Trade Nivesh In the upcoming Budget, market participants are anticipating several measures and reforms in order to bring back economic growth
Ahead of Budget 2020, the Street is building up high expectations, which is evident in levels of benchmark indices. Sensex and Nifty50 are touching their fresh record highs almost on a weekly basis.
This comes at a time when the government is most likely to breach fiscal deficit target of 3.3 percent of GDP.
The Street is hoping for a Budget which would lay the roadmap for India to achieve the $5-trillion economy target by 2024.
“The sluggishness in the economy resulted in lower tax collections and the cut in corporate tax also has contributed its share, while the government borrowing programme swelled to all-time high levels for both central and state governments put together,” Dr. Joseph Thomas, Head of Research, Emkay Wealth Management told Moneycontrol.
“The market has more or less already priced in a 30-bps slippage, but any deterioration above 50 bps may impact the level of yields on government papers and general interest rates,” he said.
Economy-related sectors such as infrastructure, agriculture, banking, financial services, consumption and auto are hogging the limelight.
Experts feel that as the supply-side problem is more or less addressed, the Budget should focus on uplifting aggregate demand, as both consumption and investments are depressed, which are essential in reviving the economy.
Deepak Jasani, Head – Retail Research, HDFC Securities is of the view that Infra, agriculture, rural economy, automobiles, Make-in-India thrust, more on ease of doing business, employment generation thrust could gain focus from the Budget.
KNR Constructions:
The announcement of 1-lakh crore spending on infrastructure has ignited the bulls in the counter. The stock has witnessed a sharp upside to Rs 295.50 levels, with a gain of 29 percent in the last few weeks.
JK Cement:
No matter how much spending the government will incur on infrastructure, the consumption of cement is going to be triggered, whose effect has started being witnessed in the prices. The stock has added over 14 percent this year.
ICICI Securities:
No doubt the market veterans are betting on the reduction in personal taxes by the government to curb growth concerns. Moreover, the additional disposable income will be bifurcated to consumption and saving.
Likewise, the additional disposable income bifurcated to savings will be channelized to equity markets. So, opening of more Demat accounts cannot be ruled out.
DLF:
While the realty sector has been an underperformer in the last few years despite the government has taken several measures to thrust the realty stocks.
However, this year is going to be a game-changer as market veterans are betting upon tax-free rental income.
Titagarh Wagons:
Major railway wagon manufacturer is known to be the ‘talk of the town’ every January as Budget season kicks off and railway sector is always considered as a leading priority. The counter has seen a sharp up move to Rs. 60, with double digit gains.
Rites:
The Company has been constantly profitable and during the September quarter, it has reported robust growth driven by growth in exports, turnkey works, and leasing, besides the consultancy segment continues to be the key segment.
The management of the company expects to close the current fiscal with an order book of Rs 8.000 crore with the company expect fresh order inflow from Exports, turnkey projects, and consultancy.
The company is debt-free and continues to be a zero-debt company with a strong liquidity position and improved operating margins.
KEI Industries:
The company caters to Power, Industrial, Infra, Railways, Metro Rails, Oil & Gas, Upstream, Aluminum, Refineries, Steel and Exports. It is working on increasing exports. It is exploring more business from Africa and the Middle East.
KEI can be a major beneficiary of the increasing demand from power, infrastructure, and real estate sector. The company has been focusing on expanding its dealer network as this sales channel offers better margins.
Institutional sale growth has been encouraging and management expects this division to grow in double digits, going forward.
The company expects revenue growth of 18 percent for FY20 and also expects a growth of about 17 percent in revenue for the next fiscal as well. The EBITDA margin of 10.5 percent is expected for a full year.
Gujarat Gas:
The company has strong, and steady revenue growth momentum along with sustainable margins. It shall continue to focus on growing the penetration in the current operating areas by increasing the PNG connections and additional CNG stations while tapping the untapped potential by the expeditious rollout of the distribution network in the newly acquired geographic areas as well.
With this focused endeavor, GGL shall continue its efforts in providing clean fuel solutions across all operational areas to augment an energetic top-line and bottom-line in the coming years.
The management of the company is aiming at setting up more than 63 CNG stations in the financial year 2020, for the target to increase the volume of 9-9.5 mmscmd in FY20.
The debt stands at Rs 1,800 crore and the management of the company is looking at EBITDA margin of around 13 Percent in FY20.
JB Chemicals & Pharmaceuticals:
The company accords high priority to the domestic formulations business, which offers a significant value proposition. During the current year, the company plans to continue to pursue focus on harnessing the potential of the existing products, launch new products selectively and achieve increased productivity.
It has a consistent, strong free cash flow annually, with a low debt-equity of 0.02x. The future outlook for the industry and growth expectations remains positive in view of increased government and private spending on healthcare.
