With 2023 in sight now, investors have started to focus on the upcoming Union budget for the next fiscal year.
There has been much talk about macro headwinds of slowing growth in the US and a likely recession in the UK and Europe, leading to a belief that market participants will parse Finance Minister Nirmala Sitharaman’s speech while analysing the budget.
“Even though over the years, major policy announcements have been issued outside of the budget speech, but considering that this will be the last full-year budget from current government ahead of the Lok Sabha elections in April-May 2024, there are strong expectations built around it,” said Azeem Ahmad, head, PMS and principal officer, LIC Mutual Fund.
There is an expectation that the government will reiterate its focus on supporting growth in the domestic economy and a further thrust on Atmanirbhar Bharat.
Ahmad said infrastructure development, broad-based capital expenditure and manufacturing-led growth where the government is already focused remain the key areas.
“We believe that the government is going to continue its growth narrative from last year’s budget. India has perfect tailwinds to benefit from the re-globalisation shift. The sectors related to PLI (production-linked incentive schemes), infrastructure, logistics, renewables should get a boost from budget announcements,” said Divam Sharma, founder, Green Portfolio, a SEBI-registered portfolio management service.
He added that budget stocks are generally a ‘buy on rumour and sell on news’ play.
Sharma also pointed out that one could look at sectors where a spending announcement is likely such as PSU divestment, railways and infrastructure.
Here are some of the sectors that could be affected by the budget:
Infrastructure
Historically speaking, infrastructure has been the hot sector ahead of Union budgets, said the PMS head of a leading mutual fund who asked not to be identified.
“We expect announcements around allocations towards PLI budgets, mega parks and infrastructure for bringing together supply chains for various sectors, and capital expenditure for infrastructure creation around logistics,” Sharma said.
According to a report on the livemint website, the government has planned to sharpen its focus on infrastructure growth in the upcoming budget by allocating 30 percent more funds for the roads ministry to speed up construction to more than 50 km of highways daily.
The head of research at an automated investment service provider highlighted that logistics companies such as warehousing, cargo and shipping companies could also be a good play at this point in time.
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Railways
Some market participants believe railway stocks are a tactical buy ahead of the budget.
Besides, decent growth visibility because of a likely increase in railway capital expenditure has also propped up sentiment for the sector.
There are also hopes of some announcements related to the sector in Sitharaman’s speech. Additionally, expectations around meaningful divestment in public sector rail units have also piqued investor interest in the segment.
Defence
With the indigenisation of defence, there is a huge opportunity for manufacturers in the sector.
India is on track to meet its $5 billion exports target for defence equipment, driven by the government’s focus on increasing outbound shipments, Prabhudas Lilladher said in a report in October.
Currently, a lot of foreign original equipment manufacturers depend on China and Russia for defence equipment, which provides huge opportunities to Indian manufacturers for boosting exports led by the China plus one strategy, the brokerage firm added.
Healthy order books and the government’s push for localisation have steered many fund managers to believe that defence stocks are an attractive bet at this point in time. Plus, expectation that the government might announce some more measures for indigenisation have also spurred buying in defence stocks.
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Public sector undertakings (PSUs)
Investors could ride on the divestment news by increasing their allocation to PSUs.
The government could keep the disinvestment budget estimate for 2023-24 elevated, as some large asset-sale proceeds that are in pipeline are anticipated next fiscal, Business Standard said, citing government officials.
The Centre has already raised Rs 62,000 crore as divestment receipts, including Rs 32,000 crore as dividend from state-run companies, The Times of India cited a top finance ministry official as saying, and asserted that a number of privatisation transactions were under way.
Some of the names for strategic divestment are IDBI Bank, Container Corporation of India, BEML, Shipping Corporation of India, NMDC and Hindustan Zinc.
The AVP of equity institutional sales trading at a domestic brokerage firm believes PSU banks are also on investors’ radar.
He suggests a close watch on banks that have divestment plans just in case there is some announcement in the budget along those lines.
Some PSU banks are also catching up with their private banking peers, he added.
Bernstein had pointed out in a November report that there are three key drivers to value creation in the banking sector: healthy credit growth, expanding interest margins and benign credit costs.
However, the foreign brokerage firm’s view differed slightly while comparing public and private sector banks. “While there might be a short-term catchup of PSBs (public sector banks) on growth, we see long-term structural challenges that will limit any chances of a serious turnaround that stems their share loss to private sector banks.”
Renewables
India aims to clock its net-zero carbon emissions target by 2070. Its focus on energy transition and clean energy is expected to boost sentiment for renewable energy companies. This has meant that confidence among financiers to invest in renewable projects, as opposed to conventional thermal projects given their risks, is growing rapidly.
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