'Select opportunities available in private banks, specialty chemicals and infra'

The market continues to remain volatile in the run-up to the Union Budget, but we see opportunities in private banks including corporate lending banks, specialty chemicals and infra space, Sanjeev Hota, Head of Research, Sharekhan, said in an interview with Moneycontrol’s Kshitij Anand.

Edited excerpts:

Q: What are your expectations from the Budget?

A: The expectations are running high as the Union Budget 2019 comes in the backdrop of an uncertain global environment, sluggish GDP growth, and slowing consumer demand.

The Reserve Bank of India (RBI) has already moved ahead by changing its policy stance and taking measures to address liquidity issues to support the economy.

The Centre is expected to support the monetary efforts by providing a fiscal stimulus and other bold remedial measures, but we also understand that the government is fiscally constrained.

Thus, I believe that the government will take a balanced approach to tackle the growth revival without much compromise on fiscals maths.

Having said that, going by the ruling party’s election manifesto, the government continues to focus on infrastructure spending coupled with social investments like housing for all and water for all and also brings further reforms to the ease of doing business.

Q: Will the government retain fiscal deficit target at 3.4 percent of GDP for FY20?

A: I expect the government to reiterate its fiscal deficit target of 3.4 percent of the GDP for FY20; however, there could be scope for fiscal expansion of a few points to support growth.

The government will walk a tight rope and balance both fiscal maths and growth revival. However, a favourable outcome from the Bimal Jalan Committee report on RBI’s capital transfer, and if a significant dividend increase is considered, it could help to negate the tax gaps.

Q: Will there be financial sector reforms such as privatisation of some PSU banks, capital infusion, etc. in the upcoming Budget?

A: The government will continue to look at financials sectors reforms. However, going by the current financials and valuation of PSBs, it may not be the right time for the government to opt for the privatisation of PSBs.

After recapitalisation, government holding is already very high in some of the PSBs and thus would look at divestments of stake. Further, the government will continue to support the PSBs with further recapitalisation in the upcoming Budget.

Q: Will the government give investment stimulus to boost growth in Budget 2019?

A: The fiscal room to provide such a stimulus could be limited given weak indirect tax collections and the social schemes announced to ease rural stress.

The markets would keenly watch for proposals to raise the required resources without crowding out the private sector

Q: Amid the recent fall we have seen in markets, where are the pockets of opportunities?

A: The market continues to remain volatile in the run-up to the Union Budget and mixed cues from the global market. We continue to see opportunities in private banks including corporate lending banks, specialty chemicals and infra space.

Selectively, we are positive on construction, cement, industrials, as well as the non-banking financial companies (NBFCs) space. Also, valuations in mid-caps have turned supportive and, in fact, attractive in certain sectors or pockets of stocks.

Investors should take a systematic approach in the next two to three months to buy quality mid-caps and also use market volatility to their advantage.

Q: Any top 5 stocks that investors can buy ahead of the Budget.

A: Ashoka Buildcon, Gujarat Gas, Kalpataru Power Transmission, L&T, and Kajaria Ceramics.

Q: What are your expectations from the June quarter numbers from India Inc.?

A: Given the slowdown in the consumption space, rural distress and delayed monsoon, coupled with the ongoing NBFC crisis, we expect a modest earnings performance for India Inc. for the April-June quarter.

Nevertheless, we also expect strong earnings performance in some pockets like privates banks, upstream oil companies, cement, and selective infra companies.