PSU rally shows momentum, but strategic picks remain in defence and power: Dharmesh Kant

The recent surge in select public sector stocks has sparked fresh debate about whether the rally is sustainable or merely a short-term burst driven by liquidity. While defence and power continue to draw interest, experts remain cautious on oil and gas and structurally wary of long-term prospects in IT.

A sharp move in Engineers India has been one of the talking points, with the stock posting strong gains over consecutive sessions. Market expert Dharmesh Kant from Cholamandalam Securities noted that the recent action appears more technical than fundamental.

“This is just some MNC brokerage report and some buying. Small buying can spurt the stock price and there are no sellers. We are not interested in the space because exploration and production of oil and gas is headed for a sunset over the next 10-15 years. Trades can happen in between, but long-term traction cannot be built on yesterday’s stock price action.”

Defence Emerges as a Preferred PSU Theme

Defence remains a standout theme for long-term investors. Kant highlighted that execution concerns are overstated, given robust order books and improving delivery timelines.

“The only space which looks attractive to me is defence. Execution issues are not a problem. Hindustan Aeronautics has a robust order book, and Q3 numbers exceeded expectations. Over the next two-three years, these companies will surprise on execution and margins. HAL could post 32-33% operating margin with 15-20% revenue and PAT growth. Defence is a play we like. Power is another—projects are commissioning and FY27 PAT growth could be 30-33%.”

Order Books Seen as Strength
Large defence order books provide predictable revenue streams. Kant explained:

“Order books are given by the Government of India and ensure better revenue and profitability. BEL’s PAT grew 20% this quarter. Execution cannot exceed 15-17% in any capital goods company, and they are delivering. Concerns about large order books are misplaced.”

IT: Tactical Opportunity, Structural Concerns
On the technology front, short-term trading opportunities exist, but structural growth challenges remain:

“Indian IT companies’ contribution in Nifty 50 earnings dropped from 22% in FY20 to 11% in FY25. Growth has lagged due to multiple factors. There could be a bounce in the next two to four months as Q3/Q4 numbers come in, but from a long-term perspective, we do not recommend IT stocks.”

The Bottom Line
Investors are urged to differentiate between tactical momentum and structural opportunity. Defence and power offer visibility backed by policy and execution, oil and gas exploration faces headwinds, and IT presents short-term trading potential but long-term uncertainty.