Brokerages pick manufacturing and infrastructure companies ahead of Budget 2015

MUMBAI: Investors, willing to bet that the government will announce business-friendly measures in the upcoming Budget after the Delhi election debacle, may buy shares of companies involved in infrastructure and manufacturing. Brokerages said shares of companies in road, railways and construction could be in focus over the next couple of weeks as the government is expected to announce steps to boost the country’s infrastructure and put policies in place to lift manufacturing. Edelweiss Financial Services has recommended buying Sadbhav Engineering, Titagarh Wagons, and VA Tech Wabag.

Macquarie has advised clients to buy Larsen & Toubro (L&T), Crompton Greaves, IRB Infrastructure and JSW Energy, while Credit Suisse is betting on L&T and Asian Paints “We expect major announcements regarding kick-starting the investment cycle in the Union Budget,” said Vinay Khattar, head of research, Edelweiss Financial Services. “We expect the government to increase thrust in areas such as roads, railways, and ports,” he said.

Analysts said investors may put money in these shares after the recent correction. The benchmark index, BSE Sensex, is currently down over 1300 points from its year high of 29844 points it touched on January 30. Yet, stock valuations are expensive vis-àvis emerging markets. Sensex is currently trading at 15.7 times its 12-month projected price-to-earnings (P/E) multiple, against the MSCI Emerging Markets Index’s multiple of 11.7 times.

“The ongoing correction has provided a good opportunity to buy before the growth-stimulating Union Budget,” said Rakesh Arora, the head of research at Macquarie Capital. “Industrial stocks are under-owned and will be big beneficiaries of a governmentled infrastructure build.”

Investors are hoping that the government would push measures to boost economic growth after the Aam Aadmi Party's (AAP) landslide victory in the Delhi elections.

“We prefer cement, paints, and construction stocks. Rising expenditure on roads and housing should drive a pick-up in cement and paints demand,” said Neelkanth Mishra, India equity strategist at Credit Suisse in a recent Budget note. “Hence, we have upgraded UltraTech and Asian Paints to outperform.

Larsen & Toubro should also reverse its underperformance with an improving order book visibility. We expect banks to benefit from improved loan growth and have raised the target price of Axis Bank.” Analysts expecting tax benefits for special economic zones in the manufacturing sector, which will be positive for stocks such as Adani Ports and Mahindra Lifespaces.

“We are expecting some clarity on GST in the Union Budget and if that happens, then companies that face competition from the unorganised sector will ultimately benefit to a large extent. We would like to advise investors to focus on sectors such as capital goods, infrastructure, cement, and logistics in the run up to the Budget,” said Pankaj Pandey, head of research at ICICI Direct.