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There is buildup in interest in rural-focused companies ahead of the budget: Deepak Jasani, HDFC Sec

Among largecaps, we like Lupin, Bank of Baroda, ICICI Bank, Kotak Bank, Tata Motors and Bajaj Auto. Small/ midcaps picks include V-Guard, Century Textiles.

, ET Bureau|
Updated: Jan 20, 2017, 03.11 PM IST
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Sundram Fasteners has certain risks and concerns in the sense that it is over dependent on auto segment or auto industry which by itself is cyclical. It has some client concentration risk
Sundram Fasteners has certain risks and concerns in the sense that it is over dependent on auto segment or auto industry which by itself is cyclical. It has some client concentration risk
Ahead of the Budget there could be some interest in rural focused companies including agri equipment, seeds, fertilisers, pesticides, rural finance and rural infra says Deepak Jasani, Head of Retail Research, HDFC Securities.

Edited excerpts from the interview:


Just a few more before the budget. How do you expect the market to perform? Will it fall?

Historically, markets have sold off post Budget. So, unless the Budget brings in positive changes/reforms beyond expectations, that is a probability. This time there has been a buildup, though not very large, ahead of the Budget. If by the time the Budget is announced, we see some more buildup, then the possibility of profit taking/sell-off post the event remains.

What are your expectations from the budget?

While no large-scale changes may be made to the LTCG except perhaps extending the period of holding or STT regulations, investors could get excited by an increase in income tax exemption limit, increase in allowances like standard deduction, transport allowance, medical expenses, education allowance and lowering of income taxes as hinted by the Finance Minister. This could boost the consumption by tax payers and prompt more tax compliance going forward. One only hopes that the government does
not take away from the people in some other form what it gives by way of tax cuts.

Some form of universal basic income may be experimented in the ensuing Budget. This apart, the expected additional spend on railways, general infra, rural/agri infra, skill building and employment generation could also be welcomed. Sticking to fiscal targets and prudent expenditure management could impress economists locally and globally.

Ahead of the Budget, we could see some buildup in rural focused companies including agri equipment, seeds, fertilisers, pesticides, rural finance and rural infra. Banks, power, FMCG and realty stocks could turn out to be beneficiaries of the Budget.

Should investors increasingly look at niche listed sectors that could benefit post GST implementation, especially in the building material space (ceramics, paints, plywood) where real estate demand could be tricky?

Expectations of a shift from unorganised to organised sectors could benefit a number of sectors post implementation of GST and a buildup could happen in these sectors. While demand from real estate sector could remain sluggish for a few more quarters,replacement/renovation demand and demand from affordable housing may continue. However, everything is good at a price. If these sectors are already reflecting the upside from implementation of GST, a further rise may happen only after a quarter or so of launch of GST.

What's your favourite pick right now in the midcap and the largecap space?

In our picks for calendar 2017, we have the following largecaps - Lupin, Bank of Baroda, ICICI Bank, Kotak Bank, Tata Motors and Bajaj Auto. Among small/midcaps we have V-Guard, Century Textiles, MOIL, Powergrid.

Given the way USFDA regulations have been weighing on pharma, are investors better served to look at small and mid cap, India focused companies, perhaps lesser known ones like Amrutanjan?

One will have to sift through the entire universe of pharma stocks to find out as to who among the large established players is least likely to face regulatory hurdles. We think Lupin and Cipla fall in that category. Such stocks could provide upside potential based on micro triggers and at the same time offer some margin of safety.

Smaller domestic focused players definitely offer opportunities as their base is small. Further among such base, companies who have aligned their product portfolio towards chronic therapies for diseases such as cardiovascular, anti-diabetes, anti-depressants and anti-cancers that are on the rise and companies who are building on their CRAM business are worthy of being considered.

One should, however, try and get some comfort about the management passion and integrity. Stocks like Amrutanjan are OTC healthcare product players, more aligned to FMCG than core pharma.

What are your views on midcap IT names like a Cyient and a Tata Elxsi that are relatively more future facing? Would you still recommend one to have largecap IT staples in their portfolio?

We have a target price of Rs 510 for Cyient and do not have fundamental coverage on Tata Elxsi. Largecap IT companies have become mature and have large base. Hence they are more of defensive buys/holds. They could also be good trading bets whenever they face a sell-off due to macro or micro factors.

Mid and small cap IT companies in niche future facing areas can be considered provided you get a comfort about the business model and their management. These players have the benefit of being nimble footed but face the risk of being wiped out due to technological changes or emergence of players with large pockets and serious intent.

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