As a result, stocks plunged by up to 10% on the intraday basis, but managed to narrow their losses at the closing time.
Multibagger PSU stock Hindustan Aeronautics Limited (HAL) tanked 10% to hit the day's low of Rs 4,510. Others, including Bharat Dynamics, Mazagon Dock Shipbuilders also fell 10% intraday.
Private ones, including Paras Defence and Space Technology, Krishna Defence and Allied Industries also fell 5% in tune with their public peers.
The stocks, however, recovered towards the end of the trading session, narrowing their losses against the initial jitters.
The industry had expected a higher allocation in the full Budget. In its Budget preview note, Nuvama estimated 12-15% growth in the Budget outlay on the back of systems modernisation and infrastructure development with focus on indigenisation and exports ramp-up, persisting.
It had estimated defence capex to increase 5-8% on a YoY basis with higher allocation towards R&D, UAV/drones, anti-drone systems etc. as some key large systems are already in the pipeline.
JM Financial also expected higher Budget outlay for the defence sector with PSU stocks Bharat Electronics and Hindustan Aeronautics (HAL) to be the likely beneficiaries.
Defense stocks have seen a strong