But defence stocks in dips, hope for acceleration in private banks in FY27: Rajesh Bhatia

Economic Times

5 hours ago

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CIO,, says despite a current slowdown and range-bound markets, India's macro context remains strong, preventing sharp market declines. Interest rate cuts and reforms like GST are expected to drive recovery in FY26 or FY27. Bhatia suggests optimism, focusing on successful companies in sectors like automobiles and private banks, particularly a comeback bank, while advising patience in the defence sector.Yes, you have hit the nail on the head. You are absolutely correct in pointing out that it is a no-brainer that in the next 10 years, given this geopolitical context, the need to increase our independence on defence products is going to increase and therefore the visibility for spending on defence products is going to be high for the next 10 or 15 years. It is a no-brainer that there is going to be good allocations to defence spending. But as you also correctly point out, are these stocks valued at a reasonable price? My answer is no. Look at good business models or good moats in these companies and wait for corrections in stock prices of defence companies because it is a long journey. You can afford to wait for those declines and not necessarily as we speak.Yes, it is a general expectation that the first half was not supposed to be good given that interest rates have declined and therefore, the asset book has got repriced whereas the liability book will take time to get repriced and therefore, there will be a little bit of pressure on their margins. Of course, there has been some concern on credit costs being a little elevated as well and the credit growth not being as much because the corporate sector is borrowing from the bond market or the commercial paper market or the equity market.So, to that extent, the corporate lending growth rate has also been a little anaemic and even in the retail sector, there is high competitive intensity in home loans and the other parts also are a little bit stressful. Although there has been a little bit of apprehension. So yes, the first half was expected to be a little soft and the second half is expected to be a little better. But here is the context. My view is that there has been a little bit of pessimism in financial stocks as we speak, especially the lenders and my view is that FY27 will be a growth year of acceleration.So from a structural point of view, private banks look attractive. Of course, you have to select the stocks in that portfolio. There is a comeback bank that looks a little more attractive to me than the rest of the pack. My view is that from a private bank perspective, remain optimistic and hope for acceleration in FY27.Even if they delay, that is a very short-term problem. It is not only the GST trade that we have been playing in the automobile segment. We are playing stocks which are benefiting from market share increases. So, companies that you like from a structural perspective are the ones that we have in the auto space. So, let us say, SUV/tractor manufacturer. We have been holding that for a very long time. There is a two-wheeler company that continues to gain market share in various products.We feel that is a champion two-wheeler company and therefore we continue to own those kind of companies, barring the fact that GST is a very good positive but we have extended the time horizon and looking for companies which are gaining market share and which have a very strong competitive moat in the business that they are operating in. So, GST rationalisation is certainly going to be positive when it comes to that and this is the first step of reforms that the government is going to do given that we are already benefiting.So just step back a bit, the macro context of India is very strong. The markets are unfortunately range-bound because we are experiencing a slowdown. Very sharp declines in markets only happen when you have a very sharp decline in macro. Fortunately that is not the case, and therefore, all we are experiencing is a bit of a time-wise correction and not a very sharp price-wise correction in the market.Now that there is a 100 bps decline in interest rates and we have already stepped up reforms, particularly GST being the first one and there are many other steps that are to come. Expectations for a recovery in the second half of FY26 or FY27 are going to be high. So, in the broader context, you should be a little optimistic as you move forward.On automobiles, GST is a positive move but from a broader perspective, the way to go about these things is to look for companies which are succeeding and own them for a longer period of time. That is how I would approach the automobile sector