Stockgram

Defence stocks may continue to outperform even as broader markets show signs of fatigue, according to Mahesh Patil, Chief Investment Officer at Aditya Birla Sun Life Asset Management, which manages assets worth $44 billion.





Speaking to CNBC-TV18, Patil said recent gains in defence stocks are backed by long-term tailwinds, including rising geopolitical risks and expectations of higher budgetary allocations. “There is emergency procurement likely to be there, which can mean that you could see order inflows for a few companies,” he said, adding that structurally, defence offers a strong runway driven by strategic projects and consistent investments.





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While the Nifty Defence index was one of the few sectoral indices in the green last week, Patil acknowledged that not all defence stocks may sustain their valuations. “When there is a broad macro theme, everything moves up. But there is a credible story from an ordering side and long-term sustainability,” he said. He advised a stock-specific approach, favouring companies with strong project visibility.





On the other hand, Patil was cautious on the renewable energy sector. He pointed out that while profitability for equipment makers has improved due to export demand and supply constraints, the sector is seeing a large capacity build-up, which may put pressure on margins.





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“Our concern is that while the near-term outlook is good and profitability is strong, these high margins and returns seem unsustainable,” Patil said. He added that potential tariff revisions and rising competition could weigh on earnings going forward.





Patil also said the broader market rally had narrowed, with fewer sectors participating meaningfully in recent gains. This, he suggested, warrants a more selective approach from investors