Budget 2015 and markets: Banking, financial cos, infra to outperform

By Anshu Kapoor

This year’s budget to be presented by the Finance Ministe Arun Jaitley shall be the first full year budget presented by this government. The vibrant new government of  Prime Minsiter Narendra Modi has a lot of expectations riding on it and this budget is expected to be a road map for the economy and what segments would be the growth drivers in the future.

Jaitley has a lot of tailwinds that seem to be helping him this year

• Reduction in subsidy bill to the tune of 30,000 crs in FY-16 due to fall in crude prices
• Revenue increase to the tune of 60,000 crore in FY-16 due to 4 consecutive hikes in excise duty
• We believe, with the fall in petrol and diesel prices, India as a country is saving 48,000 crore (0.4 percent of GDP) which should come back as incremental investment and consumption into the system
• Fall in crude prices should make India a BOP surplus economy
• Falling interest rate regime, incentivizing private capital investments which will help boost the GDP growth rate

The trade off they face is to either focus on:

• Following the fiscal consolidation roadmap by achieving 3.6% deficit, or
• Work with a 4.1 percent fiscal deficit number and allocate the extra money to various planned expenditures

Budget expectations

We expect the finance minister to take the more aggressive stance and take measures to improve growth

• A 4.1 percent deficit target to free $20-25 billion for additional plan expenditure
• The policy stance highlighted from the allocations to various plan expenditures to act as a catalyst in increasing investments and growth cycle

Sectors to outperform in 2015

• Banking and financial service companies
• Manufactured exports segments such as textiles and auto ancillaries
• Cyclical and interest rate sensitive stocks
• Infrastructure: EPC, Defence, Renewables, Ports (Infrastructure should outperform now with renewed government focus and investments, despite the recent business problems and struggling balance sheets)

Overall corporate earnings are expected to grow by around 15-20 pereent. However, midcap earnings growth rate will outperform the broader markets, which is why despite the current premiums; they are expected to outperform going forward.

(The author is Head – Global Wealth Management, Edelweiss)