Mr. Jyoti Roy – DVP- Equity Strategist, Angel Broking Ltd

The markets have seen an all-time high with both the benchmark indices, the BSE Sensex and the Nifty, scaling peaks in the recent past. While the Sensex scaled the 50k summit, the Nifty touched a new high of 14700, a sustained bull run ever since the markets recovered from the March 2020 lows of 25k levels.

 

Stimulus packages across the globe, including India, vaccine development and rollout news, the optimism induced by the new US Presidency and the possibility of a larger second US stimulus package of USD1.9 trillion to fight Covid-19 have helped the markets. Further, record low-interest rates have added to the market’s good performance. Increased liquidity owing to foreign institutional investors (FIIs) renewed interest in India has played a key role in sustaining the bull run. In 2020, Indian equity attracted flows of over Rs 1.6 lakh crore from FIIs, making India the highest among emerging markets to receive such inflows.

 

Apart from these factors, the expectations that come with the Budget and the hopes triggered by the Finance Minister’s statement around a one of a kind Budget have meant that the markets will see some volatility in the week ahead of Budget 2021.

 

While some analysts expect a correction in the stock market post Budget, others expect a sustained run because of continued liquidity and low-interest rates. The volatility ahead of the Budget may be a good time for investors to assess their investments. It is also the time to continue investments with discipline and focus on goals over the long-term and not time the markets. Cashing out or switching too often may mean losing out on opportunities. This happened in March 2020, when investor wealth was wiped out in the blink of an eye.

 

Areas of focus and growth: Sectors to watch out for

 

Expectations of the Budget focusing on growth, investment and revival will bolster the bull run further. Towards this end, the Budget is likely to focus on sustaining high infrastructure expenditure to bring jobs and economic revival. The capital expenditure expectation for 2021-22 is said to be in the Rs 5 lakh crore range, as compared to Rs 4.1 lakh crore that was targeted the year before, apart from Rs 25,000 crore announced as part of many Atma Nirbhar schemes through the year. This capex will be aimed at creating infrastructure such as roads, ports, railways, power, which are all likely to receive a boost in the Budget.

 

Manufacturing: This is one area that is most likely to receive a shot in the arm, as the thrust on manufacturing will generate jobs, bring in investments and trigger an economic revival.  The product-linked incentive (PLI) scheme for sectors like auto components, medical equipment, textile, food products, speciality steel, among others could be extended to other areas like capital goods or consumer durables. In such a scenario, these sectors will drive earnings.

 

Health: Healthcare is an area that is expected to receive greater thrust as the Covid-19 situation showed the importance of public health. The pharma sector too expects incentives and extended support in the area of research and development. There are hopes of the health sector allocation receiving a 40 per cent increased allocation in Budget 2021. In last year’s Budget, the allocation towards the sector was in the range of Rs 69,000 crore.

 

Real estate: The realty sector expects tax rebates on housing and waiver of GST to boost liquidity for the sector. In 2020, the government and the RBI announced several measures to enhance liquidity including huge repo rate cuts of up to 140 basis points, resulting in record low-level home loan interest rates. The industry expects setting up of more stress funds to fund stalled housing projects and raising LTV (loan to value) ratio up to 90 per cent for home loans offered on affordable homes worth Rs 30 lakh or less and offering the same benefit to mid and high-income categories as well.

 

Defence: The defence budget may see an increased allocation, with reports suggesting that it could touch nearly Rs 6 lakh crore, way ahead of the Rs 4.71 lakh crore announced during Budget 2020. The Atma Nirbhar push and embargo on certain defence imports further ensure that the sector is of great significance.

 

Others: Tourism and the hospitality sectors may also receive some thrust and expect incentives as these sectors had to face the brunt of the pandemic.

 

All these above sectors may add to the overall market enthusiasm if the expectations are met and allocations are in line.

 

LTCG: Will it go?

 

Expectations of abolishing long-term capital gains (LTCG) tax on equities will also result in a boost in investor confidence and encourage Indians to invest in listed equities. Even increasing the threshold for exemptions on tax for gains beyond Rs 2 lakh from the current 10 per cent tax on LTCG beyond Rs 1 lakh will lift investor spirit, especially small investors.

