PSBs, pharma and defence: HDFC Securities CEO names Samvat 2083’s dark horses

Public sector banks, pharmaceutical companies and defence stocks could emerge as the dark horses of Samvat 2083, according to Dhiraj Relli, MD & CEO of HDFC Securities, who sees stronger earnings visibility in these pockets despite elevated market volatility.

Relli remains relatively more constructive on largecaps after the recent correction, arguing that they offer greater comfort on valuations and a more resilient risk-adjusted baseline than the mid- and smallcap segments. Edited excerpts from a chat:

As Samvat 2083 begins, the sharp divergence between the performance of largecaps and small/midcaps have attracted attention. Some think that largecaps have enough value after correction while others argue that SMID space has higher growth and winners of the future. Which side are you and why?


While large-cap indices offer stability and institutional liquidity, the Nifty Midcap and Smallcap indices have historically delivered sharper rallies and also face significant corrections during broader economic expansions, occasionally outperforming large caps significantly at peaks and during systematic investment plan (SIP) inflows.

We note that many midcaps and smallcaps capture high-growth themes effectively; the segment also contains high valuation dispersion and cyclical vulnerabilities. Large caps continue to provide a more resilient risk-adjusted baseline during market corrections, meaning the broader market story depends heavily on individual stock selection rather than the index.

The earnings environment in India remains quite constructive given the pickup in inflation and nominal growth. Nifty earnings are expected to see a high-teens CAGR over FY26-28E. Largecaps offer reasonable comfort given their current valuations relative to historical trends. On the other hand, aggregate valuations remain much more demanding in mid and smallcaps, though their earnings momentum seems strong. One needs to be extremely selective and watchful in smallcaps, especially as volatility remains high. Largecaps appear relatively better positioned through a risk-management lens.

After two years of muted market returns, are we going through a normal earnings-led consolidation or an early warning that India’s structural growth premium is being re-rated?

The more balanced interpretation is an earnings catch-up phase alongside a reassessment of valuations—not yet a rejection of India’s structural growth story. The distinction matters: a strong economy does not automatically deliver strong equity returns when starting valuations already discount substantial future growth.

India’s valuation premium has clearly compressed. MSCI India’s forward price-to-earnings multiple was around 18.5 times in late October, down from 24.54 times at its September 2024 peak, though it remained more expensive than emerging-market peers. This suggests investors are reassessing the price paid for growth, rather than necessarily abandoning the growth opportunity itself.

India’s longer-term investment case continues to draw support from domestic demand, infrastructure investment, reforms and demographics. The key test is the breadth and durability of the earnings recovery. Sustained sales growth, stable margins and a broader revival in private investment would support the consolidation interpretation. Repeated earnings disappointments, weaker returns on capital or a prolonged failure of investment to respond would strengthen the case for a more structural reassessment.

IT stocks have rebounded after months of underperformance. Is this the beginning of a sustainable earnings cycle driven by AI and technology spending, or simply a valuation-led bounce?

The recent rebound in IT stocks reflects a mix of global sector rotation and value-driven buying, rather than the start of a strong, sustained earnings uptrend. The NSE IT Index rose about 17%, even as the Nifty 50 declined around 4% over the last month.

By late September, trailing P/E multiples for major IT exporters had fallen to near-historical lows of roughly 13x, resulting in a sizeable valuation discount of about 33% relative to the broader market.

A key trigger was the global shift in investor preference. Concerns over elevated valuations and slower return profiles in AI‑focused hardware, semiconductor, and hyperscaler companies led investors to book profits and shift capital toward relatively cheaper, defensive segments such as traditional IT services.

Supportive quarterly results from select firms also contributed. For instance, HCL Tech’s sharp rise in advanced AI-related revenue indicated that companies executing well on data engineering and AI-led projects are seeing tangible demand, encouraging value buying across the sector.

Despite the recent improvement, the overall demand environment remains subdued, and a durable recovery has not yet taken shape. Growth is expected to improve gradually in FY28E, but selectivity remains important, with preference for companies offering better earnings visibility. Currently, the NSE IT Index trades at 18.1x one-year forward consensus earnings, versus a five-year average of 24x and a pre-pandemic five-year average of 17x.

Which sector or investment theme could emerge as the dark horse of Samvat 2083, and what underappreciated fundamental trigger could unlock that opportunity?

Preferred sectors/themes

Finance

PSBs have benefited from relatively better balance-sheet positioning, while some private banks continue to manage tighter deposit accretion. Asset quality continued to improve, with limited fresh slippages and broadly stable stress indicators across the formal banking system.

Looking ahead, credit demand is expected to remain healthy, and PSBs may outperform private banks given their lower credit-to-deposit ratios. NIM pressure is likely to ease gradually, especially as repo rate cuts appear unlikely in the near term.

