Baliga said defence has remained a policy priority for the government, as reflected in sustained order inflows. “Orders are not the issue. The challenge over the last one-and-a-half to two years has been capacity bottlenecks, which led to execution delays at companies such as HAL and shipbuilders,” he said. If the Budget focuses on expanding capacity—particularly by increasing private sector participation—it could significantly improve delivery timelines and act as a strong positive trigger for defence stocks, he added.
PSU banks preferred over private lenders
Within financials, Baliga said he currently prefers public sector banks (PSU banks) over private sector peers. “Private banks have underperformed over the last few months, while PSU banks have delivered a very strong run. That trend could continue over the next two to three quarters,” he said.
He pointed to improving balance sheets, stronger quarterly performance and expectations of consolidation in the PSU banking space. “Even though the ministry has denied consolidation plans, I believe we could see meaningful consolidation over the next three to four quarters,” Baliga said. In such a scenario, he expects a handful of large PSU banks to dominate, naming State Bank of India, Bank of Baroda, Punjab National Bank and Canara Bank as key beneficiaries.
Affordable housing finance stands out among NBFCs
Among non-banking financial companies (NBFCs), Baliga said while gold loan companies have performed well, valuations may be stretched. “At this stage, I would look more closely at housing finance companies, particularly those focused on affordable housing,” he said.
Within the segment, Aavas Financiers is his preferred pick. “Aavas has strong exposure to tier II, tier III and rural markets, which is where I expect a sharper economic bounce-back,” Baliga said, adding that rural and semi-urban demand could drive growth in the coming quarters.
Trade deal uncertainty not a major concern
On the prospects of a US-India trade deal, Baliga said market expectations have cooled significantly. “A month ago, markets were hopeful of a deal by November or December. Now, expectations have shifted, and even March looks uncertain,” he said.However, Baliga does not see the delay as a major negative. “India’s trade deficit is at a low, which is positive. The rupee has corrected sharply, but India’s firm stance on agriculture is a long-term positive,” he said. While a trade deal via ministerial intervention would be a bonus and a short-term trigger for markets, he believes equities are not overly dependent on it at this stage.
Overall, Baliga said select sectoral opportunities—defence execution improvements, PSU bank consolidation and affordable housing finance—could continue to offer investors relative strength amid global and policy uncertainties.