Most experts feel the government could focus more on infrastructure and rural spending, which are key areas to bring growth back on track
Finance Minister Nirmala Sitharaman will present the Union Budget 2019 on July 5, which will be watched by not only Dalal Street but also foreign investors as the Indian economy is in a tough spot.
Most experts feel the government could focus more on infrastructure and rural spending, which are key areas to bring growth back on track. They also expect the government to take measures to create job opportunities.
"We expect this budget to focus on job creation through infrastructure growth and boosting rural economy. In the Interim Budget, a significant amount of resources has been allocated for announced social welfare schemes. Given the state of the economy and the issues facing farm sector, this Budget is unlikely to be any different," Chola Securities said.
Reforms in infrastructure, agriculture, banking, NBFCs and healthcare would be the key areas in the upcoming Budget, it added. With respect to income tax, the brokerage believes that the rebate announcements made in the Interim Budget would continue and no further change in slab would be announced.
Currently, inflation, fiscal deficit and current account are less of an issue. However, the slowing GDP growth, agrarian distress, unemployment levels and financial sector woes are the key challenges that the BJP government has to tackle in its second consecutive term.
"A large part of the industry has been asking for rationalisation and some cuts in the GST rates for select pain points where growth has virtually come to a standstill. Of course, job creation will be the top priority along with addressing rural distress. Equity markets need to be vibrant as job creation and economic growth will require capital and divestment of state-run businesses," said Devang Mehta, Head- Equity Advisory, Centrum Wealth Management.
Here are top 15 stock ideas before the Budget:
Brokerage: Chola Securities
HUL: Buy | Target: Rs 1,900 | Return: 7 percent
The company is focusing on driving volumes by realigning its pricing in a slow demand environment. There is continued visibility on OPM improvement as GST linked supply-chain reorganization is expected to continue over the next 4-6 quarters.
Naturals portfolio is growing 2x faster than the company’s growth rate. The merger of HUL and GSK CH India is expected to be completed in FY20. This merger would be EPS and margin accretive.
SRF: Buy | Target: Rs 3,500 | Return: 15 percent
With the recent capacity addition and a healthy demand scenario, the growth outlook for chemicals segment remains robust. Further, management has announced additional capex plans of around Rs 300 crore for this segment, in addition to the current budgeted capex of around Rs 250 crore (most of which is towards SCB).
The technical textile business margins are expected to return to normalcy in FY20, while chemicals would continue to drive growth. Packaging film business growth would be driven by capacity expansions.
Dabur India: Buy | Target: Rs 440 | Return: 10 percent
Dabur India is expected to report 10.9 percent CAGR growth in revenue over FY18-21E while PAT is expected witness a CAGR of 12.5 percent over the same period. The company has a very strong distribution network, which caters to around 6.3 million retail outlets.
The company has a direct presence in around 41,000 villages and its sales team covers around 39,000 doctors and 2,00,000 chemists. Company's products garner 40-60 percent market share across segments.
RBL Bank: Buy | Target: Rs 673 | Return: 5.5 percent
The management expects loan book to grow at 30-35 percent till FY20E, with major chunk coming in from the credit segment.
NIMs are expected to remain at current levels of 4.1 percent. The management also plans 60-70 branches in FY20E to further aid in CASA accretion targeting growth of 0.75-1 percent every year.
KEC International: Buy | Target: Rs 351 | Return: 11 percent
KEC's order book for FY19 stood at Rs 20,300 crore. KEC has witnessed a 100 percent growth in its order book over the past three years. The management guided for a 15-20 percent revenue growth for FY20 and maintained their EBITDA margin guidance in the range of 10-10.5 percent.
Railways business has seen the highest order book growth (around 30 percent YoY) while growth in its other businesses came at around 20 percent YoY. Railways and civil are likely to fetch Rs 3,000 crore and Rs 1,000 crore revenue in FY21, respectively, growing 2x.
SBI Life: Buy | Target: Rs 795 | Return: 9 percent
SBI Life endeavours to increase margins by increasing share of protection and other high margin (NPAR/PAR) businesses, increasing proportion of single premium policy sales, and launch and sale of immediate annuity products.
The company is expected to deliver strong FY19-21E VNB (Value of New Business) CAGR of 15.5 percent per annum and RoEVs of around 17.5-18 percent.
UltraTech Cement: Buy | Target: Rs 5,200 | Return: 13 percent
The company is focusing on controlling cost escalation by implementing cost-efficiency measures. However, any input cost inflation will impact the margins as higher dispatches and infrastructure sector driven demand would lead to limited pricing gains.
Ultratech's strong free cash flow generation can help in significant debt reduction over the next two years that could help drive the stock performance.
HeidelbergCement: Buy | Target: Rs 238 | Return: 21 percent
The management expects cement demand to grow at 7 percent in CY 2019. Demand would be driven by an increase in infrastructure spending and rural and affordable housing (under Pradhan Mantri Awas Yojna) projects.
ICICI Lombard: Buy | Target: Rs 1,300 | Return: 16 percent
ICICI Lombard is optimizing its product mix with more selective underwriting in the property and casualty line (i.e., fire, marine etc.) and crop insurance.
Going forward, the company will focus on profitable business like Fire, Engineering, Marine, Liability and Group Health with 20 percent return on equity and defocus on Crop insurance.
PNC Infratech: Buy | Target: Rs 242 | Return: 20 percent
PNC’s robust order book (Rs 12,210 crore), strong execution capabilities and lean balance sheet along with prudent working capital management would drive growth going forward.
Going ahead, the company would continue to report better than expected numbers backed by the execution commencement on two new projects and continued execution momentum on on-going projects.
Brokerage: Stewart & Mackertich
Blue Star: Buy | Target: Rs 820 | Return: 9 percent
The company is the market leader in the commercial refrigeration with a market share of 32 percent.
The key products in this category include deep freezer, bottle cooler, visi cooler/freezer, storage water cooler/dispenser, bottled water dispenser and cold room. Deep freezers and modular cold rooms are witnessing strong growth owing to expansion of e-tailers and portals such as Big Basket, Swiggy and Zomato along with aggressive expansion from Quick Service Restaurants (QSR).
L&T: Buy | Target: Rs 1,800 | Return: 16 percent
It is evident from the BJP's election manifesto that infrastructure development will be a major goal and government is likely to spend $1.4 trillion for that purpose which is expected to get further push in the upcoming budget.
Being the largest player in that space a major chunk of that amount which is expected to improve its topline and profitability.
M&M: Buy | Target: Rs 720 | Return: 12 percent
NBFC-led liquidity crunch and poor consumer sentiment have slowed the auto sales significantly in India.
So a stimulus to boost the auto sales is highly expected in the upcoming budget and being a major player with a widely diversified product portfolio in the Indian auto space, M&M is likely to benefit.
Siemens: Buy | Target: Rs 1,340 | Return: 7 percent
Union Budget 2019 may witness stimulus in the Railways and Infrastructure sector. Siemens being a key player in the Railways & infrastructure development may be beneficiary of this budget.
The company has a strong order inflow. Base order grew 16.2 percent YoY in Q2FY19 while overall order inflow increased 24 percent YoY to Rs 3,630 crore.
Supreme Industries: Buy | Target: Rs 1,200 | Return: 14 percent
Government is targeting piped water supply ( ‘Nal Se Jal’ Scheme) to all homes by 2024. In this Budget 2019, there may be some announcement for implementation of the scheme.
So, the demand of PVC and CPVC pipes is likely to grow significantly. Supreme, being one of the key players in this segment, may find demand boost up.Disclaimer: The views and investment tips expressed by investment experts and brokerages 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.