Choosing winners
The Union budget has given new hopes to many sectors, but it is still early days
Now that the Union budget is over, fund managers who had held back cash from equity investments last month, would now be deploying the hoard in sectors that have turned appealing post-budget.
The budget’s efforts at consumption revival through a personal income tax reduction and a renewed focus on rural India and affordable housing had stocks of consumer facing sectors like banks, automobiles and realty rising. The budget’s stress on infrastructure development has buoyed up the stocks of related segments.
Mutual funds were cautious ahead of the budget, as reflected in the steep fall in equity investments last month. Equity investments in January stood at Rs 5,233.90 crore, comparing poorly with the figures of Rs 9,178.90 crore in December and Rs 13,775.10 crore in November. But on February 1, the day of the budget, mutual funds invested Rs 951.50 crore in equities. Their forceful return to the equity market shows optimism over the budget and lack of negatives on the tax front.
“We believe budget proposals are positive for infrastructure (higher outlay for road, rail, rural electrification), consumer & agriculture (higher disposable income post-tax cuts, multiple measures to double farm income, bank credit to agriculture up 11 per cent to Rs 10 trillion) and banks (in-line fiscal deficit targets resulting in an accommodative monetary policy regime),” says Jaspreet Singh Arora, head of research-institutional equity, Systematix Shares and Stocks.
Consumption, a victim of demonetisation, has received due attention in the budget. Angel Broking, in its budget impact report, said, "The higher focus on rural spending coupled with income tax exemption will provide a strong boost to the consumption cycle, which would benefit sectors like FMCG (Marico, ITC, P&G), automobile (Bajaj auto, Hero Motocorp, Maruti Suzuki) and consumer durables (Bajaj Electricals).”
The consumption theme also got a leg-up from measures for the real estate sector. The badly battered sector received a big boost from the infrastructure status given to affordable housing and the carpet area-based criterion for such housing. The infrastructure status will help realtors to get funds at cheaper terms while the expanded floor criteria for affordable housing would help more people to buy houses at cheaper interest rates.
Experts said the infrastructure status would also allow more competitive money to enter the affordable housing segment, which would have access to funding from external commercial borrowing, EPFO and insurance companies. Anshul Jain, managing director, Cushman & Wakefield, India, a real estate advisory firm, said, "After a wait of several years, the government has finally awarded infrastructure status to the largely neglected affordable housing, which is encouraging for developers. The infrastructure status will ensure easier access to institutional credit and help in reducing developers’ cost of borrowing for affordable projects."
All this good news has pushed up realty sector stocks post-budget and investor interest in this beaten down sector has revived.

Also, the finance minister said the National Housing Bank will refinance individual housing loans of about Rs 20,000 crore in 2017-18. Similarly, allocation under Pradhan Mantri Awaas Yojana–Gramin was raised from Rs 15,000 crore in 2016-17 to Rs 23,000 crore in 2017-18.
“The higher allocation towards affordable housing is expected to benefit companies like Mahindra Lifespaces, Can Fin Homes, LIC Housing Finance, Dewan Housing, etc. The increased infrastructure spending will be a positive for L&T," said Angel Broking.
PSU Banks stocks have rallied for three consecutive sessions from the budget day, as the document contained no bad news for the these banks with stressed balance sheets. Moreover, the government’s huge outlay for infrastructure and other developments are expected to increase credit offtake for banks. The reduced net market borrowing figures for the next fiscal, at Rs 3.48 lakh crore versus 4.25 lakh crore, and the low fiscal deficit target of 3.2 per cent are also seen as helping the banks.
E A Sundaram, executive director & chief investment officer-equities, DHFL Pramer-ica Asset Managers, said, “Fiscal deficit targets of 3.2 per cent in FY18 and 3 per cent in FY19 show fiscal prudence, which will help contain inflation and lower yields, which should be positive for the banking sector...Additionally, changes in the provisioning requirements for non-performing loans and accounting standards to accrual from cash basis and capital infusion of Rs 10,000 crore for PSU banks are all positive developments for the banking sector.”
However, it is still tough to predict which sectors are going to do well in the next fiscal, considering that the stock market is globally linked and its course is determined by too many variables.
Though PSU banks and metal stocks have done extremely after the budget, in hindsight, they were not the clear favourites of most fund managers. While investors were bullish on bank stocks, many analysts said more could have been done for the PSU banks and the Rs 10,000 crore capital infusion proposed was not enough for repairing the stressed balance sheets of PSU banks.
Accroding to rating and research agency Crisil, “One big miss in the budget is the lack of a road map to resolve the banking sector asset quality stress and capital woes.”
Kotak Institutional Equities also sounded a similar note. “Capital infusion of Rs 10,000 crore in public sector banks is in line with the previously laid-out plan of Rs 70,000 crore capital infusion over FY2016-19 under Project Indradhanush. Higher capital infusion could have helped faster repair of stressed balance sheets of PSU banks,” it said.
Construction, cement and metals also look good bets with the government focus on improving the quality of life in rural and urban India. Crisil said, “Increased outlays on roads, housing, sanitation and electrification through various schemes would make a difference in rural livability. In the process, there would be significant opportunity to the construction, cement and metals sectors.”

For urban India, there is an 80 per cent increase in allocation towards metro rail. “There is a nearly 10 per cent increase in budgetary allocation to infrastructure, including 24 per cent increase for national highways. Upgrading connectivity and improving logistical efficiencies have excellent multiplier effects,” Crisil said. This focus on transport infrastructure is expected to boost construction, engineering, metals, cement, and logistics sectors. The cement sector, which has been hit by demonetisation, has received some comfort from the budget announcements, though some analysts were not so enthused.
Religare Institutional Research, in a report, said, “In our view, demonetisation has not only derailed the much-hyped cement demand recovery in H2FY17, but will also be an overhang on FY18 consumption. The expected slowdown in housing and real estate (which comprise 60-65 per cent of cement demand) is unlikely to be offset by the government-led growth in infrastructure spending.”
Some smaller allied sectors are also likely to benefit from the budget’s rural focus. The stocks of rural theme-focused non-banking finance companies, agri-input firms such as farm equipment, fertiliser and micro-irrigation firms gained on higher budget allocation.
“The increase in credit availability, the focus on micro-irrigation and dairy-related activity, making farm incomes more predictable– all will have an upshot: it will bolster rural incomes and support consumption demand,” Crisil said.
The budget was good for cigarette makers, too. The segment saw the lowest excise duty hike in the recent past.
raviranjan@mydigitalfc.com