Shares of defence-related companies rallied on Wednesday, with Garden Reach Shipbuilders & Engineers (GRSE) leading gains among defence players, surging as much as 14.9% to Rs 1,404.50 on the BSE. The sharp rally came after the Defence Secretary said the relaxation in foreign direct investment (FDI) policies and streamlining the industrial licensing procedure will propel growth in the defence industry.Stocks across the defence sector saw strong gains, with Data Patterns climbing 14.4% to Rs 1,631, Bharat Dynamics rising 9.1% to Rs 1,102.25, and Zen Technologies advancing 10% to Rs 1,068.65. Other key players, including DCX Systems and Mazagon Dock Shipbuilders, also saw double-digit gains in intra-day trade.Defence Secretary Rajesh Kumar Singh announced that the current defence budget of Rs 6.21 trillion is projected to rise by 9.5% to Rs 6.81 trillion in FY26. Singh emphasized the need for an annual capital expenditure of $30 billion over the next decade to modernize India's military, with 75% of the procurement budget dedicated to domestic manufacturers and the remainder directed toward the private sector.The rally provided relief to many defence stocks, which had corrected sharply in recent months due to concerns over order inflow slowdowns and delays in tender finalizations. GRSE, which had tumbled 57% from its 52-week high of Rs 2,834.60 in July 2024, rebounded strongly. Data Patterns also saw renewed buying interest, bouncing 14%. The company remains optimistic about growth, anticipating a ramp-up in the fourth quarter and targeting a 20-25% revenue increase in FY25 while maintaining EBITDA margins of 35-40%. It also has a robust order pipeline, with plans to secure between Rs 2,000 crore and Rs 3,000 crore in new contracts over the next 18 months, driven by rising export demand.Market experts noted that the government's commitment to increasing defence capital expenditure aligns with its push for military modernization. The defence capital outlay for FY26 is set at Rs 1.8 trillion, reflecting a 13% increase from the previous year. Also read | Explained: Why banks are flying gold worth billions from London to New York amid Trump tariff fears(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)