Most experts feel the government could focus more on infrastructure and revive the capex and investment cycles. Apart from addressing the liquidity situation, new measures are likely to aid the distress in the agriculture/rural sector
Slowdown in economic growth will be the top priority of Finance Minister Nirmala Sitharaman when she presents the Union Budget 2019 on July 5.
The Indian economy has shown signs of sluggishness with the GDP slipping towards 5.8 percent in the March quarter, down from a cyclical high of 8.1 percent in the March quarter of 2018.
The government is likely to introduce measures to revive dwindling economic growth and boost consumption in Asia’s third-largest economy.
Most experts feel the government could focus more on infrastructure and revive the capex and investment cycles. Apart from addressing the liquidity situation, new measures are likely to aid the distress in the agriculture/rural sector.
“The Reserve Bank of India (RBI) has already moved ahead by changing its policy stance and took measures to address liquidity issues to support the economy. The government is expected to support the monetary efforts by providing a fiscal stimulus and other bold remedial measures,” Sanjeev Hota, Head of Research, Sharekhan told Moneycontrol.
“I believe the government will take a balanced approach to tackle growth revival without compromising on fiscal math. Having said that, going by the ruling party’s election manifesto, the government continues to focus on infrastructure spending coupled with social investments like housing-for-all, water-for-all and other reforms to increase the ease of doing business,” he added.
The market continues to remain volatile in the run-up to the Union Budget, but there are pockets of opportunities in private banks including corporate lending banks, specialty chemicals, and infra space.
We have collated a list of 10 economy and consumption-linked stocks from different experts that could reap the benefits from Budget announcements:
Analyst: Vivek Ranjan Misra, Head of Fundamental Research at Karvy Stock Broking
We believe that infrastructure will be a major push for the government, which should benefit capital goods stocks. This is a bellwether stock for the sector. The order book in Mar 2019 stood at Rs 2,93,400 crore spread across various sectors.
While the domestic private sector witnessed a pick-up, public sector orders constituted mainly state government orders. Going forward, we expect new orders to pick up with a broad-based recovery in the economy.
The revival of the rural economy and consumption, especially discretionary consumption, will be a major focus in the Budget and beyond and Mahindra & Mahindra will be a major beneficiary.
We expect M&M’s overall volumes to grow at 7.1 percent CAGR, sales at 9.5 percent CAGR and PAT to grow at CAGR of 2.7 percent over FY19-21E.
Though the growth outlook for the tractor industry in FY20 remains uncertain due to the unpredictable performance of the monsoon, any stimulus to the rural sector will be positive for the stock and the management expects domestic tractor market to grow at 5 percent in FY20.
The stock remains one of the most inexpensive stocks amongst largecap auto companies in India, which makes it attractive as well.
The stock will benefit from the push to promote food processing industry and the rural sector in general.
Its export markets, mainly the Middle East, are performing well. Strong domestic and export demand for Basmati rice would accelerate sales and thereby KRBL's profitability.
We believe that KRBL, with good brand recall, will benefit from an increase in food exports. Valuations are attractive at a forward PER of 12.8x.
Analyst: Shailendra Kumar, CIO at Narnolia Financial Services
Tightening of liquidity is likely to ease the competition and will improve the growth for LIC Housing Finance due to lower balance transfer cases in the core individual home loan segment.
Given the thrust of the government on affordable housing, LIC Housing Finance is well placed to cash the opportunity.
Also, LIC Housing Finance is able to raise money from the market due to the strong parentage support and AAA credit rating. It is trading at 1.3x FY21 book value that is lower than its 10-year average.
Infrastructural spending and ‘Housing-For-All’ scheme creates strong volume growth visibility for cement companies. Ultratech Cement has posted a strong set of numbers with consolidated revenue growth of 16 percent YoY to Rs 10,905 crore and a PAT growth of 127 percent YoY to Rs 1,014 crore.
EBITDA margin has improved 250 bps. Further impetus is expected led by rural housing and low-income housing scheme like Pradhan Mantri Awaas Yojana.
The company has seven HAM projects that are financially closed and six HAM projects have received an appointment date, with a single remaining HAM project expected to receive the same in September.
The management expects revenue growth of 45-50 percent in FY20. PNC Infra is expected to secure Rs 7,000-8,000 crore of orders in FY20 that will be in the ratio of 50:50 EPC: HAM. The stock price has seen sharp rally post Q4FY19 results, but one can buy on the decline.
Analyst: Sumeet Bagadia, Executive Director, Choice Broking
Any relaxation in the personal tax rate and favourable policies for easing rural distress would be beneficial for the company.
These companies are linked to the development of the water infrastructure in the country. In the election manifesto, BJP has stressed on improving water infrastructure and promised water to all by 2024. We feel that this Budget would provide a roadmap to achieve the same.
In the recent past, there was an increase in steel imports and the profitability of most domestic companies was affected.
In the era of restrictive trade, the government would once again put some restrictions to curb imports and revive the domestic industry.Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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