Defence sector remains a long-term bet amid strong domestic policy push: Deepak Shenoy

Time of India

22-05-2025

"Our domestic players will see serious revenue increases. But this has been happening the last three years. So, I am not saying that this is suddenly because of what has happened in the last one month. But there is more space to go," says
Deepak Shenoy
, Founder, Capital Mind.
I want to go back to your sectoral views then, you did mention that manufacturing, industrials,
defence
continue to remain your preferred bets. I want to specifically talk about the defence space. The space has been in focus since the Pahalgam attack and stocks have seen a fair bit of rally as well and the
earnings
are also fairly good for most of the companies with especially healthy order books for most of them. So, within this defence space, what are your preferred picks? Could you give us some names?
Deepak Shenoy:
I cannot give you names. We have got a mutual fund license, so we do not do names meaningfully anymore. But the overall sector looks good for the longer term mostly because the focus of even the Indian government is shifting to procure locally from domestic manufacturers.
We have zero foreign dependence during times of conflict. You do not want to be buying from a country that suddenly decides not to support you in a war. So, therefore, the Indian army, the Indian services, the defence ministry also will very surely move towards as close to 100% domestic as possible.
Our domestic players will see serious revenue increases. But this has been happening the last three years. So, I am not saying that this is suddenly because of what has happened in the last one month. But there is more space to go.
There will be a lot more opportunity in defence and we will both do replenishment of whatever has been spent and whatever has been used in the last few weeks or months, but also do new initiatives because increasingly we are getting to know capabilities of people who are hostile countries that are hostile to us and to counter those capabilities we are going to have to build new capabilities and therefore there will be a lot more new work that will go into these defence companies. And as I said most of this work will go locally.
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So, whether it is an electronics
company
or whether it is a missile company or whether it is a company that does tanks, physical armoured cars or trucks, these are all things that you will see more procurement for lately in the near future and we have bet on a bunch of them. But the idea here is that you have to have a 10-year view into these companies in order to understand, I mean how much space there is. Some of them are expensive so you have to be very careful on what you buy.
But give us some sense that from where do you believe that the next big signal for the markets will come through because, of late, we have been just tracking what President
Trump
has been saying, along with that the earning season was in full swing. But now a lot has really been happening in the bond market as well. From the global markets across, we are getting to hear some comments on how some of these long-term bonds and their demand, how are they shaping up? What is your sense that from six months when you believe that the markets will be a little bit more volatile, which key triggers you will be watching out for?
Deepak Shenoy:
So, I am still watching out for say a good news around the war coming to an end or something of that sort, which would kind of help reduce the uncertainty going forward. Secondly, on the closing down of tariffs, so at some point America is going to have to make a decision on what it is going to do with these tariffs thing and whether it is going to retain them at this 10%, increase them, or change whatever it has to with China as well. Expect that over the next three or four months that will kind of ease down, that is really your trigger.
But honestly, markets look for very sharp and very emotional triggers every day, so that is not going to happen. It is like a lot of very boring stuff comes. Now, for instance, we have reduced interest rates, that was a trigger, but we did not care when it happened and now suddenly we are saying banks are doing well.
But it is a delayed effect so they get good impact for the first six months, then slowly their loans also repriced downwards and that is when they do not make that much. So, we will have to live with lower nims, but higher growth and the banks that will grow the most will make a lot of money. However, these triggers have been kind of ignored by the market for when they happened.
So, we did not think that that would do so well, but now it is starting to come to the fore. We will see this, we will see a change in global inflation. India's inflation will continue to flow downwards in the next few months and world inflation will actually inch upwards, not downwards. So, you will see a very different reaction to interest rates worldwide versus what is happening domestically.
I feel the macro situation is more favourable to India, but this uncertainty needs to get over on tariffs. It will take us another three or four months while whatever Trump says and whatever something else says and all that stuff, after that we will be in a better shape to kind of take more decisions. Markets tend to look a little bit forward. So, you might see the markets will kind of start predicting this a little bit earlier than everybody else.
I also wanted to get your view on the oil and gas space. On the back of some news flow now with reports suggesting that Israel may be preparing to strike Iranian nuclear facilities which will lead to supply concerns. How do you think one should play this sector?
Deepak Shenoy:
Well, technically, Iran is a supplier, but it is not one of the biggest suppliers in the world.
I would say a lot of threatening will happen, maybe some action and again markets will get excited in the short term, but in the long term you have to look at it from a perspective of how much supply exists and can it meet demand. There seems to be enough supply to be able to meet demand already and a lot of these countries are desperately looking for an opportunity to increase their production because they have decreased production, trying to control prices in the past. So, if there were a loss of one player, then another player will come in to take its place.
So, I do not see meaningful increase in demand for crude, and I do not see meaningful drop in supply for crude. So, I do not think crude prices are going to meaningfully change. There may be some deals. There is some talk about how Venezuela is going to be treated.
There is some talk about discovering more oil in a few other places. All of these things will change supply-demand constraint. So, they may create some short-term imbalances, but I do not think this Iran-Israel thing is meaningful more than a short-term blip.