Financial stocks are positioned to lead the next phase of market rally, according to market expert Dharmesh Kant from Cholamandalam Securities. Speaking to ET Now, Kant believes banks and financial institutions are currently best positioned to benefit from improving earnings dynamics, healthy credit growth, and supportive policy conditions. The market could witness a relief rally through June and July, with financials likely to remain at the forefront. As reported by The Economic Times, Kant noted that net interest income growth coming into play, NIMs improving, and credit growth already being very good, even if interest rate hikes occur, that would again benefit financials. Latest developments show that microfinance lending has started recovering, while lower funding costs and healthy loan demand continue to strengthen the sector's outlook. Government support mechanisms are likely to prevent any significant deterioration in asset quality, even if economic conditions soften.
While remaining constructive on equities in the near term, Kant acknowledged that uncertainty surrounding rainfall could become the market's next major challenge. Despite concerns over rainfall, he believes financial companies are better insulated than in previous cycles, thanks to government intervention and targeted support measures. Among sectoral preferences, Kant remains positive on defence and healthcare sectors, viewing both as relatively insulated from monsoon-related risks and broader economic volatility. He noted that the insulated sectors like defence will continue to do well, and healthcare, the entire space—be it hospital chains, diagnostics, or pharmacy—will continue to do well. On the other hand, he remains cautious on consumption-oriented businesses and metals, preferring to stay on the sidelines until visibility improves.
Kant reiterated his long-term bullishness on defence stocks, describing the sector as a structural growth story supported by strong order inflows, rising indigenisation, and expanding opportunities in aerospace and naval defence. He highlighted growing opportunities for aerospace manufacturer Hindustan Aeronautics Limited, particularly as defence cooperation between India and France progresses. According to The Economic Times, Kant believes defence, we are constructive on, being a structural play in the making, with order flows being very robust for all the defence companies. He highlighted that if you look from a two-year or three-year perspective, at least 40% to 50% kind of upside is still due. The proposed Project-75 submarine programme could significantly enhance Mazagon Dock's growth trajectory, with the P75 submarine deal likely in a month or so representing a one lakh crore opportunity. Kant's preferred names in the defence sector include Hindustan Aeronautics Limited, Bharat Electronics Limited, and Mazagon Dock Shipbuilders.
Kant's investment strategy remains centred on financials, defence and healthcare, while maintaining caution toward consumption-linked sectors, metals, oil companies and expensive paint stocks. Among sectors that benefit indirectly from lower oil prices, he favours tyre manufacturers over paint companies. As reported by The Economic Times, Kant noted that tyres, yes. Auto has been doing fairly well and tyre demand has been quite on a swing. Even rubber prices have stabilised, so those companies can still benefit from falling crude oil prices. While he believes paint stocks remain richly valued despite potential gains, he sees stronger fundamentals in tyre companies, supported by healthy automobile demand and stabilising raw material costs. Among oil-related investments, Kant remains firmly negative on oil producers and refiners, arguing that the long-term demand outlook for fossil fuels is weakening, with expectations of additional downside in crude prices if Iranian oil exports return more freely to global markets.
With markets likely to enjoy a short-term relief rally, the evolution of the monsoon and government policy responses could determine whether the current optimism extends into the second half of the year. Kant's strategy emphasizes financials, defence and healthcare as key investment themes, while avoiding oil producers and refiners due to long-term demand outlook concerns. He remains firmly negative on oil producers and refiners, arguing that the long-term demand outlook for fossil fuels is weakening. The combination of improving financial sector fundamentals, defensive sector strength, and selective opportunities in tyre manufacturers positions the market for continued selective growth despite broader economic uncertainties.
