Top 10 stocks on analysts’ radar post Arun Jaitley ‘popular’ Budget 2017

NEW DELHI: The domestic equity indices zoomed past key resistance levels on Wednesday after the Union Budget with the S&P BSE Sensex touching Mount 28,000 while the Nifty50 surged comfortably over its key resistance level of 8,700 after Finance Minister Arun Jaitley refrained from tinkering with capital market taxes and walked the path of fiscal discipline.

There was a lot of pessimism ahead of the Budget 2017, but the Finance Minister delivered what most analysts called a “popular and not a populist budget”.

The government made sure it contained fiscal deficit at 3.5 per cent of gross domestic product for a fiscal year to March 2017. It aims to bring down deficit to 3.2 per cent of GDP in the financial year starting April 1.

With fiscal deficit contained at 3.2 per cent, yields will continue to be low and interest rates should be benign. This sets a stage for increased consumption across sections of the market, market experts feel.

“No long-term capital gains tax on equities came as a relief. The Budget tried to balance multiple priorities - spur consumption/rural/infrastructure trying to stick close to the targets on fiscal consolidation,” Citigroup said in a report.

The global investment bank remained constructive on the Indian market and maintained a target of 30,000 for Sensex, which translates into an upside of around 7 per cent.

Going by the buzz on Dalal Street, here is a list of 10 stocks that most analysts feel will benefit incrementally from the Budget.

Bharat Financial, Ujjivan, Equitas:

A big jump in Budget allocation under the MUDRA scheme to Rs 2.44 lakh crore, a sizeable allocation to MNREGA and a push to rural infrastructure will add greater emphasis on the rural sector and the SME segment.

The government also budgeted a 40 per cent rise in expenditure under the Pradhan Mantri Fasal Bima Yojana coverage.

"These will cumulatively see a sharp improvement in rural activity, in turn resulting in better financing opportunities," Edelweiss Securities said in a report.

"Key beneficiaries will be players that have a rural presence and SME target base, such as, MFIs Bharat Financial and SFBs such as Ujjivan, Equitas, Capital First and companies that have high rural presence such as M&M Financial Services,” it said.

PI Industries, Bayer, Dhanuka:

The Budget showed sustained government focus on infrastructure development and also better utilisation of agriculture and rural subsidies, which can act as catalysts to boost consumption demand.

An increased outlay of over 25 per cent on a year-on-year basis under MNREGA should continue to support rural wages, which would be marginally positive for weedicide consumption.

Incremental allocation towards Crop Insurance Scheme, the rollout of DBT across additional 84 government schemes, increased spend on irrigation infrastructure and focus on doubling farmer income over the next five years are some long-term positives.

"There were no major announcements for the chemicals sector and for DBT in fertilisers. We continue to like PI Industries for a target of Rs 800. Bayer and Dhanuka, which are not rated are the other plays on the continuous improvement of the sector," Ambit Capital said in a report.

HUL & ITC:

Domestic brokerage Edelweiss Securities has upgraded shares of ITC to 'buy' from 'hold' on the government's soft stance on excise duty hikes in cigarettes for two consecutive Budgets.

The upgrade was also because of likely compulsory licensing of non-cigarette tobacco products and impact on unorganised cigarette market under the goods and services tax, Edelweiss said in a note, adding that ITC is now among its top picks.

HUL has over 3 million serviced and it benefits directly from Unilever's global or regional procurement and ITC has a very strong network for direct procurement from farmers.

Both the player's advantage in terms of navigating procurement-related disruptions and expected price hikes caused by the demonetisation and GST suggest experts.

HUL which is trading at 40x FY18E P/E is still higher by over 5 per cent compared with the sector average of 37x FY18E P/E and its five-year historical average of 36x, said the Ambit Capital report.

The premium should be higher given it is unique in benefitting both in near term as well as a longer term from demonetisation, it said.

Dalmia Bharat and Orient Cement:

The increased allocation to rural low-cost housing to Rs 23,000 crore from Rs 16,000 crore in FY17 is likely to drive a 2 per cent increase in cement demand, Ambit Capital said in a report. The allocation of urban housing was increased by merely Rs 1000 crore, significantly disappointing expectations of a big push to urban affordable housing.

"The increased spending on rural housing and roads could drive 3-4 per cent incremental demand at best. We prefer regional, cost-efficient players like Dalmia Bharat and Orient given the inexpensive valuation," said the Ambit report.

(Views and recommendations given in this section are the analysts' own and do not represent those of ETMarkets.com. Please consult your financial adviser before taking any position in the stock/s mentioned)