Indian indices — BSE Sensex and Nifty50 — hit their respective record highs in trade on Wednesday with the benchmarks rising nearly 9 percent post the Union Budget 2021 as investors cheered the announcements and incentives to boost the pandemic-hit economy.
"The Union Budget has capitalized on the opportunity to spend more and boost the economy at the expense of higher borrowings. Reforms, disinvestment, status quo on tax rates and long-term infrastructure development have been the focus of this year’s Budget. As expected, the government has stepped up the expenditure on various large-scale projects to provide impetus to the economy and largely relied on asset monetization and borrowings to fund the same," Kotak Securities said in a post Budget note.
With the markets in the bull run phase, the brokerage expects the equity valuations to remain at elevated levels due to expected economic rebound, strong earnings print and low bond yields.
However, given the rich valuations equity markets will be at the mercy of the bond markets, bond yield and bond PE in future, it added. Considering all the aspects of growth and valuation the conviction of buying on declines goes up after the budget, Kotak further observed.
It advises investors to use any future market correction to increase allocation in equities with a 2 to 3-year view adding that key risks to Indian equities could be higher-than-expected inflation and higher-than-expected bond yields in the future.
The brokerage has also come with a list of top investment ideas post the Budget. These include Tata Steel, Hindustan Zinc, United Spirits, DCB Bank, Shriram City Union Finance, SBI Life and Kalpatru Power.
It expects an upside of up to 47 percent in these stocks in a 12-month period.
It further noted that once the fine-print is absorbed, the market focus would return to the fundamentals, viz. corporate earnings growth, which is showing tangible momentum. From Q3FY21 corporate earnings till date and improving economic indicators, the demand revival is progressing quite well, observed Kotak.
"Till the end of January, 28 Nifty-50 companies have come out with their results with aggregate earnings growth of 30 percent. Earnings growth is spread across all sectors. In the broader Index that is BSE 500 around 220 companies have declared their Q3FY21 results and the aggregate YoY earnings growth of these companies is a staggering 68 percent. We currently expect Nifty-50 earnings to grow by 27 percent in FY22 and 19 percent in FY23 following a 15 percent growth expected in FY21," noted the brokerage.
It also sees moderate earnings upgrades over the next few months, especially in banks, metals and mining, gas and consumable fuels and telecom.
(Edited by : Ajay Vaishnav)