ICICI Prudential Life Insurance Company:
Strong growth in Value of New Business on the back of increased retail renewal premium will ensure healthy return ratios for the company, also rise in the working population category and per capita income would lead to an increase in demand for life insurance products.The focus continues to be on growing absolute Value of New Business using the Four-P strategy of focusing on Premium growth, Protection, Persistency, and Productivity.
This has yielded the desired outcome and the company has been able to grow VNB with an uncompromising focus on quality.
In the upcoming budget, market participants are anticipating several measures and reforms in order to bring back economic growth.
Thus we believe the measures would benefit sectors like FMCG, Auto, Infrastructure, Cement and Agriculture & allied. Hence stocks like L&T, Britannia, Coromandel, M&M and Ramco Cements would remain in the spotlight.
L&T:
L&T boasts of a strong order book, high earnings visibility, and a healthy project pipeline. Further, continuous monetization of non-core assets has been improving its working capital efficiency and likely to improve its returns.
Britannia Industries:
We believe the FMCG sector is currently facing a slowdown, however, revival is expected in the medium to long term.
Further, management expects a revival in the economy and thus it continues to focus on strengthening its presence by increasing market share, expanding distribution reach in both rural and urban areas, premiumizing and launching innovative products, steady capacity addition, and improved product mix.
Coromandel International (CIL):
CIL is a flagship company of the Murugappa Group. Coromandel is the second largest phosphatic fertilizer player with a market share of ~20% and boasts of higher utilization levels.
Recovery in southwest monsoon, as well as an increase in crop sowing for Rabi season on the pan-India basis, augur well for the growth of Agri and fertilizer companies. We believe Coromandel is well placed in the sector to capitalize on this opportunity.
M&M:
M&M being the leader in the tractor industry with over 40 percent market share would be a key beneficiary of revival in the demand tractor industry.
We expect the tractor industry to recover as normal monsoon, easing liquidity conditions and lower interest would aid domestic sentiments.
M&M’s automotive segment is likely to witness challenges due to the increase in competitive intensity and BS-VI implementation. Nonetheless, we believe that these concerns are largely factored in and the core business is available at attractive valuations.
Ramco Cements:
It is one of the top cement players in south India. The company is well placed in the cement sector and continues its focus on innovating products, better product mix and improving utilization levels.
Further positive sector outlook and government focus on infra and housing schemes would lead the company to expand its capacity and gain market share going forward. Thus we remain positive on the company’s future growth prospects.
Ask an Expert Trade Nivesh
Ahead of Budget 2020, the Street is building up high expectations, which is evident in levels of benchmark indices. Sensex and Nifty50 are touching their fresh record highs almost on a weekly basis.
This comes at a time when the government is most likely to breach fiscal deficit target of 3.3 percent of GDP.
The Street is hoping for a Budget which would lay the roadmap for India to achieve the $5-trillion economy target by 2024.
“The sluggishness in the economy resulted in lower tax collections and the cut in corporate tax also has contributed its share, while the government borrowing programme swelled to all-time high levels for both central and state governments put together,” Dr. Joseph Thomas, Head of Research, Emkay Wealth Management told Moneycontrol.
“The market has more or less already priced in a 30-bps slippage, but any deterioration above 50 bps may impact the level of yields on government papers and general interest rates,” he said.
Economy-related sectors such as infrastructure, agriculture, banking, financial services, consumption and auto are hogging the limelight.
Experts feel that as the supply-side problem is more or less addressed, the Budget should focus on uplifting aggregate demand, as both consumption and investments are depressed, which are essential in reviving the economy.
Deepak Jasani, Head – Retail Research, HDFC Securities is of the view that Infra, agriculture, rural economy, automobiles, Make-in-India thrust, more on ease of doing business, employment generation thrust could gain focus from the Budget.
KNR Constructions:
The announcement of 1-lakh crore spending on infrastructure has ignited the bulls in the counter. The stock has witnessed a sharp upside to Rs 295.50 levels, with a gain of 29 percent in the last few weeks.
JK Cement:
No matter how much spending the government will incur on infrastructure, the consumption of cement is going to be triggered, whose effect has started being witnessed in the prices. The stock has added over 14 percent this year.
ICICI Securities:
No doubt the market veterans are betting on the reduction in personal taxes by the government to curb growth concerns. Moreover, the additional disposable income will be bifurcated to consumption and saving.
Likewise, the additional disposable income bifurcated to savings will be channelized to equity markets. So, opening of more Demat accounts cannot be ruled out.
DLF:
While the realty sector has been an underperformer in the last few years despite the government has taken several measures to thrust the realty stocks.
However, this year is going to be a game-changer as market veterans are betting upon tax-free rental income.
Titagarh Wagons:
Major railway wagon manufacturer is known to be the ‘talk of the town’ every January as Budget season kicks off and railway sector is always considered as a leading priority. The counter has seen a sharp up move to Rs. 60, with double digit gains.
