As India prepares for the first full-fledged Union Budget of Modi 2.0, capital markets are the most excited. A market that has been trading close to its life-time highs for quite some time is badly in need of triggers. The last few months have not exactly been a great time despite the Nifty briefly scaling 12,000 and the Sensex, 40,000.
Volatile oil prices, a simmering Middle East, and the risk of a full-fledged trade war remain an overhang. Domestically, a slowdown in GDP growth and the burgeoning problem of NBFC debt is haunting markets. It is in this backdrop that Nirmala Sitharaman will be presenting her first Union Budget.
As investors, you are certainly comfortable with your financial plans. But, what about the short- to medium-term opportunities? Does the forthcoming Union Budget throw some stock or sectoral ideas to be implemented?
Here are some stock themes with a predominantly sectoral focus.
Consumption looks like a fairy tale
This could perhaps be the most obvious choice for any investor looking at the budget to spur economic growth. The NDA government rectified its mistakes after it lost the states of MP, Rajasthan, and Chhattisgarh due to the rural sector being overlooked. The budget is likely to be heavy on expansion of farm incomes, investment in infrastructure, rural connectivity, and drip irrigation programmes. These will be the primary beneficiaries. Investors can also look at secondary beneficiaries such as two wheelers, FMCG companies, and consumer durables.
Playing the revival in PSU banking
If one were to look at the pattern of FII buying in the last couple of months, two pockets of interest have manifested. There has been buying in select financials and also increased interest in PSU banks with a focus on banks having the capacity to expand their loan books. The budget is likely to assure capital support to PSU banks and could also address larger structural issues pertaining to corporate governance and ceding of majority control. The budget may also make a distinction between NBFCs with liquidity issues and solvency issues and open a dedicated liquidity line for the former. This could be positive for the stronger NBFCs without the risk of maturity mismatch.
Defence plays could be back in reckoning
Defence stocks were a big story when the NDA came to power in 2014, however, due to a number of practical challenges, they could not take off in a big way. The government has the dual challenge of indigenization of defence and also of generating more jobs. In-sourcing of defence orders could be one area that could see a major focus in Budget 2.0 with a host of Indian companies having a defence franchise being the obvious beneficiaries.
Big changes in the oil sector
The government has been consistently emphasizing that relying on imports for 85% of oil requirements is not sustainable. With less than 1mn bpd, India remains the only large economy with low levels of domestic oil production. While NELP 2.0 is awaited, one can expect this budget to make big announcements on oil exploration, gas exploration, gas pipelines, etc. This could be an interesting space to watch out for.
Finally, there could be a silent auto story
The beleaguered auto sector may look like a misfit in the budget expectations, however, this could be the surprise package. The Niti Aayog has spoken about shifting to electric vehicles (e-vehicles) fully by 2030. The government also proposed to exempt registration charges on e-vehicles. While it is hard to set a timeline, this budget is likely to make key announcements on this front including timelines and incentives. Auto companies that have already taken the lead in creating an e-vehicular franchise could be the first off the block.
In short, there are some interesting expectations building up ahead of the upcoming budget. As Mao would have said, “May we live in interesting times.”