Play defence as a multi-year theme; avoid commodities: Dipan Mehta

“It will be very challenging times for commodity stocks and a great time for commodity consumers and that is why 100% of our portfolio is positioned in services and there is 0% allocation to commodity players per se,” says Dipan Mehta, Director, Elixir Equities

Over the years India has significantly under-invested in defence and the geopolitical scenario in the world is changing. We will have to spend more on our defence purchases. We do not want to import which means atmanirbharta (self reliance) in defence is increasing. Is defence a multi-year theme?
These are multi-year trends and the prospects for defence companies keeps on improving with every passing year and we want to reduce our dependence on imports and that is very positive. I would like to add one more variable here that all of these companies are looking at exports as well and that could also be an opportunity, given our low cost of manufacturing and technological improvements that are taking place over there.


We are generally positive on all these defence companies which can give a steady 15-20% type of compounding returns over the next three to five years or so and invest. So certainly at least those who have a bent of playing defensive in the market could look at buying into these companies.

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The only risk factor is that these are PSUs and there is always the fear that the government may do some tinkering with policies in terms of what margins they are offered or in terms of bidding processes and that may hamper the prospects per se but that risk is true for a lot of PSU stocks. If you are able to absorb that risk, then these companies can give very good returns going forward.

What will you not do in this market? We always ask for the next multi bagger, the next big trend. Money is also made if you do not make mistakes. What are you avoiding in this market?
We are avoiding commodities across the board, including cement, steel, aluminium, soft commodities and hard commodities. The reason for that is that in all the inflation fighting steps which the central banks are taking, it will be the commodities which will be impacted the maximum and overall global growth also is slowing down and China growth also is slowing down.

It will be very challenging times for commodity stocks and a great time for commodity consumers and that is why 100% of our portfolio is positioned in services and there is 0% allocation to commodity players per se.