Quest's Rakesh Vyas prefers private defence plays over PSU majors; here's why

Quest Investment Managers is turning more selective in India’s defence pack, backing private aerospace-linked names over large public sector majors even as renewed government activity revives interest in the sector. Rakesh Vyas, CIO and portfolio manager at Quest, said the defence opportunity remains structurally strong, but the sharper upside may now lie outside the traditional PSU basket.

The view comes at a time when several once high-flying defence stocks such as Bharat Electronics and Hindustan Aeronautics have corrected, prompting investors to reassess whether the next leg of gains will come from established state-run leaders or emerging private-sector challengers.

A long-term defence story stays intact

Vyas argued that the broader investment case for defence has only strengthened as geopolitical tensions persist across regions. “The intent of government to strengthen the overall arsenal is very, very evident,” he said, adding that the trend is not limited to India, with European countries also signalling large defence outlays.

That, in his view, makes defence a durable multi-year theme rather than a short-lived market trade. The backdrop of rising strategic spending, domestic indigenisation and export potential continues to support investor interest in the space.

Why Quest is cautious on PSU defence giants

Even so, Quest is not chasing the biggest PSU names aggressively. Vyas acknowledged that large defence PSUs have “fairly strong” order books and adequate execution capacity, but flagged a key limitation: scale.

“For them to deliver meaningfully higher growth than fifteen, twenty percent is going to be slightly more challenging in our view,” he said. That means current valuations, according to Quest, largely reflect the growth that these companies are realistically positioned to deliver, leaving less room for outsized rerating.

Private aerospace names emerge as sharper bets

The sharper opportunity, Vyas said, lies in private companies expanding into aerospace and defence manufacturing. These businesses could benefit not only from India’s procurement push but also from global supply-chain diversification and export demand.

He pointed to Sancera Engineering as an example of this transition. The company, historically seen as an auto ancillary play, is now moving “meaningfully” into aerospace and defence, a segment Vyas described as “a much higher margin business, high growth business.”

Selective capital in a stock-picker’s market

The defence call also fits Quest’s broader investing style. Across sectors, Vyas has emphasised bottom-up stock picking over broad thematic buying, especially in a market where large caps have lagged while mid- and small-cap opportunities have widened.

That discipline is shaping the fund house’s defence stance as well. “We are positively biased towards” such private plays, Vyas said, “not so much on the PSU side.” For concentrated portfolios, he added, selectivity matters more than owning every name in a popular theme.