Defence may gain from Budget push; PSU banks, affordable housing finance in focus: Ambareesh Baliga

Group 1: Defence Sector - The defence sector remains a policy priority for the government, with sustained order inflows indicating strong demand [6] - Capacity bottlenecks have led to execution delays over the past one-and-a-half to two years, affecting companies like HAL and shipbuilders [6] - If the upcoming Union Budget addresses these capacity constraints and increases private sector participation, it could significantly improve delivery timelines for defence stocks [6] Group 2: Public Sector Banks (PSU) - Preference is currently given to public sector banks (PSU banks) over private sector peers, as PSU banks have shown strong performance while private banks have underperformed [6] - Improving balance sheets and stronger quarterly performance are noted, with expectations of meaningful consolidation in the PSU banking space over the next three to four quarters [2][6] - Key beneficiaries of potential consolidation include State Bank of India, Punjab National Bank, and Canara Bank [6] Group 3: Non-Banking Financial Companies (NBFCs) - Among NBFCs, gold loan companies have performed well, but their valuations may be stretched [2] - A focus on housing finance companies, particularly those targeting affordable housing, is recommended, with Aavas Financiers highlighted as a preferred pick due to its strong exposure to tier II, tier III, and rural markets [2][6] Group 4: US-India Trade Deal - Market expectations for a US-India trade deal have cooled significantly, with previous hopes for a deal by November or December now uncertain [5][6] - Despite the delay, it is not seen as a major negative, as India's trade deficit is low and the rupee has corrected sharply [6] - A trade deal could serve as a short-term trigger for markets, but equities are not overly dependent on it at this stage [6]