DAILY VOICE | Ultratech Cement, LT, ICICI Bank among stocks that will benefit from revival of CAPEX cycle: Motilal Oswal #39;s Gautam Duggad

Market Outlook

Gautam Duggad, Head of Research at Motilal Oswal Institutional Equities,  is of the view that stocks like Ultratech Cements, L&T, SBI, ICICI Bank, Axis Bank stand to benefit given the potential revival of investments and CAPEX cycle,

In an interview with Moneycontrol’s Kshitij Anand, Duggad, who has over a decade of experience in capital markets under his belt, said that post-budget, cyclical sectors that were previously not in focus, given an extended stagnation in the investment cycle, may make a comeback.

edited excerpts:

Q) How would you rate the Union Budget on a scale of 1-5 and why?

A) I would rate Budget 2021 a 4.5 out of 5. This has been an ideal Budget given the context of a challenging pandemic and the need for growth revival.

The FM has pushed all the right buttons i.e. – multi-year fiscal expansion with a glide-path of fiscal deficit towards 4.5 percent by FY26; a boost for CAPEX and infra spending to revive the investment cycle, several structural initiatives like setting up of DFI, ARC, Asset monetisation plan, FDI hike in insurance; credible fiscal maths with realistic revenue/expenditure assumptions; not imposing additional taxation measures on any segment of taxpayers; the well-laid plan of privatisation of multiple PSU entities; and most importantly, the transparency in the numbers.

I would have liked if the Budget had some more incentives for real estate and certain relief measures for urban poor.

Q) Do you think the government managed its finances, and at the same time delivered a Budget that could boost growth?

A) Yes. Though it may sound clichéd, this is clearly a paradigm shift. Despite flattish expenditure growth on aggregates for FY22 BE, the capex spending is budgeted to grow at 25 percent even as the elevated subsidies due to COVID moderate ahead.

Thus, the quality of spending seems to be getting better. The government has opted to use investments/infrastructure as a vehicle to boost growth and has taken a good decision to break away from the shackles of 3 percent fiscal deficit target.

Given the unprecedented COVID-19 crisis and its wide-ranging impact, it was necessary to prioritise growth via fiscal expansion.

At the same time, it has unleashed several path-breaking initiatives on privatisation, asset monetisation, simplification of compliance burden. From hereon, what matters is the systematic and smooth execution of the initiatives lined-up in the budget

Q) Which sectors are likely to benefit the most from the Budget and why?

A) Sectors that are a play on infrastructure and capex will benefit given the overarching theme of the Budget towards fiscal expansion. Sectors like Cement, Capital Goods, Roads, Metals, and Financials appear to be the key beneficiaries.

Q) Which stocks are likely to benefit the most from the Budget and why?

A) We expect stocks like Ultratech Cements, L&T, SBI, ICICI Bank, Axis Bank to benefit given the potential revival of investments and CAPEX cycle.

Q) How should retail investors decode the Budget 2021?

A) Retail investors should view the Budget as one event in an otherwise long-term journey of wealth creation. Budget 2021 has created a very conducive top-down backdrop and provided a clear path for growth.

It has acted as a feel-good factor in an otherwise buoyant market context. After a few days, the focus will be back on corporate earnings which are showing very strong momentum with another quarter of broad-based growth, big beats, and consequent upgrades.

Q) What should be the investment strategy post Budget 2021? Should investors use the dip to rejig their portfolio?

A) Investment strategy should not be changed on the basis of a particular event. Investors should continue to invest in a blend of high-quality growth companies in various sectors with good management and demonstrated track record of durable earnings growth.

Post-budget, cyclical sectors that were hitherto not in focus given an extended stagnation in the investment cycle, may make a comeback.

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