Picks: Axis Bank, ICICI Bank, City Union Bank, UCO Bank

Pharma

For the US piece, overall business is dependent on company-specific launches; given lower shortages, US price erosion is not expected to come down further.

The domestic piece of the business continues to grow at a healthy pace for large players. Indian pharma companies have been investing heavily in R&D and that should drive US business growth on the back of niche launches.

We are positive on players like Ipca Labs, Sun Pharma, Emcure, Eris Life and Concord Biotech, where the earnings trajectory is strong for the medium to long term.

We note that CDMO stocks have seen a sharp run-up in the last few months; most of the players continue to report strong numbers and given good earnings visibility in the medium to long term, we remain positive on stocks like Anthem Biosciences and Sai Lifesciences.

Defence/Aerospace

Ongoing geopolitical tensions have reshaped global supply chains and exposed vulnerabilities in military procurement, driving rapid expansion in indigenous manufacturing across aerospace, missiles, naval systems, armoured platforms, electronics, and ammunition.

Defence & Aerospace companies continue to report strong results in the last few quarters. Although the stocks have seen significant run up, given that they have multi-year revenue visibility, we continue to remain positive on the sector. For most of the players, additionally, large export opportunities would also improve prospects.

Picks: BEL, Bharat Forge

For an investor with ₹10 lakh and a five-year horizon, how would you allocate capital across largecaps, midcaps, smallcaps, debt, gold and international equities and what would make you change that allocation?

For an investor with ₹10 lakh and a five-year horizon, start with risk capacity and the purpose of the money—not a standard allocation. A conservative approach would emphasise high-quality debt, with limited equity exposure centred on largecaps. A balanced approach would combine debt with largecaps and selective midcaps, while a higher-risk approach could accommodate greater midcap and smallcap exposure. Gold and diversified international equities can add diversification, but neither should be treated as risk-free. These are broad portfolio frameworks, not individual recommendations.

Geopolitical developments would influence the balance. An escalation that keeps oil prices elevated, and inflation persistent would strengthen the case for liquidity, high-quality short-duration debt and greater caution towards smaller companies. Gold could remain a diversifier, but not an assured hedge: inflation shocks can pressure both bonds and gold. Conversely, de-escalation, lower energy costs, and easier financial conditions could support a gradual increase in equity exposure, where valuations remain reasonable. International equities should provide geographic diversification rather than represent a blanket bet that overseas markets will withstand geopolitical stress.

Domestically, a broad-based earnings recovery, stronger private capex and reasonable valuations would support selectively increasing equity exposure. Persistent earnings downgrades, stretched valuations, or deteriorating credit conditions would favour a more defensive mix. The governing principle should be discipline: changes should reflect sustained shifts in fundamentals or the investor’s circumstances, rather than headlines, with capital preservation becoming more important as the five-year goal approaches.


Gold now occupies a larger place in many portfolios. Should investors continue adding to it, hold their existing allocation or rebalance toward equities?

For a long-term Indian portfolio, a practical allocation is 10% gold and 5% silver, or about 15% in precious metals overall, with gold remaining the core holding. Investors already at this level should generally avoid adding more and instead rebalance excess metal exposure into diversified equity funds.

The key is to rebalance to a predetermined target, not short-term price views. If equities have corrected and gold has appreciated, shifting some gold profits back into equities can restore the intended risk-return balance; if gold has also corrected, it can be used to top up toward—not beyond—the strategic target.

So, keep gold as a portfolio diversifier, but don't let it become an outsized bet. Investors underweight gold can add gradually toward a 5–10% target; those already at 10–15% should hold; and those materially above that range should consider rebalancing the excess toward quality equities.

What is the one investment mistake investors should avoid in Samvat 2083 and the one opportunity they should not miss?

Mistake to avoid

The biggest risk is buying stocks simply because they have fallen sharply or because a theme is popular, without assessing valuation, earnings visibility and balance-sheet strength. After a difficult Samvat 2082, returns in the coming year will likely depend more on stock selection, valuation discipline, and earnings delivery than on broad liquidity-driven rallies. Even strong companies can deliver poor returns if bought at excessive valuations.

Opportunity not to miss

The opportunity investors should not miss is the chance to build or add to a portfolio of fundamentally strong companies through a staggered approach. Use any sharp correction to accumulate quality businesses at more reasonable valuations, rather than trying to time the market bottom. For most investors, the practical way to capture this is to step up SIPs or use STPs, rather than waiting for sentiment to improve.

What's the one investing lesson that the last 2 years have taught us?

Discipline beats prediction — and sticking to your asset allocation is the ultimate wealth-building habit. Quality earnings triumphed over short-term valuation jitters.