JM Financial downgrades defence, industrials; turns bullish on consumption

JM Financial also turned underweight on banks, NBFCs and insurance as disbursement growth is likely to remain weak in FY26

Analysts at JM Financial rejigged their portfolio by downgrading infrastructure and defence pack to 'underweight', citing a potential reduction in capital expenditure given the fiscal constraints. They, however, turned positive on the consumption theme. 

 

The domestic brokerage expects that the proposed Goods and Services Tax (GST) and income tax cuts to cause short-term revenue losses. This could limit fiscal space and potentially slow the pace of infrastructure and defence capital expenditure, JM Financial said. "On the back of this, we turn underweight on infrastructure, industrials, ports and defence and remain underweight on power utilities."

 

The brokerage also turned underweight on banks, non-banking financial companies (NBFCs), and insurance as disbursement growth is likely to remain weak in FY26. Credit growth, initially expected at 12 per cent, stood at 10 per cent year-on-year (Y-o-Y) till July. Asset quality stress in retail unsecured loans (MFI, personal loans, and credit cards) is now extending to MSME lending, JM Financial said. 

   

With demand delayed by anticipated GST cuts and US tariffs weighing on export-oriented MSMEs, capex pickup is also likely to be postponed, it noted. "We therefore expect loan growth to stay around 10 per cent in the near term, while elevated credit costs reinforce our cautious view on the sector."

 

 

Source: JM Financial

Bull case for consumption pack

Analysts at the brokerage firm turned more bullish on the consumption stocks. JM Financial said the Government and the Reserve Bank of India (RBI) are taking strong measures to boost consumption through income tax cuts, interest rate reductions, higher banking liquidity, and a proposed GST rate cut. 

 

Backed by these steps, the firm has turned more bullish on consumption in its model portfolio, upgrading autos, consumer, cement, and internet to overweight from earlier positions, while maintaining overweight on hotels and real estate.

 

JM Financial said it expects consumer staples to stay buoyant, with Britannia Industries, Marico, and Hindustan Unilever as preferred picks. In consumer discretionary, Titan remains the top choice, while in consumer durables, Polycab and KEI Industries are seen as well-positioned for strong FY26 performance.

 

In the Union Budget for FY25-26, the government announced tax sops to boost consumption and has recently introduced the next phase of GST reforms with two slabs, the brokerage noted. "While this is a significant boost for consumption, lower revenue could constrain fiscal space, potentially impacting the pace of infra and defence capex, unless offset by higher consumption-driven growth."