabilities and healthy balance sheets.

Conclusion

The Union Budget 2026 is expected to be a forward-looking policy document that reinforces India's growth trajectory. By focusing on strategic sectors like defence, infrastructure, and green energy, the government aims to build a resilient and self-reliant economy. For investors, the budget announcements will be crucial in identifying sectors and companies that are aligned with the government's priorities. While the market may experience short-term volatility on the budget day, the long-term direction will be shaped by the substance and execution of the proposed policies.