Top 7 stocks which are preferred plays on budget expectation

We expect the government to project the fiscal deficit at 3.2% of GDP in FY19 from 3.5% of GDP in FY18.

Indian market is rose to fresh record highs ahead of the big event, ‘Budget 2018’. The S&P BSE Sensex rose above 36,000 for the first time while Nifty50 rose above Mount 11K registering fresh record highs.

This would be the last full-fledged of the Modi-government before the next general elections. The markets will be keenly watching if the budget takes a populist or a pragmatic approach.

There is an empirical case for populism as the only instance when an incumbent government was voted back to power in last four general elections, was when it went outright populist in its last budget (Congress-led UPA in 2009).

But, the need or a case for populism is weak, we expect the government to stick with fiscal prudence and a pragmatic budget in 2018. We expect the government to project the fiscal deficit at 3.2% of GDP in FY19 from 3.5% of GDP in FY18.

The global investment bank expects action in individual stocks which are likely to get impacted either directly or indirectly by Budget which include stocks like ACC, Bharat Electronics, L&T, M&M, Mahindra & Mahindra Financial Services, SBI, and UltraTech Cements.

  

The S&P BSE Sensex which rose from 35,000 to 36,000 in just 5 sessions could well rally up to 36,900 by December 2018, said the report. But, more specifically, sectors which are related to India theme are likely to hog the  Sectors and stocks to watch out for in the Budget 2018 include themes which are related to rural focus such as autos (esp. M&M, 2-W) and Cement (roads, housing-related announcements) could benefit. Citi prefers M&M and Mahindra Finance.

Public Capex such as spending on roads and affordable housing should benefit cement/infra companies like ACC, UltraTech Cements, L&T and PSU Bank recapitalization will be eyed which could be positive for PSU banks - SBI best pick among PSU banks. Lastly, any increase in allocation to defence should be positive for BEL

Citigroup expects further details on PSU bank recapitalization and higher allocation to rural infrastructure (housing, roads, and electricity) but fiscal consolidation to continue.

Direct tax relief is unlikely for corporates, although there could be a tweak in the lower slab for personal taxes. While any changes to long-term capital gain exemption rules for equities (e.g. 3 year holding period) will be a sentiment negative.

Importance of Budget on markets:

The importance of Budgets for markets appears to be declining. Over the years, the impact of the budget on the equity markets appears to have declined as the government has separated major policy announcements from the budget process.

Even indirect tax rate changes (excise tax, service tax etc. earlier and GST now) – an erstwhile major component of the budget announcements – are now announced through the year.

MORE WILL UPDATE SOON!!