Vinay Pandit
The presser by Finance Minister Nirmala Sitharaman in the post market hours on August 23 takes us back to pre-budget days all over again. The speech was like a well-paced inning of MS Dhoni – that started off slowly and cautiously, well-paced in the middle overs and slogging it out towards the end to ensure a victory for team India.
FM’s speech was a winner for industry and investors. It started off slowly with global data, gradually paced it with touching upon and clarifying softer issues like I-T orders, notices, CSR clarifications, and then increased the momentum by giving relief orders on FPI surcharge and recapitalisation of banks, and finally the final slog for the auto sector.
We expect the markets to rally positively (and probably sharply) with a big gap-up opening on Monday. All changes which were unfavourable to market have been not only rolled back, but huge positives have also been announced for banks to promote credit growth, which will ultimately improve borrowing through lower interest rates on autos, consumer durables, and housing.
Immediate recapitalisation of banks, passing on any rate cut through MCLR benefit to borrowers and plans to link repo rate -linked loan products are all aimed at easing the pain of borrowing/lending and making it easier and cheaper for borrowers going forward.
We expect the consumption cycle to come back for those who were waiting on the sidelines, awaiting interest rate cuts or GST rate cuts.
On the tax front, the FM has clarified that FPIs will be outside the additional surcharge which was applicable on income w.r.t. short term and long term capital gains.
A huge relief for FPIs and this point alone can single-handedly aid a huge spike in markets on Monday.
We expect banks, NBFCs, Housing Finance Companies (HFCs), auto stocks and consumption stocks to come back in flavour.
Coupled with the relaxation for BSIV vehicles, registration, depreciation benefits (from 15% to 30%), electric vehicles, scrappage policy and “ordering” government departments to replace old vehicles - are measures which are likely to benefit auto stocks, and most likely auto stocks are likely to go through the roof on Monday.
We continue to be positive on major auto OEMs – PV and 2W stocks namely Maruti Suzuki, Hero Motocorp, TVS Motors, and Bajaj Auto.
While August volumes are expected to be weaker even over July 19 (MoM), we expect this to be a bottoming out scenario for buying into auto stocks from hereon and something I have been mentioning for almost a month now. We continue to be negative on Eicher Motors for company-specific factors.
On the consumer durables front, we are positive on Blue Star as our key pick followed by Voltas. In BFSI, we are positive on RBL Bank, ICICI Bank, SBI and Axis Bank. Banking stocks will see a strong relief rally in the next week.
While the government is moving to centralised, computerised system of IT issues, scrutiny and notices, they should look at now moving to technologies like Blockchain.
GoI should look at auto-generation of income tax returns using blockchain technology without anybody having to go through the process of filing income tax returns.
We expect markets to not only bounce back in response to these announcements but expect markets to keep rallying through the week with more announcements expected shortly, as specified by the FM towards the end of her speech. India growth story to start rolling again – Tezi times are here again.
(The author is Head - Institutional Equities, at IndiaNivesh Securities Limited)
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