Budget 2016: Bet on consumption plays; buy the right kind of stocks and sit tight

NEW DELHI: Budget 2016 will be critical for Dalal Street as further consolidation of fiscal deficit may be deferred for another year. Investors will be better off betting on consumption as a theme, along with cement, NBFC and private sector bank stocks, said Aashish P Somaiyaa, MD and CEO, Motilal Oswal Mutual Fund in a webinar organised by ETMarkets.com.

Bet on consumptions plays
Consumption will be a big theme in FY17, he said, as demand is expected to pick up due to decline in inflation, pick-up in employment. Also, in the one-time seventh pay commission payout, the government is expected to pump in close to Rs 1.2 lakh crore in the economy. This is likely to provide 1.5 per cent GDP boost for FY16 and FY17.

Flagship government schemes that are likely to lead to revival of rural demand, direct benefit transfers, and falling raw material costs for FMCG and auto sectors will be the key drivers for consumption. Apart from this, agriculture output may normalise assuming a normal monsoon after two-years of insufficient rainfall.

Somaiyaa also expects investment demand to pick-up from 2HFY17 taking cues from the ongoing reforms, lower interest rates and new orders in roads and railway sector.

Market expectations
If history is anything to go by then Indian market has more than doubled after every 20 per cent fall seen in market in the last 30 years. The market fell by over 20 per cent in 8 out of 9 occasions, and managed to stage a smart bounce back after every fall.



From the period starting from July 22, 1985, to March 28, 1988, markets slipped 28 per cent, but from March 28, 1988, to April, 1992, it managed to rally over 1,000 per cent.

Indian market cracked over 60 per cent from January 2008 to March 2009, led by Lehman crisis which rattled financial markets across the globe. The market doubled in next two years starting from March 2009 to November 2010.

Sensex is down over 20 per cent from its high of 30,024.74 registered in March 2015. Will the index be able to repeat history remains to be seen, but Somaiyaa advises investors not to pay too much attention on what foreign investors are doing, attributing their movements to global events (China, US Fed hike, growth slowdown etc).

Investors should buy the right kind of stocks or quality companies and sit tight. They should take advantage of the current correction and build a long-term portfolio, advises Somaiyaa. One must look at allocating money in sectors wherever the opportunities arise, he said.