- The annual budget will be announced on February 1, with hopes that the government will increase spending to reboot an economy that is expected to shrink this year
- Rural India, where the most of the 1.3 billion people in the nation live, was a comparatively bright spot in this pandemic
- Analysts say the secret to unlocking demand for goods and services is tax cuts, higher capital expenditure and higher spending on infrastructure projects
On February 1, the annual budget will be announced, with hopes that the government will increase spending to reboot an economy that is expected to contract the most since 1952 this year. Here’s a guide to those stocks that the spending plan might be most influenced by.
Analysts agree that the key to unlocking demand for goods and services is tax cuts, higher capital expenditure and higher spending on infrastructure programs — which tend to help low-income earners.
According to analysts at Citigroup Inc. like Surendra Goyal, “Hopes are strong, as the government has so far abandoned any significant stimulative steps to improve growth after Covid.” Sonal Varma, an economist at Nomura Holdings Inc. wrote in a note which said, “Spending could increase by 9.5 percent, compared to a 6.6 percent increase last year.”
What analysts expect:
Rural India, where most of the 1.3 billion people in the world reside, was a relatively bright spot during the pandemic, recording growth even as the third-largest economy in the rest of Asia contracted. According to Vinay Khattar, Head of Research at Edelweiss Securities in Mumbai, increased spending to support incomes, including the expansion of an existing employment program, would improve rural demand.
The beneficiaries would be fertilizer producers, including UPL, agricultural machinery producers, such as Mahindra & Mahindra, and consumer goods producers, including Hindustan Unilever and Godrej Consumer Products.
Analysts are anticipating the budget to unveil a long-discussed proposal restricting older vehicles. That would strengthen demand for an industry that has already been boosted by a recent sales surge. According to analysts at Jefferies India, led by Mahesh Nandurkar, automakers will also expect to see more information of a $20 billion government initiative to attract manufacturers.
Potential beneficiaries include Ashok Leyland and Tata Motors.
The balance sheets of Indian banks were spared a great deal of damage from the pandemic due to a loan repayment moratorium which ended in August. With that over, bad loans are expected by the central bank to climb to 13.5% of lending by September 30, from 7.5% last year.
Mergers and recapitalization bonds at state-controlled banks may be announced in the budget to include risks, according to Citi Analysts, adding that investors would welcome any indication of equity sales or plans to merge government lender holdings.
Watch shares of State Bank of India, IDBI Bank, Bank of Baroda and Punjab National Bank.
Jefferies analysts wrote in a note that as the speed of coronavirus infections slows, the bulk of new investment will go into new highways, bridges, railways and ports rather than topping up funds to provide relief from the coronavirus pandemic.
Since the start of the year, a custom Bloomberg gauge of road builders like NCC Ltd. and IRB Infrastructure Ltd. has climbed 4 percent, compared to a 0.7 percent decrease in the Sensex benchmark.
Watch cement companies such as Ultratech Cement Ltd. and Ambuja Cements, along with companies affiliated with railways, including India’s Container Corporation and BEML.
Indian equity investors have been deterred by levies like capital gains taxes and a surcharge — subsequently rolled back — that especially hit foreign funds in previous budgets.
Deepak Jasani, HDFC Securities Ltd’s head of retail research, said, “A negative surprise this time around could be raising the long-term capital gains tax rate to 15 per cent from 10 per cent. He added more and said, “A Covid surcharge on capital gains could also be a negative surprise.”
There is not much of a safety margin for stock investors when India’s S&P BSE Sensex Index trades close to a peak.