A lot would be at stake for India when Finance Minister Pranab Mukherjee presents the Union Budget 2009-2010 on Monday. The mega event becomes all the more important in the wake of the global financial crisis. Not only will the FM have to take measures to boost growth, the country’s ballooning fiscal deficit would constraint his ability to be very indulgent with government expenditure. Connected with the real economy is the stock market, which has seen a stupendous rally since March. The budget will however be an event the market will keep a keen eye on.

Also read: Mkts close strong ahead of budget; financials, infra lead

How should you position yourself now in trade?

“There was a lot of short covering on Friday as many people thought the budget may not be able to deliver as per expectations and the markets would be in a downtrend,” Sudip Bandyopadhyay, MD, Reliance Money, said. “The railway budget clearly indicated that there will be infrastructure spending. The union budget too will lay emphasis on infrastructure. So the infrastructure-related companies will gain.”

Bandyopadhyay however pointed out that the FM will need to lay out a clear roadmap as to how the government plans to manage the fiscal deficit. “If there is this whole lot of spending happening, what happens to the deficit? If there is a clear roadmap given, which underlines the way the deficit is going to be managed, the markets may still continue to move up,” he said.

“It may be a little premature to square up all the positions which one has. If they (buyers) believe in the counter, if they believe in the story in which they have invested, they should continue to remain invested. There is no reason to panic and exit at this stage.”

Rajen Shah of Angel Broking said he sees a block-buster budget on Monday. “The fact that it is coming from the house of a person who is called the architect of India’s economic reforms makes me confident and positive on the budget. It will be growth-oriented,” he said.

Shah however added that investors should keep in mind the fact that markets have already run up about 85% from its March lows. “Even if we have status quo for a while, I do not think there is anything to worry about that,” he said. “Once the budget is out and once there are clear indications that India is capable of growing at 6.5-7% or more in the coming years, the markets will cheer that. Possibly the next week we could end up at 16,000 [on Sensex] or so.”

Sectors that may benefit from the budget

Power and infrastructure would get a lot of attention in the budget, Shah said, adding that agriculture was also a sector to which the government would focus on. “Demand for food is increasing but yields are lowest in the world. So many companies in the agro-chemical space, in the pesticide space, in fertilizer space, tractor business will see tremendous opportunities,” he said. “In the agriculture-related space, my strategy would be to look at companies like Rallis India, quoting at 8 times current year earnings or Nagarjuna Agrichem,” he said.

In infrastructure, GVK Power and GMR Infra were good buys, Shah said, but added that both companies looked fairly priced at the moment so investors could buy them on corrections of about 25–30%.

Other picks: Shah said investors could also buy healthcare stocks like Max or Fortis or education stocks like Navneet or even Educomp and Everonn Systems, though the latter two looked a little fairly priced at the moment, he said. He added that companies that produced paper like Ballarpur Industries and Tamil Nadu Newsprint should also be looked at.

Trade for Monday

Shah said traders should keep an eye on Escorts, a tractor manufacturing company; ITC — but only if taxes are reduced for the industry; companies like McLeod Russell, which are in the tea space, an industry where an acute demand-supply mismatch is seen; and a tyre manufacturer like MRF, which may see an uptick in demand due to a turnaround in auto sales.