Since it’s the last one, the street expects it to be populist. However, giveaways can only come from either excessive fiscal slippage or higher revenues, most brokerage firms see the possibility of both.
Markets are experiencing a strong pre-budget rally which has already pushed benchmark indices to record highs ahead of the big event, Budget 2018 which is also going to be the last full budget of the BJP government.
Since it’s the last one, the street expects it to be populist. However, giveaways can only come from either excessive fiscal slippage or higher revenues, most brokerage firms see the possibility of both.
The fiscal deficit is expected to slip to 3.5 percent in FY18 and 3.3-3.4 percent in FY19; FY18 government capex has stayed on course – we view this as a positive in times of fiscal stress, PhillipCapital said in a report.
While space is limited for any surge in government spending, trend growth pace is expected to persist with focus on roads, metros, housing, irrigation, and defence, it said. The domestic brokerage firm does not see the government going overboard in making this Budget populist, but the rural focus will continue.
Bond yields are discounting higher government borrowings and fiscal slippage, thus incremental rise from current levels is limited. Overall, fewer negatives are expected to come out from this budget.
In FY18, development spending has been weak as oil tailwind faded and tax collections slowed. But, in FY19, brokerage firms expect development spending to revive from 5 percent on a YoY basis in FY18 to 15 percent in FY19 with improving GST compliance 15 percent in FY19 with improving GST compliance.
Commenting on the taxes, Edelweiss said that changes in indirect taxes are unlikely as a) GST Council decides on rates now; b) corporate tax cut unlikely given fiscal pressure; c) some relaxation in income tax slabs/tax rate is expected so as to boost urban disposable incomes.
We have collated a list of 20 stocks across 4 sectors which are likely to remain in limelight around Budget 2018:
Sector Agriculture
Stocks in focus: Dhanuka Agritech, PI Industries and Kaveri Seeds, Chambal Fertilisers and Coromandel International
Brokerage firms are expecting short-term farm loan limit to be increased to Rs 5 lakh from Rs 3 lakh currently which should impact stocks like Dhanuka Agritech, PI Industries, and Kaveri Seeds.
There is another proposal to bring natural gas under GST which would attract 5 percent GST rate. The move would be positive for fertilizer manufacturer Chambal Fertilisers and Coromandel International, Sharekhan said in a report.
Reforms targeting at improving farm income/farm yields such as electronic linkage of mandi's under e-NAM, higher MSPs and the likely increase in rural allocations should auger well for agri-chemical companies like Dhanuka Agritech, Insecticides, and PI Industries.
Brokerage firm expects the amendment to the new investment policy could be made in this Budget. Urea players expect benefits/incentives for investments towards the expansion of urea capacity could impact urea manufacturers like Chambal Fertilisers and Coromandel International.
Sector: Automobile
Stocks in focus: Hero MotoCorp, M&M, Maruti Suzuki India Ltd, Eicher Motors, Tata Motors
Financial incentive may replace vehicles older than 10/15 years. The long-term measures for agri sector to push farmer productivity/ income levels up, and higher JNNURM orders for bus manufacturers and incentives for EVs should also auger well for the sector, Axis Capital said in a report.
Companies which are likely to get positive impact from the proposed changes include names like Hero MotoCorp, M&M, Maruti Suzuki India Ltd.
The incentive for scrapping old heavy commercial vehicles that are more than 10-15 years old should impact companies like Ashok Leyland, Tata Motors, and Eicher Motors.
Sector: Capital Goods, Defence
Stocks: L&T, Kalpataru Power, and KEC International
After 3-4 years of stagnant capex allocation for defence, an increase in defence capital is expected. Edelweiss expects the capital allocation to rise by 8 percent. Companies which manufacture defense-related equipment should benefit positively such as L&T, M&M, BEML, Bharat Electronics, Bharat Forge etc. among others.
Sharekhan expects higher investment in infrastructure development focusing on power transmission and railways which should positively impact stocks like KEC International, Kalpataru, and L&T.
Sector: BFSI
Stocks in focus: SBI, PNB, BOB, PNB Housing, Can Fin Homes, GIC Housing, ICICI Bank, HDFC
Sharekhan expects that Budget would lay out a final blueprint and roadmap of (possible) PSU bank recap plan and steps to improve the bank’s efficiency which should impact PSU stocks like SBI, PNB, as well as Bank of Baroda.
The Modi-government is working towards affordable housing. The steps to promote ‘Housing for All,’ increase in tax exemption for home loans, enhancement of 80C benefits to provide separate brackets. Housing Finance companies such as PNB Housing, Can Fin Homes, GIC Housing are likely to benefit the most.
If the fiscal deficit remains under check it would help in cool-off in bond yields. It will also help in reducing borrowing cost for NBFCs. Banks will avert mark-to-market losses.
To provide parity with life insurance companies Sharekhan expects that if general insurance companies are also exempted from the levy of MAT under section 115JB of Income Tax Act would impact companies like GIC, ICICI Bank, and HDFC Ltd in a positive way.
MORE WILL UPDATE SOON!!
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