Finance Minister Arun Jaitley will present Budget 2017 on February 1, 2017 and market participants will be keen to look out for triggers that would lift or pull down stocks. While demonetisation-induced economic slowdown has given a new urgency to Modi government's fourth budget, the upcoming state assembly polls and the resultant model code of conduct could tie Jaitley's hands. Yet, hopes are high of a stimulus to revive the note ban-hit economy.
Read: Budget 2017 offers chance to reduce import duty on gold before GST, says Quantum AMC
Under such circumstances, select sectors are expected to benefit from a push to the economy by way of sops or higher allocation, as in case of infrastructure sector, in tandem with a rate cut by the Reserve Bank of India (RBI) when it meets next month.
"The Reserve Bank of India (RBI) could cut rates next month (or in April 2017) before taking a prolonged pause. Nevertheless, with the central government garnering additional resources post demonetization, expectations of a significant fiscal stimulus are very high," brokerage Motilal Oswal Securities Ltd (MOSL) said in a note.
The expectations as far as the brokerage is concerned, are on expected lines. "Our two key expectations from the Union Budget are: (1) reduction in tax liability for individuals, which should provide a boost to the consumer sector, and (2) higher capital spending, which should benefit sectors such as defense, roads and railways," it said.
Some of the stocks that are likely to watch out for in the context of Budget 2017, according to MOSL, are ITC, Hero MotoCorp, TVS Motor, M&M, Ashok Leyland, Bosch, HUL, Colgate, Dabur, Gruh Finance, Repco Home Finance, Bharat Electronics, L&T, Bharat Forge, Siemens India, ABB India, Crompton Greaves and KEC International.
Here are some of the sectors and possible implications on them in Budget 2017, as explained by MOSL:
Auto (commercial vehicles)
Budget expectations
Introduction of scrappage scheme, which would incentivise scrapping of trucks older than 10 years and focus on the infrastructure segment with higher allocation.
Likely changes if expectations are met
Scrappage scheme (depending on whether it is mandatory/voluntary and magnitude of incentives) can drive 15-18% CAGR for the CVs (current est. of ~12%). Ramp-up in infrastructure activity will drive demand for Tippers and overall CV demand from ~12% CAGR estimate to 15-18% CAGR over next two years.
Auto (passenger vehicles)
Budget expectations
Considering the likely GST implementation from July 2017, we do not expect any changes in indirect taxes. However, we expect an increase in income tax exemptions and higher allocation toward rural focused schemes.
Likely changes if expectations are met
Lower income tax and the focus on rural markets could put 2W industry back on the growth path. This, coupled with the benefit of normal monsoon and 7th Pay Commission, could drive 2W volume CAGR of 10-12% over FY17-19E.
Consumer
Budget expectations
Blended excise duty increase of ~15 percent on cigarettes.
Likely changes if expectations are met
Expect ITC to implement a weighted average price hike of 14-15% to pass on the excise duty increase. The company has already taken price increase of ~15% in key brands Gold Flake and Navy Cut toward the end of December in anticipation of excise increase. We factor in volume increase of 3% in FY18 as a result of relatively moderate excise increases for two consecutive years.
Consumer (0ther than cigarettes)
Budget expectations
Increase in rural spending/infrastructure spending/tax exemption which can put money in hands of consumers, thereby benefiting the FMCG sector.
Likely changes if expectations are met
Broad implication across our coverage universe.
Defence
Budget expectations
Increased allocation toward capital spending in the budget.
Likely changes if expectations are met
An increase in budgeted spending would be positive for companies as it implies higher ordering and execution. Likely beneficiaries include Bharat Electronics, L&T, Bharat Forge.
Railways
Budget expectations
Increased budgetary support and in turn spending by the Indian Railways. Proposed capex for FY16 was at Rs 984b, which is unlikely to be met given tepid growth in 1HFY16.
Likely changes if expectations are met
Higher railway spending is a key positive for rail equipment suppliers and contractors, benefiting L&T, Siemens India, ABB India, Crompton Greaves, KEC Intl.
Namame Gange
Budget expectations
National mission for clean Ganga: Increased allocation to the mission would imply a pick-up in orders and execution for the clean Ganga mission.
Likely changes if expectations are met
Higher allocation toward Ganga clean-up would result in a positive change in orders for companies in the waste water treatment space, benefiting VA Tech Wabag, L&T, KEC Intl.
Cement
Budget expectations
Increased infrastructure spending to benefit the cement sector. Benefits to low-cost housing to increase demand from individual housing segment, which was impacted by demonetisation.
Likely changes if expectations are met
Higher spend toward infrastructure and low-cost housing could boost cement demand. Implementation of cess would increase cement costs by Rs 30/tonne, benefiting Shree Cements, Ramco Cements and Dalmia Cement.
