Budget 2026: Markets Eye 8-10% Defence Outlay Hike, Seek Execution Momentum

• Markets anticipate an 8-10% increase in the defence budget for 2026, with anything above 10% considered a positive surprise.
• Allocations are expected to prioritize drones, arms and ammunition, and defence electronics, aligning with operational needs and indigenization.
• The focus has shifted from mere announcements to execution momentum, faster DAC approvals, and clearer timelines for order conversion.
• Key trends include increased emphasis on drones, counter-UAV systems, missiles, air defence, and defence electronics.
• Challenges persist with slow conversion of capital expenditure into orders, execution delays, supply-chain issues, and working-capital pressures for PSUs.

Why It Matters: Markets expect a moderate defence budget hike but prioritize execution and order conversion over just allocations.