Analysts advise investors to stay with cyclical sectors. Capex-oriented sectors are also likely to recover post elections
The market sentiment is slightly cautious ahead of the Interim Budget on February 1.
The Interim Budget would provide an opportunity for the government to outline its medium-term economic priorities, specifically with regards to improving farm/rural incomes. However, for retail, there may not be anything to cheer but stock-specific opportunities will keep D-Street busy.
Amid growing expectations of populist Budget announcements, especially for ‘farmers and individuals’ coupled with apprehension on expected revenue shortfall (especially GST), there is a growing risk that the government might resort to the path of populism over fiscal discipline during Interim Budget, fear experts.
“Given the expected shortfall in GST revenues, lower-than-expected non-tax receipts, and higher budgetary spends; we expect the fiscal deficit target to get revised upwards by ~26 bps to 3.5% for FY19 from 3.3% pegged earlier. Focus on alleviating rural distress would likely remain a key agenda in the Budget,” ICICIdirect.com said in a note.
Most experts feel that 2019 is likely to be a significant game-changer for Indian politics as biggest national parties — BJP and Congress — do not seem to be even close to forming a government easily.
Prabhudas Lilladher says the probability of a hung Parliament with weak alliances and the third front led government is rising with each passing day. The brokerage firm expects a big thrust on agri/rural in this year’s Interim Budget.
However, we note that rolling out of big incentives like Telangana's Rythu Bandhu scheme could cost more than Rs 2 trillion/annum and can spoil the fiscal math, it warns.
Analysts advise investors to stay with cyclical sectors. Capex-oriented sectors are also likely to recover post elections, along with consumption and infrastructure which could see some tailwind from the policies which could be announced.
“We expect some action in the consumer-oriented stocks. We are also bullish on infrastructure stocks, like L&T, PNC Infra, and Shree Cement to benefit if populist measures are not as bad being feared by the market while outlook improves due to return of government capex,” Satish Menon is the Executive Director at Geojit Financial Services told Moneycontrol.
Naveen Kulkarni, Head of Research, Reliance Securities told Moneycontrol that we may see the Budget announcing some sort of farm loan waiver, rural stimulus and ensuring a rise in minimum support price (MSP).
“HUL, ITC, Dabur, Colgate and Escorts — all plays associated with the rural theme are likely to be in focus,” he said.
Here is a list of stocks from various brokerage firms and the stocks which are likely to benefit from the likely announcements:
Bata India, Britannia Industries, Century Plyboards, Dabur India, Escorts, Future Lifestyle Fashions, GNA Axles, Hindustan Unilever, ICICI Bank, and V-Guard Industries.
Any move on relaxing corporate tax rate, Long Term capital gains or DDT can be positive for whole markets. Any measure like farm package, tax relief or BPL pension will boost demand.
Domestic consumption stocks like ITC, HUL, Britannia, Dabur and 2Wheeler companies (TVS Motors) can benefit from that.
Select Prefer Private Banks and consumer finance companies like HDFC Bank, ICICI Bank and Bajaj finance will gain from rising consumer spends.
Companies to play for farm package could be M&M, PI Inds and Coromendal International seem good bets in the Auto and Agri space.
Consumer: ITC always remains in focus on budget and increase in excise duty will pose further challenges to cigarette volume growth. Rural spending will help consumer stocks like Escorts, HUL, Dabur and Colgate. Raising tax brackets is likely to help discretionary spending.
Construction, Capital Goods & Cement: Railway spending is likely to rise further. Roads, infrastructure and real estate are likely to see some push. The key stocks to see the impact are: L&T, KEC International, Ahluwalia Contracts, NCC and UltraTech.
IT, Pharmaceuticals & Telecom: Though “Make in India” drive could help the Engineering R&D companies; the budget does not have any meaningful impact on IT and Telecom companies per se.
In Pharmaceuticals space, the government could increase tax exemption for preventive health check-ups, which will benefit the diagnostic companies/pathological laboratories. Healthcare will be a key focus area for the government.
Oil & Gas and Power: If the governments roll over the fuel subsidy shortfall of ~Rs 150 billion (Rs 15,000 crore) to FY20, then ONGC and Oil India may not witness subsidy pressure. In the power sector, rural electrification will continue to remain in focus. NTPC and Power Grid will be the key beneficiaries.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.