 

GST cuts

 

Several sectors have sought lower Goods and Services Tax (GST) in order to boost consumption. The government has already in the past brought down GST on certain categories to 18 and even 12 per cent on certain foods or services in the 28 per cent category. Electric vehicle start-ups, realty and mobile industry are some examples of sectors seeking reduction or reforms in the GST structure to boost consumption. Retail investors need to watch the GST space closely as well.

 

The importance of striking a balance

 

The stock market has seen a roller-coaster ride during 2020 but has recovered well and is seeing record levels post a crash in March. The drop in interest rates made certain investments like fixed deposits not so viable while making certain other investment options more viable. Certain asset classes such as gold rose over 30 per cent in the year. All this points to the importance of diversification and striking the right investment balance in your portfolio.

 

Conclusion

 

With Budget 2021 coming up, it needs to be seen how the markets react and whether there will be a sustained bull run or some sort of correction. As an investor, you would want to keep yourself updated on what the Budget means for the markets and what to look for. Check out #BudgetKaMatlab campaign to get the lowdown on all things budget and what it means for you, as an investor.

 

Promising Stocks to look at before Budget 2021

Considering the fact that the nation is now rebounding from the COVID-19 induced slump, there’s no doubt that Budget 2021 is arguably one of the most important budget presentations in recent years. That said, if you’re looking for some promising stocks to invest in before budget 2021, here’s a list of hand-picked stocks from our research team that might interest you.

1.      Automobile Industry

The automobile industry surprisingly sprung back into action once the COVID-19 lockdown was lifted. The sales of two-wheelers, PV, and tractors all saw a strong rebound. Medium Commercial Vehicles (MCVs) and Heavy Commercial Vehicles (HCVs), however, still seem to be on the backfoot.

Among the many expectations from budget 2021 is the introduction of an incentive-based scrap page policy. If the policy makes its way into the budget announcement on February 01, 2021, it could make it mandatory to dispose of vehicles beyond a certain age. This would, in turn, create more demand for new vehicles in both the light and commercial vehicle segments.

So, here are some of the best stocks to buy before budget 2021 from the automobile industry.

a)      Ashok Leyland: Being in the Light Commercial Vehicle (LCV) and Heavy Commercial Vehicle (HCV) segment, Ashok Leyland is likely to gain from the introduction of the incentive-based scrap page policy. Here are some of the key expected figures for the company.

CMP (Rs.)	Target Price (Rs.)	Sales   (Rs. in crores)		PAT   (Rs. in crores)		ROE   (%)		P/E   (x)
		FY21E	FY22E	FY21E	FY22E	FY21E	FY22E	FY21E	FY22E
117	140	13,952	20,958	(178)	758	(0.6)	2.5	–	45.4

b)     Escorts: One of the leading tractor manufacturing companies in India, Escorts Limited is already seeing some of its sales rebounding. The company is likely to keep this up in the future as well. Here are some of the key expected figures for the company.

CMP (Rs.)	Target Price (Rs.)	Sales   (Rs. in crores)		PAT   (Rs. in crores)		ROE   (%)		P/E   (x)
		FY21E	FY22E	FY21E	FY22E	FY21E	FY22E	FY21E	FY22E
1,225	1,573	6,523	7,464	773	882	15.2	15.1	21.4	18.7

2.      Agriculture

With the government expected to increase its focus on the agriculture industry, especially in the rural sector, companies operating in the sector are likely to get a positive boost. As a result, there’s likely to be an increase in the demand for farm equipment and other agriculture input products like fertilizers. Considering these factors, here’s a quick look at one of the best stocks to buy for 2021 in India in the agri sector.

a)      Coromandel International: The company is in the business of manufacturing fertilizers, pesticides, and other specialty nutrients that are commonly used in agriculture. And so, Coromandel International is likely to witness a positive demand boost in the future.

