“Rationalisation in custom duties on metals could increase imports and create competition for domestic players. Though the metal industry will get the benefit of infrastructure push, domestic manufacturers could face the heat from cheap imports. Therefore, we would recommend trimming the metal exposure in the portfolio,” Vinit Bolinjkar, Head of Research at Ventura Securities, said in an interview with Moneycontrol’s Sunil Shankar Matkar.
edited excerpt:
Q) What is your take on December quarter earnings announced so far?
A) There has been a strong revival in December quarter earnings across sectors due to:
-Cost optimiSations measures taken by the companies during COVID crisis;
-Savings on operating expenses due to work from home;
-The rise in rural spending on high-value discretionary items which has improved the topline;
-Increase in infrastructure activities which have improved order booking for EPC players, metals, cement and capital goods
Except for cost-saving, where a portion of the cost will come back after the complete resumption of offices, the momentum is expected to continue in the coming years on account of government spending and higher Budgetary allocation towards agriculture and core sectors of the economy.
Q) Which sectors are in focus post Budget?
A) Infrastructure, 2-wheelers, textiles and PSU banks are expected to do well in the coming years.
In the infrastructure space, the focus would be on national highways, railway freight corridors, rural road connectivity, city infrastructure, port development, national gas grid and water transmission (Jal Jeevan Mission). All the EPC and BOT players will be the direct beneficiaries, while metal pipe manufacturers and other infra ancillary players (capital goods, cement, metals) are expected to get the indirect benefits.
Three back-to-back normal monsoons have improved rural income, which would further lead to higher rural spending on discretionary items, such as 2-wheeler, consumer durables etc. Due to the major shift from shared mobility (bus & 3-wheeler) to personal mobility (2-wheeler & passenger vehicles), the spending on 2-wheelers and entry/mid-segment cars have improved. With the improvement in rural roads, we are expecting a better volume growth in the 2-wheeler space.
FM has proposed to develop 7 mega integrated textile parks to double the industry size to $ 300 billion by FY26 to position India as a global manufacturing and exporting hub. This will significantly improve opportunities for yarn and textile manufacturers.
With the pick up in infrastructure activities and spending on automobiles, lower rates and easy availability of credit, we are expecting a strong lending growth in PSU banks, which remained subdued in the past several years.
Q) Which sectors should investors reduce their exposure in post Budget?
A) Rationalisation in custom duties on metals could increase imports and create competition for domestic players. Though the metal industry will get the benefit of infrastructure push, domestic manufacturers could face the heat from cheap imports. Therefore, we would recommend trimming metal exposure in the portfolio.
Q) How would you rate the Budget on a scale of 1 to 10?
A) The Union Budget 2021-22 has laid to rest all apprehensions of the market of a possible COVID cess, LTCG or anything negative from the taxation perspective. This itself is a very big positive.
The entire focus of the government was on kick-starting growth through a multi-pronged approach by stressing on infrastructure development, putting in place robust policies for export promotion and providing a level playing field for domestic manufacturing.
All these measures are part of ‘planned expenditure’ and in combination with the PLI should definitely kick start a virtuous capex cycle supporting a trajectory of high sustainable GDP growth and job creation.
We would give 10 out of 10 ratings to this budget.
Q) Bank Nifty rose 17 percent in the Budget week, what led to the rally? Do you think the creation of bad bank will solve the NPA problems?
A) Budget’s focus was on overall development, which is expected to give a boost to corporate as well as retail lending. Capex cycle has picked up in India, which has created a significant opportunity for corporate/project lending.
Order book of auto OEMs are full and they are doing capex to expand their capacities. And to cater to the rising requirements of these OEMs, their ancillary partners are also doing capex, which has initiated capex activity across vertical from OEM to Tier II suppliers. Similarly, infra companies are continuously booking orders for roads, railways, city infra, ports, airports, transmission pipelines, etc, which requires capital goods, cement and metals. To fulfil the rising requirements from infra segment, capital goods, cement and metal companies have started expanding their capacities.
Besides, spending on high value discretionary (autos, consumer durables, etc.) and real estate has also picked up and created enough room for retail lending.
Countries like the US, Finland, Germany and Sweden have successfully experimented with bad asset resolution through a bad bank, and this time India is trying to take advantage of this global experience. This is expected to shift the focus of banks from NPAs to growth and expansion.
Q) What should be the investment strategy post Budget 2021? Should investors continue with buy on dip strategy, to rejig their portfolio?
A) We would recommend accumulating stocks on dips, especially from infrastructure, 2-wheelers, textiles and PSU bank space.
Q) Do you think the divestment target set by the government is achievable given the current scenario?
A) We believe that the current scenario is the best time for the divestments and the target of Rs 1.75 lakh crore is achievable. The market is on high and investors (both retail and institutional) are bullish on the Indian market, which is visible from the oversubscription of the recent IPOs.
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