Rites:
The Company has been constantly profitable and during the September quarter, it has reported robust growth driven by growth in exports, turnkey works, and leasing, besides the consultancy segment continues to be the key segment.
The management of the company expects to close the current fiscal with an order book of Rs 8.000 crore with the company expect fresh order inflow from Exports, turnkey projects, and consultancy.
The company is debt-free and continues to be a zero-debt company with a strong liquidity position and improved operating margins.
KEI Industries:
The company caters to Power, Industrial, Infra, Railways, Metro Rails, Oil & Gas, Upstream, Aluminum, Refineries, Steel and Exports. It is working on increasing exports. It is exploring more business from Africa and the Middle East.
KEI can be a major beneficiary of the increasing demand from power, infrastructure, and real estate sector. The company has been focusing on expanding its dealer network as this sales channel offers better margins.
Institutional sale growth has been encouraging and management expects this division to grow in double digits, going forward.
The company expects revenue growth of 18 percent for FY20 and also expects a growth of about 17 percent in revenue for the next fiscal as well. The EBITDA margin of 10.5 percent is expected for a full year.
Gujarat Gas:
The company has strong, and steady revenue growth momentum along with sustainable margins. It shall continue to focus on growing the penetration in the current operating areas by increasing the PNG connections and additional CNG stations while tapping the untapped potential by the expeditious rollout of the distribution network in the newly acquired geographic areas as well.
With this focused endeavor, GGL shall continue its efforts in providing clean fuel solutions across all operational areas to augment an energetic top-line and bottom-line in the coming years.
The management of the company is aiming at setting up more than 63 CNG stations in the financial year 2020, for the target to increase the volume of 9-9.5 mmscmd in FY20.
The debt stands at Rs 1,800 crore and the management of the company is looking at EBITDA margin of around 13 Percent in FY20.
JB Chemicals & Pharmaceuticals:
The company accords high priority to the domestic formulations business, which offers a significant value proposition. During the current year, the company plans to continue to pursue focus on harnessing the potential of the existing products, launch new products selectively and achieve increased productivity.
It has a consistent, strong free cash flow annually, with a low debt-equity of 0.02x. The future outlook for the industry and growth expectations remains positive in view of increased government and private spending on healthcare.
ICICI Prudential Life Insurance Company:
Strong growth in Value of New Business on the back of increased retail renewal premium will ensure healthy return ratios for the company, also rise in the working population category and per capita income would lead to an increase in demand for life insurance products.The focus continues to be on growing absolute Value of New Business using the Four-P strategy of focusing on Premium growth, Protection, Persistency, and Productivity.
This has yielded the desired outcome and the company has been able to grow VNB with an uncompromising focus on quality.
In the upcoming budget, market participants are anticipating several measures and reforms in order to bring back economic growth.
Thus we believe the measures would benefit sectors like FMCG, Auto, Infrastructure, Cement and Agriculture & allied. Hence stocks like L&T, Britannia, Coromandel, M&M and Ramco Cements would remain in the spotlight.
L&T:
L&T boasts of a strong order book, high earnings visibility, and a healthy project pipeline. Further, continuous monetization of non-core assets has been improving its working capital efficiency and likely to improve its returns.
Britannia Industries:
We believe the FMCG sector is currently facing a slowdown, however, revival is expected in the medium to long term.
Further, management expects a revival in the economy and thus it continues to focus on strengthening its presence by increasing market share, expanding distribution reach in both rural and urban areas, premiumizing and launching innovative products, steady capacity addition, and improved product mix.
Coromandel International (CIL):
CIL is a flagship company of the Murugappa Group. Coromandel is the second largest phosphatic fertilizer player with a market share of ~20% and boasts of higher utilization levels.
Recovery in southwest monsoon, as well as an increase in crop sowing for Rabi season on the pan-India basis, augur well for the growth of Agri and fertilizer companies. We believe Coromandel is well placed in the sector to capitalize on this opportunity.
M&M:
M&M being the leader in the tractor industry with over 40 percent market share would be a key beneficiary of revival in the demand tractor industry.
We expect the tractor industry to recover as normal monsoon, easing liquidity conditions and lower interest would aid domestic sentiments.
M&M’s automotive segment is likely to witness challenges due to the increase in competitive intensity and BS-VI implementation. Nonetheless, we believe that these concerns are largely factored in and the core business is available at attractive valuations.
Ramco Cements:
It is one of the top cement players in south India. The company is well placed in the cement sector and continues its focus on innovating products, better product mix and improving utilization levels.
Further positive sector outlook and government focus on infra and housing schemes would lead the company to expand its capacity and gain market share going forward. Thus we remain positive on the company’s future growth prospects.
Ask an Expert Trade Nivesh
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