Finance Minister Arun Jaitley's budget for 2014 is coming at a very opportune time. The economy, which was in tatters for the last three years, is on the cusp of a revival with many factors showing signs of improvement.
Economists are of the opinion that the GDP growth has bottomed out. So hopes are the economy will now only improve. But that is just one aspect. In the table below, brokerage India Infoline has highlighted how the present economic situation today is much better than last year's.
As per the table, the only one factor that has not witnessed an improvement is investment cycle.
However, the stock market is flying, as investors are hopeful that the budget will have proposals that would fire animal spirits in the economy.
According to a discussion published in The Economic Times today, the Sensex is likely to scale even 31,000 by March if the finance minister Arun Jaitely and prime minister Narendra Modi indeed get the mix right in the forthcoming budget. All the experts at the discussion are almost unanimous in saying that reducing subsidy and improving the quality of government spending is the key to economic revival.
They have also said that they do not expect a dream budget this time as it is going to be all about expenditure and the market has also discounted the fact that there is nothing much the government can do as far as the fiscal situation is concerned. So does that mean there will not be a correction if the Budget disappoints?
"In the short-term the market has voted that things will change very fast, and I don't think there will be any big correction after this budget, I think the real correction if it would ever to happen will happen after the next budget. Because, the government than will not have any excuse that they did not have any time to settle things," Anoop Bhaskar, head - equity, UTI Asset Management has been quoted as saying in the ET report.
So, the market, for now, is in the grip of raging bulls. At 11:30 am, the Sensex is at a record high of 26036 and Nifty at 7767.
Here is a list of 5 stocks where you can expect a lot of action after the budget:
Maruti Suzuki: The stock has risen 22 percent from May 16 (the day the election results came out) to yesterday. Brokerages are unanimous that the company will be the first in the auto sector to gain if the economy picks up steam. The company's total sales in June rose 33.5 percent on year to 112,773 units. Its domestic sales rose 31.1 percent. "It (Maruti) has been witnessing higher footfalls post the formation of stable government at Centre, which clearly reflects the improving sentiment of the customers, post the positive outcome of general election," Karvy Stock Broking noted in a research report.
BHEL: The stock has risen 14.5 percent. The power sector has been in news ever since Modi assumed the office at New Delhi. Media reports have said the power minister is planning to take the Gujarat model national. Any improvement in the power sector prospects is likely to boost the heavy engineering company. Moreover, there are expectations that the government may impose anti dumping duty on power equipment. "It will reduce the price differential between domestic and overseas players (especially Chinese). Positive for BHEL, L&T and other new players planning to establish a domestic manufacturing base," brokerage Microsec has said in a report.
ITC: The stock has fallen about 7 percent. The reason for the decline is the fear that the government is likely to increase tax on cigarette and tobacco, further hitting the company's bottomline. A research report by Morgan Stanley recently said: "ITC remains a compelling long-term story - but the sharp increase in cigarette prices in India versus other commodities and other forms of tobacco consumption may have reduced the relative affordability of cigarettes for some consumers." It has said a bear case scenario for the company will emerge if it is unable to turn around the FMCG business and also witnesses a severe downturn in its non-tobacco businesses. A derating of the stock is likely if the Budget rolls out a disruptive cigarette tax increase or a policy that encourages rapid consumer shift to other forms of tobacco consumption, the brokerage has said.
ICICI Bank: The stock has remained largely steady during the period but from 1 January, it has surged a whopping 33 percent. Bank stocks have been on a roll ever since the market sensed a change of guard at the centre. This is because they are perceived to be the first ones to benefit from an economic revival. "The most important thing is that right from central bank to the government, the focus on inflation control is highest and whenever the inflation control takes place, that actually augurs very well for growth and that something is good news for the banking sector," BP Singh, ED & CIO, Pramerica MF, told CNBC-TV18 in a recent interview. Brokerage Sharekhan sees the return on equity to rise 16 percent by 2015-16 riding on a pick-up in the advance growth and a significant improvement in the margin. The bank's profit is likely to witness a 15.3 percent CAGR over FY2014-16, it said.
SBI: The stock has risen 11 percent from 16 May to 4 July and 53 percent from 1 January. "One signs of the good times is that companies are able to raise capital. If companies in the infra space, companies that have been otherwise capital-starved are able to raise capital then we would get more confident on public sector undertakings (PSU) banks from that perspective," Tirthankar Patnaik, director - institutional research at Religare Capital Markets told CNBC-TV18 in a recent interview. He said SBI is the top pick among state-owned banks.
Updated Date: Jan 20, 2015 18:47:13 IST