Whalesbook
Defence and Microfinance Sector Bets
These portfolio moves by the Diwali Portfolio signal strategic bets on key growth areas. The increased allocation to GRSE reflects strong confidence in the defence sector's expansion. Meanwhile, adding Muthoot Microfin aims to leverage an anticipated recovery in the microfinance segment following recent challenges.
GRSE Gains from Defence Sector Strength
GRSE's weighting was increased due to its strong performance, including a record FY26 turnover of ₹6,400 crore. Its ₹20,000 crore order book offers revenue visibility for over three years, more than three times its recent revenue. The company consistently delivers vessels, such as the INS Himgiri and three warships handed over recently. GRSE is also expanding into exports, with 12 vessels ordered by German clients, adding diversification. Its valuation at about 25.6 times projected FY28 earnings is seen as reasonable given its strong orders and the sector's positive outlook.
Muthoot Microfin Added for Microfinance Recovery
Muthoot Microfin's addition is a strategic play on the expected recovery of the microfinance sector. After a difficult FY25, marked by higher credit costs and a ₹223 crore net loss from increased defaults, asset quality has reportedly improved. Credit costs have fallen significantly in the first nine months of FY26. Muthoot Microfin's loan book was ₹13,039 crore by December 2025, up 5% year-on-year. Management expects 5-10% loan growth in FY26, supported by accelerating disbursements. Trading at about 1 times its FY28 estimated book value, the company offers an attractive entry point, with return on assets (RoA) expected to rebound to around 2% from 1.1%.
Valuation and Sector Comparisons
GRSE's valuation of 25.6x FY28 earnings is in line with peers like Mazagon Dock Shipbuilders and Cochin Shipyard. While GRSE's order book coverage is strong at 3.3 times revenue, other major shipbuilders also have robust, long-term order visibility. This suggests GRSE's valuation reflects industry trends favouring companies with secure order pipelines. The Indian defence sector is currently boosted by government spending, the 'Atmanirbhar Bharat' initiative promoting domestic production, and global geopolitical risks, supporting a positive outlook for manufacturers.
Muthoot Microfin's 1x FY28 book value multiple is below specialized peers like CreditAccess Grameen (around 1.5x) but similar to or slightly above some operations within larger entities like Bandhan Bank. The projected 2% RoA rebound for Muthoot Microfin is ambitious, competing with other microfinance lenders managing intense competition and credit risk. By April 2026, analysts generally rated GRSE 'Overweight' but had mixed views on Muthoot Microfin, weighing recovery potential against past credit issues.
Risks and Uncertainties
However, GRSE faces risks. Its large order book depends significantly on government defence budgets, which can change. Long shipbuilding timelines can also lead to execution challenges and cash flow issues. Valuations might seem too high if projects are delayed or defence priorities shift.
For Muthoot Microfin, the key concern is maintaining its recovery. A rise in defaults, possibly due to economic slowdowns or competition, could quickly harm asset quality and profits. The sector also faces potential regulatory changes affecting operations and margins. Muthoot Microfin's reliance on wholesale funding sources also presents vulnerabilities.
Outlook
GRSE's growth is supported by the Indian armed forces' modernization and rising global naval demand. Continued success in executing its large order book and expanding exports will be vital.
Muthoot Microfin's outlook depends on its ability to sustain asset quality improvements and achieve profitable loan growth. Better net interest margins, lower funding costs, and operational efficiencies are expected to boost earnings, provided credit costs stay low and regulatory challenges are managed.