Countdown to Budget 2019: A look at sectors & stocks in limelight

It is a crucial period for D-Street and investors in general as we head towards the Interim Budget 2019, the last budget before India goes to polls. Largecap stocks, which outperformed in 2018, are likely to remain in limelight in 2019 as well along with quality midcaps, suggest experts.

To maximise profits, it is important for investors to position themselves in the right sectors that could benefit the most from the Interim Budget. There are many sectors that most analysts feel could hog the limelight.

There is a growing risk of the government resorting to the path of populism over fiscal discipline during its last Budget before the general elections that could benefit FMCG, capital goods, rural-focused sectors, as well as private banks. Investors can also look at fertilisers, farm equipments, agri-inputs, housing finance companies, life insurance companies, AMCs etc.

“We do not think investors need to make their portfolio strategy based on budget expectations. Global interest rates, liquidity and commodity prices will determine the fate of our markets more than the Budget. We would want investors to invest in private sector banks with Industrial exposure,” VK Sharma, Head PCG & Capital Markets Strategy, HDFC Securities told Moneycontrol.

“Investors should look at investing in high quality, diversified portfolio with an equal mix of largecaps and midcaps. Large-cap stocks will provide stability and mid-cap stocks will help generate the alpha,” he said.

Since, the Budget is coming on the backdrop of state elections, where the opposition snatched three states from the ruling BJP, most experts feel that this is the last chance of the BJP-led NDA regime to win back voters from a middle-class farm community and thus political considerations could be the order of the day.

“We believe 2019 to be a significant gamechanger for Indian politics as both principal national parties i.e. BJP and Congress do not seem to be even close to forming a government easily. The probability of a hung parliament with weak alliances and third front-led government is rising with each passing day. Given this backdrop some of the populist measures could be announced,” Prabhudas Lilladher said in a report.

"Any move on relaxing corporate tax rate, long-term capital gains or DDT can be positive for the whole market. Any measure like farm package, tax relief or BPL pension will boost demand. Select private banks and consumer finance companies, as well as companies in the auto and agri space, will benefit,” it added.

Here's what experts from different brokerage houses are recommending ahead of the Budget:

Analyst: Naveen Kulkarni, Head of Research, Reliance Securities

Historically, rural-focused themes have grabbed limelight ahead of the Budget. We do not believe that investment is likely to see any renewed push in this budget. Consumption is likely to be the focus area.

Consumption and rural plays should see an increase in allocation from the budget perspective. HUL is seeing good rural traction and other plays associated with a rural theme like Dabur, ITC or Escorts are likely to see increased allocation.

Analyst: VK Sharma, Head PCG & Capital Markets Strategy, HDFC Securities

Investors can also look at fertilizers, farm equipment, agri-inputs, housing finance companies, life insurance companies, AMC etc. Another typical strategy is to look at companies related to the railways as these could benefit out of any increased outlay.

But, just buying for the limited purpose of the budget or before it does not serve the purpose. The stocks you may buy may not give you positive returns.

More money has been lost than made through such strategies. Instead just buy your portfolio stocks when they fall and not necessarily before the budget.

Analyst: Satish Menon, Whole-Time Director at Geojit Financial Services Ltd

We expect some action in the consumer-oriented stocks. We are also bullish on infrastructure stocks like L&T, PNC Infra, and Shree Cement if populist measures are not as bad as being feared by the market and outlook improves due to return of government capex.

As per the history, the Union Budgets have not impacted the long-term trend of the market or specific sectors. But this time due to fiscal deficit, a slowdown in the economy, populist schemes and reduction in government spending in industrial sectors like OMCs, banks, cement, infrastructure and capital goods may be negatively impacted. This trend will turn opposite as the business outlook normalize.

Analyst: Vivek Ranjan Misra- Head of Fundamental Research at Karvy Stock Broking

Sectors that could benefit from the Budget are those tied to rural consumption or infrastructure development i.e., capital goods, autos, FMCG and consumer durables.

However, our sector recommendations take into account our outlook for 2019 and beyond. Considering the economic cycle, the sectors we are the most bullish on are capital goods and banks.