The maiden budget of Nirmala Sitaraman has failed to be a major game changer, believe most analysts. The headline fiscal numbers remain unchanged from the interim budget presented in February 2019. Although the fiscal deficit target for the current fiscal is reduced from 3.4 percent to 3.3 percent of GDP, it is kept unchanged in absolute terms at Rs 7.04 lakh crore.
"The budget has been able to show intent in taking forward the unfinished agenda of the government in the social sector, sticking to the fiscal discipline creating long term growth drivers, however, given the current state of economy with slowdown in auto demand, NBFC crisis, there seem to be little attempt to pump prime the economy and demand," Prabhudas Lilladher said in a report.
One of the major initiatives that the government announced is that it will now start to finance part of its budget deficit from overseas markets.
"This is a big step, in our view, and signals a fundamental shift in the way India looks at its borrowing requirements. This will have several implications for interest rates and liquidity. It could lead to lower bond yields and also free up savings for private investments and reduce the crowding out effect. Second, this will reduce the pressure on domestic liquidity and alleviate the supply overhang in the Indian bond markets," explained Motilal Oswal Services.
The budget also proposed some measures to reduce risk aversion and encourage lending to NBFCs. One-time six months' partial credit guarantee to PSU banks for purchase of high-rated pooled assets of financially sound NBFCs is a positive signal to banks to provide liquidity to sound NBFCs. Higher regulatory power to the RBI over NBFCs and the return of regulation of HFCs back to the RBI would also instil more confidence.
PSU bank re-cap package of Rs 70,000 crore will provide growth capital to the PSBs and kick start lending. Boost to affordable housing and higher allocations for road, railways and defence augur well from infrastructure spending viewpoint. Meanwhile, the FM’s proposal to increase the minimum public shareholding in listed companies from 25 percent to 35 percent could result in supply overhang in the near term and may even impact the secondary market.
Going ahead analysts expect the market to now move on from the budget and shift the focus towards earnings. First quarter earnings of FY20 earnings will kick-start this week and they expect a slightly subdued quarter predominantly led by financials.
With all that in mind, these are the top stocks recommended by brokerages post-budget 2019
: MOTILAL OSWAL
Top large-cap ideas post-budget include SBI, ICICI Bank, HDFC, Bharti Airtel, Titan, Infosys, L&T and Maruti. Whereas, top mid-cap recommendations are Federal Bank, DCB, Indian Hotels, NMDC, ABFRL, KEC International, Oberoi Realty, Ashoka Buildcon, Zensar, and Crompton Consumer.
According to the brokerage, HFCs and NBFCs will be the key beneficiaries of the budget. They prefer Aavas Financiers, HDFC, LIC Housing Finance, Indiabulls Housing Finance in HFCs and Mahindra and Mahindra Financial Service, L&T Finance Holdings among NBFCs.
The brokerage values Nifty at 20xFY21 EPS of Rs 662 and arrived at a 12-month target of 13,444. IT expects returns to be back and it would be a function of recovery in consumer sentiment, stabilising of NBFCs, and revival in demand led by consumer staples and automobiles.
"Indian markets have seen a rising focus on large caps and small and mid caps have seen a big rub off in the past year or so. With the growth remaining a challenge and structural issues still on the horizon, we retain our liking for large-cap stocks in the near term," it added.
Domestic consumption remains a core theme in their portfolio given rising global headwinds and long term growth drivers led by strong demographics in India. It is overweight on consumer, banking, cement, capital goods, and oil and gas and underweight on automobiles, IT, NBFC and metals.
Ultratech cement is the top cement pick given strong pricing power and growth outlook. It is adding Spicejet as one of the midcap picks as the current environment of high yield, favourable ATF prices and market share gains due to fleet expansion will drive strong growth in earnings. Meanwhile, it removed Ashok Leyland and IDFC Bank from top picks.
The brokerage maintains that Nifty is fairly expensive at current levels and sees limited growth/earnings triggers. From the budget perspective, it is positive on financials, infrastructure, real estate, and ceramics; negative on IT.
Among fertiliser stocks, it likes Chambal Fertiliser, GSFC, RCF, NFL. UPL, PI Industries, Dhanuka Agritech, Rallis India, Excel Crop are top picks in the agrochemicals sector.
For PSU Banks, it prefers SBI and PNB. DHFL, Indiabulls Housing, GRUH Finance, Canfin Homes are its HFC picks.
ITC is the only FMCG stock it likes, while in healthcare, it prefers Apollo Hospital, Healthcare Global, Thyrocare, Dr. Lal PathLabs.
Among infra stocks, NCC, PNC Infratech, Ashoka Buildcon, Ahluwalia Contracts, Sadbhav Engineering, KNR Construction, and Adani Ports are top buys.
It is positive on ITC as cigarette excise duty was re-introduced on a technical ground. However, the impact is a negligible 0.2 percent hike in the current cigarette tax.
Increased tax exemption on interest on housing loans of up to Rs 3.5 million could help Tier 2/3 end housing demand. This is positive for Havells, Crompton, Asian Paints, Pidilite
It is overall bullish on PSUs as well as NBFCs and HFCs.
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