Analyst Sees Hesitation in RBI Rate Cuts, Suggests Structural Opportunities in June
Defence and Financial Services Emerge as Top Conviction Calls in Indian Market
Abhishek Mishra, the founding partner of SKG Investment and Advisors, has identified defence as the strongest structural growth story in the current market universe. The FY27 defence budget has been set at Rs 7.85 lakh crore, a 15% year-on-year increase and the largest-ever allocation at 2% of GDP. The capital acquisition budget stands at Rs 1.85 lakh crore, up 24% year-on-year.
Key Defence Budget Breakdown
| Category | FY27 Budget (Rs crore) | YoY Growth |
|---|---|---|
| Total Defence Budget | 7,85,000 | 15% |
| Capital Acquisition Budget | 1,85,000 | 24% |
| Domestic Industry Allocation | 1,39,000 | - |
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Mishra noted that 75% of the capital acquisition budget has been ring-fenced for the domestic industry for the fifth consecutive year. This allocation is crucial for the growth of the defence sector, which is expected to reach $543 billion between 2026 and 2030.
In addition to defence, financial services is the second key conviction call, particularly large public sector banks (PSBs) and quality private sector banks. Private credit reached $9 billion in the first half of 2025, up 53% year-on-year, and India's median age of approximately 29 years locks in peak simultaneous multi-product borrowing demand for the foreseeable future.
Private Credit Growth
| Period | Private Credit (USD billion) | YoY Growth |
|---|---|---|
| H1 2025 | 9 | 53% |
| H1 2024 | 5.9 | - |
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Mishra believes that the current market structure demands a bottom-up approach, where stock selection separates structural winners from sentiment beneficiaries. In defence, stock selection is critical due to the presence of delayed contracts, while in financial services, large PSBs and quality private banks warrant an overweight position.
Regarding small-cap stocks, Mishra is selectively bullish, citing earnings recovery and stronger balance sheets. However, he warns that the Nifty Smallcap 250 PE is at its 10-year median, and broad small-cap indexing is likely to underperform.
Small-Cap Stocks Performance
| Sector | Performance (YoY) | PE (x) |
|---|---|---|
| Auto Ancillaries | 15.54% | - |
| FMCG | 6% | 29.8x |
| IT | 7% | - |
In auto ancillaries, Mishra expects operating leverage to drive growth over the next two years, while in FMCG, fixed infrastructure investments are beginning to deliver operating leverage. However, crude-linked input cost damage is a risk in FMCG, and small-cap FMCG is an explicit avoid.
Operating Leverage in Auto Ancillaries
| Period | Revenue Growth (YoY) | Net Profit Growth (YoY) |
|---|---|---|
| Q4FY2026 | 15.54% | 13.07% |
In private banks, Mishra believes that the opportunity is bifurcated and requires active position management within the financials universe. Large private banks and PSBs offer a credible re-rating setup, while the underweight call on MFIs warrants action now.
Private Banks Valuation
| Bank | Price-to-Book Ratio (x) |
|---|---|
| HDFC Bank | 2.01 |
| Kotak Mahindra Bank | 2.09 |
Mishra's bullish radar includes defence and financial services, with defence being the strongest structural growth story and financial services emerging as the second conviction call.
Investor Takeaway
Investors should consider structural opportunities in the defence sector and large public sector banks.
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