Watch out for infrastructure before budget: Mangal Keshav

Excerpts from Bazaar on CNBC-TV18 Watch the full show » Nifty BSE | NSE 10/02/12 Are Mutual Funds betting on Nifty?

Amit Khurana, Co-Head-Institutional Equities and Head-Research, Mangal Keshav, feels positive about infrastructure, capital goods and power stocks. "Infrastructure will attract maximum amount of attention and inflows, if the budget throws out the positive intent." At a very broad level, he said, infrastructure would be one of the spaces to watch out and linked to that would be a whole lot of other sectors which could have the ripple benefit of that move.

Also Read: Mkt to trade in 4250-4450 range till Budget: Ashwani Gujral

Here is a verbatim transcript of the exclusive interview with Amit Khurana on CNBC-TV18. Also watch the accompanying video.

Q: What is your assessment of how the market is going into the budget-light, heavy with expectations, not expecting too much?

A: I think expectations are certainly there. We have had a build up especially on some stocks in the education space. We have seen significant build up on infrastructure. I think it would be probably an underestimation to say there are no expectations. However, I think, the market is also sensing that these expectations have got to be realistic. So in terms of execution, one is not expecting a whole lot to happen in this budget. I think what we are expecting is a more directional statement on some of the key elements especially on the divestment and the fiscal deficit part. If there are clear cut statements on that and a clear incentives show on the numbers, I think the market will take that as a very big positive.

The fuel price hike, I think, is the first step the government has taken to address the fiscal deficit situation. So expectations are there but I think there is a bit of reality on that as well. 

Q: Which pockets would you play now in expectation of the budget being moderately positive or positive?

A: I think it could be the typical infrastructure space and I am including a whole lot of capital goods and power space in that. I think that will be the one which attract maximum amount of attention and inflows if the budget throws out the positive intent. So, at a very broad level, infrastructure would be one of the spaces to watch out and linked to that would be a whole lot of other sectors which could have the ripple benefit of that move. Thus, I would say infrastructure is what I would prefer to play with. I would certainly look out for the financials but the big caveat there is how much of an extra borrowing does the government intends to do for FY10. The market expectation is that you could see between USD 8-10 billion of extra borrowing. I think that if that number comes out better or worst then financials could also react to that.

Q:  How would you be approaching the real estate space now, given the kind of money which is being raise through QIPs offlate?

A: I think certainly a structural positive. We have been maintaining for sometime that the sector is certainly showing signs of bottoming out on the pricing front. Some of the key players have been able to raise funds and de-leverage their balance sheets. However, I must also admit here that, for a significant uptrend to start because of pricing gains, this is way off. At best what we are seeing is a reaction to a move from a distress case valuation to a situation wherein some of these companies will ultimately survive and maybe build up their business models based on the low cost housing. Thus, I think the sector will obviously react to what we get to see the budget. Any significant tax break or a revision on the upside, could mean a bit of an upside valuation for these companies. But, from a longer term perspective, I think most of the stocks would now react on company's specific scenarios and somebody who has de-leveraged quicker will obviously gain.

Disclosure:

It is safe to assume that my clients and I may have an investment interest in the stocks/sectors discussed.