Defence sector is getting hot; here’s what you can buy: Kunj Bansal

Within midcap IT, where are you placing your bets?
While there is a thought that the IT valuations have got stretched out, the sector continues to outperform. That will continue because here is a sector wherein it is reasonably easier to predict the growth — the top line growth, the bottom line growth, the cash flows, the return ratios and things like that, despite the margin pressure and higher attrition. The demand commentary coming in from companies that have declared results till now clearly shows that strong demand will continue and in a rising market the demand for such stocks will continue to be there.

In terms of specific midcap IT stocks, the results of

has not yet come. The whole sector continues to report good numbers and looks good to me.



Are you looking at the defence sector at all? What would your ideas be?
Yes, with the kind of developments that have been happening, the news flow that has been there and actual events taking place in terms of orders being placed and government support and various measures etc, the sector looks good.

Of course, the availability of the number of listed stocks in the sector is very low and that becomes a challenge. One cannot take a very aggressive exposure in defence stocks. Within that, one of the very good investment ideas is Bharat Electronics Ltd. This is a stock which is available at reasonable valuations. The last time I looked at the stock, it was available at 18-19 forward price to earnings ratio which is a very good valuation to buy at with double digit EBITDA margin and reasonably controlled working capital giving reasonably good return ratios.

PNB Housing has taken it on the chin today. It is down 5% in trade as the Rs 4,000- crore Carlyle deal has been called off. How would you approach it?
While the flow of bad news will stop now and probably has already stopped with this negative news, the downward flow in the stock price might continue for a few more days and after that it will be positive. The numbers that are being reported and housing sales mainly in Mumbai as well as across all other parts of the country show that finally the housing demand has picked up. Now if that has picked up, then obviously it will be good for housing finance, housing loan demand as well. I think the company will be looking to get some more money from some other investors and once that comes that will be the second positive or the additional support in terms of positive news flow for the company.

So as I said, the downside may not have stopped but going forward, both business wise as well as fresh equity coming in from other investors, will be two positive factors for the company.