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."
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 "JM Financial downgrades defence, industrials; turns bullish on consumption")
