Expect midcap outperformance to continue; hope taxes aren’t tinkered with in Budget: Macquarie

GST is already there and people are coping with these taxes. Along with this, businesses such as cigarettes have gone through a double whammy. This year should not be about tinkering with tax rates.

   

Midcap stocks witnessed a stellar rally last year with the Nifty and BSE midcap index returning 46-50 percent in 2017. They were seen as one of the major reasons behind the market clocking fresh highs last year.

So, will the streak continue in this year? Macquarie Capital Securities strongly believes so. “Midcaps will perform strongly…in the near term, there could be some surprises in IT and pharma names. This could be a year where smaller businesses do well,” Sandeep Bhatia, Head of Equity-India at Macquarie Capital Securities told CNBC-TV18 in an interview.

Speaking on different sectors, Bhatia believes non-banking financial companies (NBFCs) are richly-valued. “They have gone through a bubble phase and we would want to stick to larger banks. PSU banks should do well. In the housing finance space, we are sticking to HDFC.

Meanwhile, in information technology (IT), he feels BFSI segment could take two quarters to come through, but margins need to be taken a look at. He prefers Infosys and in the broader BFSI space, he expects year-end to be much stronger.

Bhatia expects private capital expenditure to come after a year or so, while government spending is happening right now. He likes Larsen & Toubro and expects cash flow and RoE improvement going forward. A good quarter is in sight for the firm, he said.

So, what are the big expectations from the Budget? Will the Centre bring in long-term capital gains (LTCG) tax on equities and will that weigh on the bull market? The bull run is driven by earnings and global events, he said.

On the taxation part, he believes no taxes should be changed this year. “GST is already there and people are coping with these taxes. Along with this, businesses such as cigarettes have gone through a double whammy. This year should not be about tinkering with tax rates.

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