Jyoti Roy, DVP-Equity Strategist at Angel Broking, says the government surprised markets with a bold Budget that focused on reviving growth by deficit spending.
The ongoing result season, too, has been good. It is clear that the worst is over for the banking and the NBFC space. Angel Broking has gone overweight on the private sector midsized banking and NBFCs, Roy says in an interview to Moneycontrol’s Sunil Shankar Matkar. Edited Excerpt:-
Q: Which announcements in the Budget surprised and hurt you?
We believe that the biggest surprise in the Union Budget was the increase in total expenditure to Rs 34.5 lakh crore for FY22. Moreover, there was no increase in taxes as was feared by some parts of the markets. While the government has imposed an agriculture infrastructure and development cess as expected, it has been done in a manner that will not put any additional burden on the common man. Moreover, the government has also clarified that they will announce a voluntary scrappage plan for old vehicles, which has been a long-standing demand of the auto industry.
While there were no major disappointments in the Budget, a section of the market was expecting some relief on the direct tax front, which have not materialised. However, the fiscal deficit at 6.8 percent for FY22 is negative for the bond markets, as it would mean that there is going to be continued supply of government paper in the markets. Post Union Budget, we are seeing an increase in the 10-year G-Sec rates as markets are factoring in an increase in the supply of government papers due to elevated fiscal deficit levels over the next few years.
Q: Is the Budget really a game-changer? Has the Budget met your expectations? How will you rate it out of 10?
We believe that the government surprised the markets with a bold Budget with focus on reviving growth by deficit spending. The government surprised the markets and went for much-needed deficit spending with the fiscal deficit for the year being relaxed to 9.5 percent from 3.5 percent. The fiscal deficit figure was significantly above market estimates of around 7 percent for FY21.
Moreover, the fiscal deficit figure for FY22 at 6.8 percent was also well above market estimates. We had expected that the government will go ahead with the full expenditure plan for FY22 despite the shortfall in tax collections. The government, however, surprised the markets and revised expenditure for FY22 to Rs 34.5 lakh crore from the Budget estimate of Rs 30.4 lakh crore. Overall, the Budget was better-than-expectations and we would give the Union Budget a 9 out of 10 rating.
Q: Which are the key sectors that will benefit from the Budget and which are the stocks to look at?
We believe that auto companies, especially commercial vehicle (CV) players will be one of the biggest beneficiaries of the vehicle scrappage policy announced in the Union Budget and Ashok Leyland is our top pick in the Auto space. The healthcare sector will also benefit from the government’s increased outlay on health and well being and Narayana Hrudalaya is our top pick in the healthcare space.
The government’s decision to extend the tax benefits for the affordable housing segment will be beneficial for the real estate sector and housing finance companies. Similarly, the 147 percent increase in subsidies led by food subsidy bodes well for the rural economy and we expect agri-inputs and rural focused sectors to benefit from it. Escorts and Coromandel International are our top picks in the rural and agri input space. The government’s increased outlay for capital expenditure should be beneficial for the construction and cement sector, where we like PNC Infratech and JK Lakshmi cement.
Q: What will be your investment strategy post-Budget and what is your advice to retail investors? What is your view of the market?
Post-Union Budget, we remain positive on the markets from a medium to long term perspective as increased government spending is going to help revive growth. We expect the post-Budget rally to continue for now given the positive surprise by the government. However, near-term market movements will also depend on many factors like progress on vaccination, global fund flows and developments on the second US stimulus package.
While the Democrats are trying to push through legislations that will increase the size of the second US stimulus package from $ 900 billion to $ 1.9 trillion, the Republicans are opposed to certain provisions in the packages, which could lead to increased negotiations, thus slowing down the progress of the package.
We would advise investors to use the rally in the markets to restructure their portfolio and exit stocks that have balance-sheet or corporate governance issues. We would recommend investors to remain invested in companies with good business models and revenue visibility, which will benefit from the economic recovery.
Q: What should be the portfolio allocation in terms of sectors after the Budget? Which sectors are to be avoided?
Post-Budget, we continue to maintain our overweight stance on sectors like chemicals, auto, consumer durables and technology. Moreover, it is clear from the ongoing result season that the worst is over for the banking and the NBFC space and therefore, we had gone overweight on the private sector midsized banking and NBFC space.
In the auto space, we have gone underweight on 2-wheeler stocks and are currently overweight on CV and tractors. We continue to avoid most of the smaller PSU banks given persisting asset quality issues which are expected to become worse post the COVID-19 pandemic.
Q: After the Budget, scrappage policy and January sales data, should the auto space be in focus?
We have been positive on the auto sector for quite some time and continue to maintain our positive stance on the sector. However, we are now underweight on the 2-wheeler space and are overweight on the CV and the tractor space. CV sector will be the biggest beneficiary of the scrappage policy, while tractor sales will remain robust due to continued government focus on increasing farmers’ income.
Q: Should one stay more with midcap-smallcaps compared to largecaps after the Budget?
While largecaps may outperform mid and small caps in the near term, we believe that in the longer run, broader markets will outperform the benchmark Nifty and the Sensex. However, we believe that bottom-up stock-picking is the key to pick winners and create wealth in the long run and investors should focus on picking winners irrespective of market cap.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
