Gaurav Dua, SVP – Head Capital Market Strategy & Investments at Sharekhan by BNP Paribas, is of the view that the major beneficiaries after the Union Budgetwill be sectors such as cement (UltraTech Cements, Shree Cement, JK Lakshmi etc.), construction & engineering, (L&T, KNR Construction, Ashok Buildcon, PNC Infra), public sector enterprise (SBI, BOB, Power Grid) among others
In an interview with Moneycontrol’s Kshitij Anand, Dua, who has about 20 years of experience in the capital market, said that from a retail investor’s perspective, the major learning is that it is important to stay invested in a bull market rather than try to time the markets.
Q) How would you rate the Budget on a scale of 1-5 and why?
A) Budget 2021 will get 5 out of 5 purely on the stated intent to focus on investment-led growth in the economy and taking an expansionary fiscal policy stance.
Also, the pragmatic proposals to strengthen bank balance sheets, aggressive privatisation, and asset monetisation to raise the required resources to fund the capital expenditure over the next few years will bode well for the market.
However, some of the proposals could face stiff opposition and could lead to delay in execution. The case in point is the past experience of handling of the privatisation of BPCL, Concor, as well as SCI among others.
Despite the execution challenges, the shift in the policy priorities and the overall mindset is encouraging and quite enthusing for the markets.
Q) Do you think the government managed its finances, and at the same time delivered a Budget that could boost growth?
A) The headline fiscal deficit figures and the gross government borrowings projections are much ahead of street expectations. However, the fiscal deficit of 9.5 percent in FY2021 revised estimates and 6.8 percent projection for FY2022 are partially bloated by changes in the accounting policy and conservative revenue assumptions.
The off-balance sheet items like loans taken by FCI has been accounted for under the food subsidy head which has pushed up the fiscal deficit figures by around 150 bps in FY2021 and 50 bps in FY2022.
So, the actual fiscal deficit for FY2022 could be around 6 percent on a like-to-like basis which is not bad given the sharp increase in allocation for capital expenditure to Rs5.54 crore in FY2022 and it comes on the of healthy 30 percent growth in FY2021 itself.
The government has proposed to raise resources through monetisation of operational infrastructure assets and an aggressive privatisation program rather than depend upon increasing the tax burden.
Q) Which sectors are likely to benefit the most from the Budget and why?
A) Given the focus on infra development and capital expenditure to drive economic growth for the next few years, the key beneficiaries from the Budget proposals are infra & construction, industrials, building material (steel, cement & allied segments), and public sector companies.
Q) Which sectors could lose because of Budget proposals and why?
A) Interestingly, there are not many sectors that stand to have a material impact on their growth outlook due to Budget proposals.
However, there could be some impact on insurance companies due to a cap on tax deduction on ULIPs, and tinkering of custom duties could impact some ancillary companies.
Q) Which stocks are likely to benefit the most from the Budget and why?
A) As mentioned above, the major beneficiaries are cement (UltraTech Cements, Shree Cement, JK Lakshmi etc.), construction & engineering, (L&T, KNR Construction, Ashok Buildcon, PNC Infra), public sector enterprise (SBI, BOB, Power Grid) among others.
ITC benefits due to no change in excise duty on cigarettes and tobacco products while auto stocks gain due to voluntary scrapping policy.
Q) How should retail investors decode the Budget 2021?
A) From a retail investor’s perspective, the major learning is that it is important to stay invested in a bull market rather than try to time the markets.
The sudden reversal has left many waiting on the sidelines and missing out on a few good days can seriously alter the overall long-term returns from the equity markets.
As part of the portfolio strategy, it is advisable to increase exposure to real estate, construction, building material and industrial sectors now.
Q) What should be the investment strategy post Budget 2021? Should investors use the dip to rejig their portfolio?
A) Dips should be used to accumulate quality stocks. We have often seen that correction of 5-8 percent in benchmark indices in a short period of time along with a 10-12 percent decline in quality companies is always a good opportunity to add/accumulate. Invest for the long haul, do not be too greedy or too fearful.
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