Expert view: Defence, PSU present compelling long-term opportunities, says Ajit Mishra of Religare Broking

Expert view on markets: Ajit Mishra, SVP of research at Religare Broking, believes defence and PSU sectors are well-aligned with India’s structural growth and self-reliance goals, offering significant wealth creation potential. In an interview with Mint, Mishra shared his views on market triggers, mid and small-caps and sectors he is positive about. Here are edited excerpts of the interview:

What is your outlook for the Indian stock market in FY26? Which factors will be key in shaping its trajectory?

We maintain a cautiously optimistic outlook for FY26, citing mixed signals from both domestic and global fronts.

After a sharp 15 per cent correction from September to March, benchmark indices have rebounded over the past two months amid heightened volatility, supported by favourable domestic policy developments and relative stability in global markets.

Looking ahead, market trajectory will be shaped by key factors such as global interest rate trends, trade agreements, inflation dynamics, and geopolitical uncertainties—all of which continue to influence sentiment and drive volatility.

On the domestic side, supportive policy measures and sector-specific growth prospects will be critical.

A notable trend is the growing investor preference for large-cap stocks, reflecting a tilt towards stability.

Promising sectors such as cement, private banks, and life insurance are expected to lead near-term growth. Success in this environment will require selective stock-picking and agility in navigating both domestic and global challenges.

What are the key domestic and global risks that could weigh on market sentiment going forward?

A key global risk is the increasing likelihood of stagflation in the US—a scenario characterised by persistent inflation coupled with slowing economic growth, which could result in interest rates remaining elevated for an extended period.

This may reduce global liquidity and dampen investor appetite for risk, potentially triggering capital outflows from emerging markets such as India.

On the domestic front, although inflation has eased and is expected to remain stable, high market valuations amid relatively modest earnings growth could pose a constraint.

A further slowdown in global growth may weigh on export-oriented sectors and delay a recovery in corporate earnings.

Alongside subdued domestic demand, these factors could cap market upside and contribute to heightened volatility.

Mid- and small-cap stocks have seen renewed momentum. Do you believe this rally is sustainable in the near to medium term?

Mid- and small-cap stocks have seen a strong rally recently, but the sustainability of this momentum in the near to medium term largely depends on how earnings evolve going forward.

Currently, many of these stocks are trading at a significant premium to large-caps, leaving limited scope for further re-rating.

Given the pressure on global growth, it may be challenging for these companies to outpace India’s nominal GDP growth meaningfully.

While we remain broadly cautious on this segment, there are still selective, stock-specific opportunities where valuations appear more reasonable and the long-term potential remains attractive.

At the current market levels, which sectors do you believe offer attractive value opportunities for investors?

We are currently observing investment opportunities in select themes such as cement, life insurance, and affordable housing.

The cement sector is showing signs of recovery, with improving volumes, easing competition, and resulting gains in pricing and margins.

Life insurance also appears promising, as valuations have corrected to more reasonable levels and improving regulatory clarity is strengthening its long-term growth outlook.

Meanwhile, affordable housing finance stands out, supported by expectations of steady loan growth, potential interest rate cuts, and strong asset quality.

Is the worst over for the IT sector? Do you think it’s the right time for investors to start accumulating IT stocks?

The worst may be behind for the IT sector, with signs of stabilisation emerging despite muted Q4FY25 results.

Revenue growth remains subdued due to cautious client spending, but robust order books and increasing demand for AI solutions and digital transformation suggest a potential recovery in FY26.

Companies like HCL Tech and Infosys have issued optimistic growth guidance. While macroeconomic headwinds and geopolitical risks persist, the sector’s long-term fundamentals remain strong.

Investors with a long-term perspective may consider gradually accumulating quality IT stocks, particularly those with strong deal pipelines and exposure to high-growth technology segments.

How should investors approach the defence and PSU segments, given their recent performance and long-term potential?

The defence and PSU sectors present compelling long-term investment opportunities.

Defence stocks are benefiting from increasing indigenisation, rising exports, and strong order books, although valuations remain elevated.

PSUs are undergoing a re-rating, supported by improved governance, attractive dividend yields, and infrastructure-driven earnings growth.

Investors should focus on sector leaders while being cautious of potential value traps. Key risks include policy changes, execution delays, and political uncertainty.

A staggered investment approach, emphasising balance sheet strength and order book visibility, is advisable.

These sectors are well-aligned with India’s structural growth and self-reliance goals, offering significant wealth creation potential.

What is your assessment of Q4 earnings?

Earnings for the March 2025 quarter were largely in line with expectations, reflecting resilience across key sectors.

Positive momentum was observed in cement, affordable housing, pharmaceuticals, telecom, real estate, healthcare, and agri-inputs, indicating strong fundamentals and solid growth visibility.

These sectors benefited from steady demand, supportive policies, and stable margins. Conversely, IT and FMCG faced some challenges—IT due to global uncertainty and muted discretionary spending and FMCG due to subdued urban demand.

Overall, the earnings season was stable, marked by improving profitability and selective sectoral outperformance, which supports the ongoing economic recovery and sustains market valuations in the near term.

What investment strategy would you recommend for navigating heightened market volatility?

Investors should remain cautious yet constructive in their approach. Capital should be deployed gradually, either through systematic investment plans (SIPs) or during market dips, with a focus on fundamentally strong companies that demonstrate consistent growth and sustained profitability. 

Market corrections and consolidation phases often provide more attractive entry points, particularly in quality large-cap stocks. 

In the small- and mid-cap segments, selectivity is essential—invest only where valuations are reasonable and promoter quality is high. 

Avoid panic selling during short-term corrections unless there is clear deterioration in a company’s fundamentals. 

Patience and a long-term perspective are crucial for navigating market volatility and capitalising on India’s structural economic growth.

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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions, as market conditions can change rapidly, and circumstances may vary.