The strongest argument for defense stocks at this point is their bulging order books. Of course, the market is ignoring execution risks right now because the quarterly earnings growth so far has not given any cause for worry. But there is another risk that the market may be overlooking, according to a senior portfolio manager Short Call spoke to.

If defense companies continue to make super profits, the government may somewhere down the line look at capping the margin. And there is a precedent for that. In 2018, the Ministry of Defence cut the benchmark margin on contracts awarded on a nomination basis to 7.5 percent for both the value-added and bought-out components.

Nomination contracts are those awarded by the government to PSUs through a cost-plus framework. The move triggered a sell-off in BEL, and over the next couple of months, the price fell nearly 30 percent.

The portfolio manager’s concern was flagged by analysts at Kotak Institutional Equities in their report on PSUs in general, earlier this year. "The government’s three-in-one role of buyer, owner, and policymaker creates uncertainty regarding the companies’ future earnings and returns,” the report said.

On realty, the portfolio manager said that the market seems to be taking comfort in the fact that previous realty upcycles have lasted seven years. While the long-term story looks good, the price one paid should be viewed in terms of at what point in the current upcycle the stocks are.

The contra signals he is looking at is a steady increase in 20:80 schemes that developers have begun to offer in markets outside Mumbai. Also, there are signs that the number of buyers looking at the purchase as an investment than actual use is on the rise.

Kajaria Ceramics (Rs 1180, flat)

They reported a tepid set of Q4 earnings.

Bull argument: Boom in residential property to be beneficial for tile makers like Kajaria. Tile volumes volume were up 6 percent in FY24, compared to flattish industry growth. The company is aiming for 11-13 percent growth, with tier-3 and tier-4 cities driving demand.

Bear argument: Near-term outlook remains soft, and valuations not cheap at 33 times estimated FY26 earnings, says broker Systematix.

Alembic Pharma (Rs 976, -2.6%)

They reported a decent set of Q4 numbers.

Bull argument: The company planning to ramp up its US generic portfolio with 25 product launches this year. No major capex is likely, so margins should improve.

Bear argument: Analysts expect price erosion in the US generic market to stay elevated. Most of the growth in revenue and margin is priced in, says Antique Stock Broking, and so the upside from the current level limited.

Bank of Baroda (Rs 255.10, -2.9%)

Q4 earnings on expected lines.

Bull argument: According to analysts at MOSL, the Bank reported an overall steady quarter characterized by one-offs. The bank has reduced its dependency on bulk deposits while shifting its focus on CASA and retail TDs, which will support NIMs, according to the brokerage.

Bear argument: Slippages rose from 1.1 percent to 1.3 percent QoQ driven by higher MSME and agri slippages, according to Nuvama analysts.

Polycab India (Rs 6180.25, 6.5%)

Reported its highest-ever yearly and quarterly revenue and profits.

Bull argument: The company is investing in capex and is well positioned to capture the strong demand in India, said Keynote Capital.

Bear's argument: The tax issue could be an overhang. Plus, it also raises questions about corporate governance and about internal checks and balances.

Cipla (Rs 1,340, -1.4%)

March quarter revenue and margin lower-than-expected.

Bull argument: Ranked number one Pharma company in the South African prescription market. Strong India franchise, robust US pipeline, healthy margins, and improving return ratios are key positives, according to Nirmal Bang.

Bear argument: EU and emerging market sales are affected by geopolitical and macroeconomic challenges. The Patal Ganga facility was issued with six observations by the USFDA.