But we do note that defence as a theme you have been liking for quite some time now. But given the tensions that we are hearing and we are covering as well, do you believe it is once again time to look out for some of these defence counters? What is the current view looking like?Ashish Gupta: So, as we spoke about earlier, one should not really trade based on sentiment. Yes, definitely many of these companies, their outlook is good, their order books are full, and the revenue outlook is strong, I am not sure with what has happened overnight, there is going to be a material change for many of them immediately.
So, I do not think people should react to this news and look at this sector. We saw similar reaction happened when many European countries started talking about increasing their defence spending and defence stocks globally including India rerated, but the fact is that very few defence companies in India either export to Europe or even have excess capacity to be able to export. So, one has to be careful in terms of distinguishing the sentiment versus the facts.
There are the few companies that will probably benefit from higher defence spending in India and globally and there we see larger upside, but I would not kind of say that it is a broad rush approach that you should take towards the sector.
So, what is the biggest moving part this year for the market? Will it be interest rates? Will it be commodity? Will it be tariff? What is that biggest moving part or in a sense the anchoring around the market for volatility?Ashish Gupta: The dollar. So, to some extent the tariff impacts, US economic impact will also translate into the impact on the dollar and that will be really key determinant to what happens to foreign flows. We have seen despite all the talk of tariff, recession in the US, because dollar continued to weaken, we saw FII flows to emerging markets including India resuming. So, this is going to be a critical variable to look at. If the dollar continues to weaken, that is certainly beneficial for the market. It has actually been quite interesting in the last three months because typically when US rates go higher, dollar moves higher, but this time even though despite tariff announcements, US bond yields moved up by about 50 basis points, the dollar had actually weakened and therefore, we saw flows coming back to emerging markets, even as US yields were going up, so that typically does not happen. So, the direction of dollar will be the key variable this year. So minus banks what else are you liking? I mean, what else you think could give double digit returns from here for next three years on a CAGR basis?Ashish Gupta: So, we are looking at the consumption space more constructively. We are seeing actually mixed signs in consumption. So, there are pockets in consumption that have started to recover from the last two-three years of slowdown. So, construction is a space that incrementally that we have become more constructive on. We also like the EMS space. The opportunity there for India to benefit from the US-China rift is becoming bigger and bigger. There are not many stocks but that is a space that is evolving. Then, we continue to like pockets like travel, hospitality, hotels, and real estate.
