When we spoke about SIP flows having their own ebbs and flows, are there specific pockets where retail investors are concentrating their investments, perhaps in certain sectors or themes?
Over the last couple of years, defence has become an investor favourite. Fundamentally, the industry enjoys government support to reduce imports, boost manufacturing, and provide employment. While we agree with the bullish sentiment on the sector’s importance, financial markets remind us that ‘trees don’t grow to the skies’. In this case, two limiting factors exist: high valuations and customer concentration. Since the government accounts for 85-90% of sales, any stretch in government finances could elongate working capital cycles, hurting profitability and return on capital.
