By Kamlesh Rao
The Budget 2018 could not have been presented at a more opportune time than this year with Nifty at high returns for the year and for the month at 5.6 percent.
This explains the timing of the introduction of Long Term Capital Gains (LTCG) with reasonable protection, though Indian markets approached the budget session with the worry of populism pausing growth momentum.
We must appreciate that whilst the FM has brought back LTCG on equities, he has softened the blow by grandfathering the tax.
This introduction also supports Government’s commitment that they would not bring any retrospective taxation, as the same would have been applicable without grandfathering.
The 16 percent growth in overall revenue collection seems optimistic and the bulk of that burden will have to be borne with GST collections having to pick up.
The market would be disappointed with the slippage in Fiscal Deficit and no reduction in corporate tax (for larger corporates with a turnover of over Rs 250 crore).
The execution of next year’s expenditure will be even more significant in light of increased estimates of fiscal deficit apart from higher actuals this year.
The divestment target of Rs 80,000 crore for FY19 signals the positive stance of the government towards capital markets. The 21 percent increase in overall infrastructure segment is welcome as it balances government spending along with social schemes.
Overall, it is a smart and balanced budget which caters to masses across all streams in an election sensitive year.
In our view, the winners from the budget include 1) brokerages (benefit from higher trading volumes), 2) Construction companies, as government has allocated highest sum towards roads and rail 3) Tyre companies, who benefit from higher customs duties 4) Rural oriented companies like Escorts, M&M, to benefit from government focus on improving rural incomes and higher MSPs & 5) Cigarette companies as there has been no change from the GST Council and the budget. In terms of losers, there were no specific ones.
However, individual stocks could have reacted depending upon the extent their budget expectations were met. With the budget now behind us, investors will focus on other factors like global macro, earnings growth, and macroeconomic data points.
India’s macros remain under check till the time Brent does not go above USD 70/bbl. We don’t expect any change in earnings because of the budget. There is less room for further re-rating in earnings forecast from hereon.
Valuations are rich across the board but on a relative basis, large caps look fairly priced as compared to mid-caps. Within the mid & small space, we suggest being in companies with sound management having scalability factor, healthy earnings growth visibility and room for valuations to expand.
Preferred sectors: Agrochemicals, Construction, Automobiles (4 wheelers), PSU Banks, NBFCs & Media,
Top picks:
Large Caps: ITC, L&T, Tata Motors, M&M & UPL
MidCaps: Engineers India, Dilip Buildcon, Escorts, Century Ply, TV18 Broadcast & Jindal Stainless (Hisar) Ltd.
Disclaimer: The author is Managing Director & CEO, Kotak Securities Ltd. The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Disclosure: TV18 Broadcast is a subsidiary of Network18 which publishes Moneycontrol.
Discover the latest business news, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
