After months of being weighed down by persistent FII outflows, Indian equity markets have shown a sharp turnaround in recent weeks. According to PL Capital, the Nifty has delivered an impressive 10 percent return over the past six weeks, fueled by better-than-expected corporate earnings in the fourth quarter of FY25. Excluding oil and gas, earnings surprised on the upside, with EBITDA and PBT beats of 5.1 percent and 9.2 percent, respectively.
The brokerage noted that markets have digested the uncertainty surrounding global tariff wars, buoyed by hopes of constructive trade agreements and reduced disruption. However, PL Capital cautioned that the end of global turmoil remains elusive, citing China’s slowing growth, sticky US interest rates, and rising rates in Japan. In this backdrop, the brokerage believes that RBI could cut rates by 50 basis points over the next six months, though the declining rate differential with global economies remains a critical factor to monitor.
Geopolitical Shifts and “Operation Sindoor” to Catalyze Make in India, Defence Investments
PL Capital emphasized that Operation Sindoor has marked a paradigm shift in global warfare, showcasing India’s growing strategic capabilities in drone technology, precision missiles, and air warfare systems. According to the brokerage, this has elevated India’s position on the global military map and bolstered the urgent need for indigenized defence capabilities under the Make in India initiative.
PL Capital expects India to significantly boost investments in military hardware, drones, space technology, air defense systems, and smart grid infrastructure. With global powers increasingly focusing on Southeast Asia, the brokerage believes geopolitical risks will escalate, particularly as India’s eastern borders and neighbors like Bangladesh and Pakistan become focal points for strategic maneuvering. The brokerage noted that the suspension of the Indus Water Treaty could unlock huge EPC, PSP, and hydroelectric opportunities, especially with 20GW+ of hydro potential in J&K still untapped.
Make in India and Three-Front Preparedness to Drive Defence Capex
PL Capital believes that India must now prepare for a three-front war, a significant escalation from its earlier two-front strategy. To that end, the country will need a sharp ramp-up in fighter aircraft squadrons, particularly 5th generation jets and domestic platforms like Tejas Mk1 and Mk2. The brokerage also anticipates substantial allocations toward air defense systems, radar technology, indigenous early warning systems, and next-gen platforms such as GE-414 and AMCA.
On the naval front, India could potentially add a third aircraft carrier, expand its submarine fleet, and strengthen coastal defenses to safeguard its maritime interests in the Indian Ocean and Bay of Bengal. PL Capital also pointed out that warfare is now heavily reliant on power management and blackout systems, which should lead to higher smart grid and power transmission investments.
Normal Monsoon, Low Inflation and Tax Relief to Spur Domestic Demand
Beyond geopolitics, PL Capital observed that the domestic macro backdrop is turning favorable. With CPI inflation at a four-year low (3.16 percent) and food inflation at 1.78 percent, the environment is ripe for a revival in discretionary demand. A strong Kharif and Rabi output (6.8 percent and over 3 percent growth), coupled with a normal monsoon forecast (106 percent of LPA) and tax cuts, could provide a strong fillip to sectors like Auto, QSR, Hotels, Airlines, Consumer Durables, Apparel, Paints, Building Materials, and AMCs.
PL Capital also maintained a positive outlook on sectors like Capital Goods, Defence, Hospitals, Pharma, EMS, Travel, and Telecom, where demand remains resilient and long-term growth visibility is intact.
Top Conviction Picks from PL Capital
Large Caps: ABB India, Bharti Airtel, Britannia Industries, Hindustan Aeronautics (HAL), ICICI Bank, InterGlobe Aviation, ITC, Kotak Mahindra Bank, Mahindra & Mahindra, Max Healthcare Institute, Sun Pharmaceutical Industries, Titan Company
Mid/Small Caps: Astral Ltd, Chalet Hotels, Crompton Greaves ,Consumer Electricals, Eris Lifesciences, IRCTC, Ingersoll-Rand (India), KEI Industries, Rainbow Children’s Medicare, and Triveni Turbine.
Conviction List Updates: HAL, Sun Pharma and Rainbow Children’s Added
As part of its conviction list reshuffle, PL Capital has added HAL, Sun Pharmaceutical Industries, and Rainbow Children’s Medicare, while removing Bharat Electronics, Cipla, Maruti Suzuki, Aster DM Healthcare, and Kaynes Technology.
HAL stands out with a robust ₹1.9 trillion order book and more than ₹1 trillion in the pipeline, driven by strong momentum in Tejas Mk1A, Mk2, AMCA, and IMRH programs. PL Capital sees HAL benefiting from sustained defence capex and indigenization policies.
Sun Pharmaceutical Industries is expected to continue its growth trajectory, supported by a strong specialty portfolio, clinical pipeline, and upcoming product launches like Leqselvi. The brokerage sees strong performance in both domestic and international markets.
Rainbow Children’s Medicare was lauded for its asset-light hub-and-spoke model, superior margins, and aggressive expansion plans. The company plans to add 780+ beds by FY27, which is expected to drive a 19 percent revenue CAGR and 26 percent PAT CAGR through FY25–27. PL Capital values the stock at 28x FY27E EV/EBITDA and maintains a ‘BUY’ rating with a target price of ₹1,785/share.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