CMP (Rs.)	Target Price (Rs.)	Sales   (Rs. in crores)		PAT   (Rs. in crores)		ROE   (%)		P/E   (x)
		FY21E	FY22E	FY21E	FY22E	FY21E	FY22E	FY21E	FY22E
839	971	14,460	15,658	1,452	1,578	29.8	26.3	16.9	15.6

3.      Cement

Another major point in focus in the Union Budget 2021 would be the Infrastructure and Housing sectors. With the government investment in infrastructure not likely to wane any time soon, cement manufacturing companies are likely to do well in the future. If you’re looking for budget stocks 2021 in the cement industry, here’s an option for you.

a)      JK Lakshmi Cement: One of India’s leading cement manufacturers, JK Lakshmi Cement has been in the industry for more than 3 decades and is likely to enjoy an increased demand for its products.

CMP (Rs.)	Target Price (Rs.)	Sales   (Rs. in crores)		PAT   (Rs. in crores)		ROE   (%)		P/E   (x)
		FY21E	FY22E	FY21E	FY22E	FY21E	FY22E	FY21E	FY22E
325	422	4,151	4,505	315	333	14.5	17.0	12.2	11.5

4.      Consumer goods:

Since it is vital to address the issue of low consumer spending, the government may try to provide tax breaks to put more money into the hands of people in the hopes of revitalizing demand for consumer goods. The deduction limit under Section 80C of the Income Tax Act may be raised for people choosing to adopt the old income tax regime. As for the new optional tax regime, the government may choose to extend it to individuals earning more than Rs. 15 lakh per annum as well. If this comes to pass, the increased purchasing power may boost the consumer goods industry, and here’s one of the stocks to invest in before budget 2021 from this segment.

a)    Whirlpool India: Consumer white goods manufacturer, Whirlpool India is likely to be one of the beneficiaries in the event where the government does get around to providing tax incentives to the public. The demand for the company’s products may witness a sharp rise.

CMP (Rs.)	Target Price (Rs.)	Sales   (Rs. in crores)		PAT   (Rs. in crores)		ROE   (%)		P/E   (x)
		FY21E	FY22E	FY21E	FY22E	FY21E	FY22E	FY21E	FY22E
2,668	3,032	5,607	6,448	337	485	18.0	24.0	100.5	69.8

5.      BFSI

Considering the fact that the companies operating in the BFSI space provide lending and financing solutions to both individuals and enterprises, the likelihood of them enjoying a significant boost to their loan book after the Budget 2021 presentation is high. An increase in demand for automobiles and housing can be a big boost to BFSI companies in the near future. Here are a couple of best stocks to buy before budget 2021 in the BFSI space.

a)      LIC Housing Finance: LIC Housing Finance is easily one of the country’s largest housing finance and mortgage loan providers. And so, along with a boost in the housing sector, the company is also likely to witness higher Net Interest Income due to an increase in its loan book.

CMP (Rs.)	Target Price (Rs.)	NII   (Rs. in crores)		PAT   (Rs. in crores)		ROE   (%)		P/BV   (x)
		FY21E	FY22E	FY21E	FY22E	FY21E	FY22E	FY21E	FY22E
414	570	5,149	5,874	3,252	3,577	16.3	15.3	1.3	1.0

b)     Shriram Transport Finance Corporation: Commercial vehicle loan provider, Shriram Transport Finance Corporation is also set to enjoy a boost in its loan book if the government introduces the incentive-based scrap page policy.

CMP (Rs.)	Target Price (Rs.)	NII   (Rs. in crores)		PAT   (Rs. in crores)		ROE   (%)		P/BV   (x)
		FY21E	FY22E	FY21E	FY22E	FY21E	FY22E	FY21E	FY22E
1,201	1,440	8,352	8,924	2,106	2,714	11.1	12.9	1.7	1.5

Conclusion

Now that you know what the best stocks to buy for 2021 in India are, all that remains is for you to go out there and invest. That said, although all of the budget stocks 2021 contained in this list are backed by research reports, it is not a guarantee of the stock price movement.

There’s always the element of uncertainty when it comes to investing in the stock market. And so, always make sure that you do your own research to arrive at an independent evaluation before investing in either of these companies.

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