Jewellery, Defence, and Banks: Top Sectoral Picks from Nuvama’s Nikhil Ranka
As India's equity markets reach a critical inflection point, investors are navigating a landscape of mixed signals and fluctuating valuations. Nikhil Ranka, Chief Investment Officer at Nuvama Asset Management, provides a strategic roadmap by identifying high-conviction sectors like jewellery and defence, while cautioning against overvalued retail stocks.
Discretionary Consumption: Jewellery Leads the Way
While the broader consumption space faces varied headwinds, the jewellery sector stands out as a premier opportunity for discretionary spending. Ranka notes that sector leaders are delivering over 20% growth, while smaller, more agile players are clocking impressive growth rates between 25% and 30%. This makes jewellery a high-conviction play compared to other consumption segments.
In contrast, the retail sector remains under pressure due to the disruptive rise of quick commerce. The revenue growth of India’s top two listed retailers has moderated to approximately 20% over the last four to six quarters. With stocks trading at high multiples of 60–70 times two-year forward earnings, Ranka warns that investors should not expect a valuation re-rating unless they see one or two quarters of sustainable 15–16% growth.
FMCG and Textiles: Catch-up Trades and Limited Upside
The FMCG sector is showing signs of a potential "catch-up trade." Following a 10–15% decline in many FMCG stocks over the last three months, Ranka anticipates a rebound. Driven by volume growth of 5–8% and recent price hikes, revenue growth could hit 10% heading into Q1, offering a potential 10% upside for investors.
However, the textile sector requires a more cautious approach. Although stocks recovered significantly following US tariff concerns and progress toward the India-UK FTA, Ranka believes that 60–70% of the re-rating has already been priced in. For those chasing the remaining 10–15% upside, selectivity will be the key to avoiding volatility.
Defence: A Decadal Structural Play
Ranka identifies the defence sector as a "decadal opportunity" rather than a short-term tactical play. He advises investors to ignore quarterly "lumpy" numbers caused by delivery delays and focus instead on long-term structural shifts: rising domestic procurement and expanding global exports, such as BrahMos missiles to the Middle East. Companies like HAL, which hold order backlogs spanning seven to eight years, are poised for explosive growth once delivery cycles accelerate.
Banking: Three Converging Tailwinds
Despite a lack of immediate Net Interest Margin (NIM) expansion, the banking sector is positioned for a swift recovery driven by three major catalysts:
- Deposit Liquidity: The reopening of the FCNR deposit window could potentially unlock up to ₹5 lakh crore.
- Bond Yields: A decline in bond yields from 7.50% to 6.82% is reducing treasury losses for banks.
- FII Stability: An easing of FII selling pressure following a massive ₹2.5 lakh crore sell-off—half of which targeted financials—provides a floor for valuations.
These factors could drive large-bank deposit growth toward 14–15% and loan growth toward 17–18% in Q2.
Key Takeaways
- High Conviction: Jewellery offers superior growth potential in the discretionary space, with some players growing at 25–30%.
- Long-Term Vision: Defence should be treated as a structural, decade-long opportunity rather than a play on quarterly earnings.
- Banking Recovery: Converging tailwinds in deposits, bond yields, and FII flows are set to drive a recovery in large-cap banks.