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Better late than never: Top Budget bets from various brokerages just for you

Can Finance Minister pull off a good balancing act by addressing key concerns of the economy without compromising on fiscal consolidation?

ET Online|
Feb 23, 2016, 03.02 PM IST
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The Budget is going to give a firm direction to the domestic stock market on either side – hopefully northward.
The Budget is going to give a firm direction to the domestic stock market on either side – hopefully northward.
NEW DELHI: With less than six days to go for the Union Budget, anxiety haunts investors and industry alike. And there is only one surety: the Budget is going to give a firm direction to the domestic stock market on either side – hopefully northward.

Battered and bruised by global headwinds, equity investors are desperately looking for some solid domestic cues to take the market out of the present rut, and this can materialise only if the Finance Minister can pull off a good balancing act by addressing the key concerns of the economy without compromising on fiscal consolidation. Sounds tough, but many economists believe it’s entirely doable.

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So, if the continuing pessimism has dented your confidence to bet on stocks, many of which go begging at mouth-watering price levels, here are a few better-late-than-never strategies from domestic brokerages to bet on the forthcoming Budget.

Leading brokerage Angel Broking’s conviction picks for the Budget include Sadbhav Engineering and KNR Constructions, as it expects the Budget to have a strong focus on the roads/highway sector. The brokerage also bets on BEL, which it says remains its best play on defence spending.

“We feel investment spending will continue to remain a high priority in this Budget and infrastructure, cement and capital goods companies would be the direct beneficiaries of it,” the brokerage said.

The brokerage likes UltraTech from the cement space. “Increased allocation to rural schemes and a higher salary and pension bill will have a positive impact on consumption, benefiting two-wheeler players such as TVS Motors. With housing expected to see some push, LIC Housing remains our best play in that sector,” it said.

“We expect a pragmatic Budget focused on growth and one promoting India as an investment destination by eliminating tax distortions, while taking further measures to improve the ease of doing business,” the brokerage said.

Rahul Shah, VP for Equity Advisory at Motilal Oswal Securities, says Bharat Forge, Solar Industries and Dynamatic Technologies are his top picks from the defence sector.

Among others, L&T, VA Tech Wabag from capital goods, LIC Housing, Gruh Finance, DHFL and Repco Home Finance from BFSI and Prestige Estates from real estate could be the major beneficiaries of Budget announcements, he says.

Edelweiss Securities expects the government to refocus all resources on three critical areas: (i) social infrastructure—universal health, education & skills development and housing for all; (ii) infrastructure—roads, railways, waterways and 24x7 electricity; and (iii) agriculture—mainly irrigation and crop insurance.

“We believe the budget should reflect the political will to effect a step-up change in scale, complete with details on financing as well. We believe the government has enough resources, all actionable through executive decisions like SUUTI sale, privatisation of sick PSUs, divestment, BOT model to redirect towards key objectives. Outside this, a clear game plan on PSU banks’ recapitalisation is a must. Lastly, we believe an attempt to tax long-term equity gains will bring little economic gains and perhaps amplify weak sentiment,” the brokerage said.

It expects housing finance companies, EPC players and the logistics sector to be the key beneficiaries of a big infra push over the next several years. Beaten-down PSU banks will benefit if capitalisation plans are clearly tabled, it said.

However, the brokerage has cut its FY17 target for Nifty50 to 8,700-9,300 from 9,525-10,160 levels, reflecting a cut in FY17 earnings. “The market is poorly positioned given global riskoff, earnings deficiency and lack of monetary deflation. Fiscal direction in spirit and scale will be necessary for market direction.

Kotak Securities expects the Budget to be positive for auto, banking/NBFCs, capital goods, cement, construction, metals & mining, oil & gas, paints, power, shipping & logistics sectors.

It says the Budget will be neutral for agro chemicals, aviation, FMCG, Information Technology, media, pharmaceuticals and real estate sectors.

“The FM’s priority in the 2016-17 Budget will be higher growth, with fiscal rectitude. With the private sector capex yet to pick up, he will budget for higher plan capital expenditure (investments), in addition to the higher spends on OROP and CPC, which need to be factored in. These will be proposed to be financed by higher revenues from divestment/privatisation, higher indirect tax rates, telecom auctions and better tax compliance, apart from a cut in non-plan expenditure (subsidies) via DBT,” the brokerage said.

HSBC Global research believes the forthcoming Budget will take last year’s ideas ahead. It believes the government will have a relook at the fiscal consolidation path and would pay renewed attention to rural demand through higher allocation to infrastructure (rural roads and irrigation) and a renewed focus on safety nets.
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