Daily Voice: Don't avoid defence, discretionary consumption outlook constructive, says GoalFi's Robin Arya

Not at all. While valuations have re-rated sharply post Operation Sindoor, we remain selective, not avoidant. The Nifty Defence Index rallied over 18 percent in May, adding nearly Rs 1.8 lakh crore in investor wealth. Some stocks surged 30 to 40 percent within weeks. The sector now trades at a premium, with the broader defence basket at 60 times earnings and core players above 40 times forward P/E.

However, this is backed by a Rs 16 lakh crore domestic procurement pipeline and a Rs 3 lakh crore defence export target by 2029, up from Rs 1,941 crore in 2014. Structural improvements in execution, return ratios, and global demand make selective participation justified despite premium valuations.

Do you believe earnings growth may not exceed 12–13% in FY26?

Yes, most forecasts suggest that broad-market earnings growth will likely settle around 12 to 13 percent in FY26. This aligns with the broader macro-outlook, with GDP growth expected to remain below 7 percent as per estimates. It reflects a period of normalization after an uneven FY25.

However, defence stands out. With Rs 80,000 crore to Rs 1.5 lakh crore in large-scale orders across submarines, missiles, and combat systems, the sector is positioned to outperform. Execution strength, innovation, and export traction provide superior visibility for defence and capital-intensive names.

Has the government capex cycle been lukewarm so far in FY26? Do you expect a strong pickup post-monsoon?

Capex execution in the early part of FY26 has been moderate, largely due to election-related constraints and administrative delays. While the actual spend has remained near flat on a year-on-year basis so far, the capital outlay remains strong at over Rs 11 lakh crore, with Rs 1.92 lakh crore allocated to defence.

Historically, H2 sees stronger execution, and with political continuity and favourable monsoons, we expect momentum to pick up sharply. Key beneficiaries include defence, railways, roads, and logistics, supported by PSU autonomy gains and policy focus.

Given the expected weakness in the US dollar, do you anticipate increased flows into emerging markets (EM), including India?

Yes. The dollar index is down nearly 9 percent in 2025, improving EM flow prospects. India saw Rs 14,000 crore in equity inflows in May and with RBI’s rate cut, better liquidity, and stable macro conditions, India stands out. Defence, infrastructure, and manufacturing themes are likely to benefit from continued capital reallocation.

The broader environment is conducive. The Reserve Bank of India’s recent 50 basis point rate cut and 100 bps CRR reduction have eased liquidity conditions, while macro fundamentals remain stable.

Are you bearish on the discretionary space?

Not at all. While discretionary consumption was uneven in FY25, the outlook for FY26 appears more constructive. There are early signs of recovery in segments such as passenger vehicle sales, air travel, and premium retail, indicating that the affluent consumption story remains intact.

With the monsoon expected to be favourable and interest rates easing, rural sentiment and spending capacity should gradually improve. Fund flows and sector rotation trends suggest that investor positioning is shifting from caution to select participation. In our view, the sector is positioned for a gradual recovery rather than continued stress.

Do you expect P/E multiples to remain elevated for companies with strong earnings visibility?

Yes. The Nifty trades around 21 times forward earnings, near its 10-year average. While a broad re-rating may be limited, companies with consistent delivery, high RoEs, and strong order visibility especially in defence, capital goods, and private banks will continue to command premium valuations. We remain valuation-conscious and focused on fundamentals, especially in sectors where policy and structural tailwinds support sustained performance.

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