Budget 2018: Housing, infrastructure, and rural economy theme may remain in focus

Considering the government’s long-term vision, and the trend set through earlier budgets, the focus will likely remain largely on housing, infrastructure, and the rural economy, Nitasha Shankar, Sr. Vice President and Head of Research, YES Securities said in an exclusive interview with Kshitij Anand of Moneycontrol.

Q) The year 2018 started on a bullish note after a blockbuster 2017. The Nifty raced past 11000 mark this week. Do you think the rally would continue till Budget?

A) We believe the upward trend should continue in the markets. The current market euphoria can continue at least till the Union Budget 2018 led by strong consumption pattern and better than expected performance from the IT and Banking companies especially the private sector banks.

Q) What are your expectations from Budget from markets points of view? Do you think LTCG could become a reality in Budget 2018?

A) Considering the government’s long-term vision as well as the trend set through the earlier budgets, the focus will remain largely on housing, infrastructure, and the rural economy.

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Nitasha Shankar

Senior Vice President of Research|YES Securities (India)

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Thus, companies catering to these areas will be key beneficiaries. These include those involved in construction, cement, building material products, housing finance, FMCG, consumer durables, amongst others.

While it gets difficult to comment on the probability of LTCG being introduced, we believe it should be low, especially considering that this asset class is not very significant in size (relative to other financial assets).

Not to mention that the government has been promoting investment in equities for long-term wealth building, especially towards individual and retail investors in recent times.

What could, however, be an alternative to this could be the extension of the timeline that defines LTCG (one year and beyond currently), which may not be a bad idea as it could promote long-term investment into equities.

Q) Expectations are high from the government about likely some package for the agricultural sectors to boost rural income. What are your expectations from the Budget from agri sector and what stocks are likely to benefit the most?

A) With the likelihood of the budget being pro-poor, there could be incentives going in the way of the rural economy, including a focus on job creation. Not to mention that the expectations for tax cuts and lower rates for individuals and corporate both are high as well.

All of these will have a trickledown effect on consumption and will give a fillip to areas such as farm mechanization, fertilizer usage, auto consumption and NBFCs.

These areas would get a further boost if the government allocates higher amounts towards crop insurance (given its importance) and a special focus on rolling out direct benefit transfer (given that it has helped curb the leakage in the system considerably) quicker.

Q) Valuations of small and midcap stocks are already trading at a hefty premium. Do you see the party continuing in this space and what is the kind of strategy which investors should adopt?

A) From a broad perspective, valuations concerns do remain. However, a bottom-up approach is warranted, as it makes sense for one to look at businesses with long runways of growth, strong balance sheets and good quality of earnings.

Stocks of companies having such traits will do well over longer periods as they would benefit from the power of compounding.

Having said that, it would make sense for investors to exit stocks where the valuations are high and fundamentals are poor, as over the long term such a combination has rarely led to good investment results.

Q) Brent has already touched $70/bbl. What could be the repercussion for the market as well as for the economy?

A) We think the markets have already priced this in. As long as crude remains within this range, there should not be any material impact on the market.

Q) What will be your advice to investors for the year 2018 after a blockbuster rally seen in the year 2017?

A) While long-term trend for the markets continues to remain positive, valuations does look stretched at current levels especially in certain pockets. Therefore, it would be prudent to keep booking profits but to keep the principal invested in the markets.

Q) What are your contrarian bets which hold potential to bounce back in the next 2-3 years?

A) Within the beaten down sectors, or the underperforming sectors – i.e. IT and pharma – there are select names that one can look at. The domestic plays in the pharma space and the midcap IT plays (with focus on products) would be good areas to look at.

Another sector where one could see a lot of traction in the coming years is power. That is an area where major reforms are expected in the coming years. Therefore select names in the power sector could also be considered from a long-term perspective.