Top thirteen stocks to bet on ahead of Budget 2015: Credit Suisse

NEW DELHI: Unlike normal budgets, which are attempts to match largely non-discretionary spending with cyclical revenues, Credit Suisse is of the view that this time there are several promising moving parts in the upcoming FY16 budget.

The global investment bank is of the view that national highways, railways, rural roads, rural housing and urban housing are the most likely areas where the government may spend.

The budget may also include import-heavy spending (e.g., defense, renewable energy) or tax sops for local manufacturing. These would only have medium- to longer-term implications.

Studies of fiscal multipliers suggest that the immediate impact of prudent government spending (i.e., on non-defence capital expenditure) on FY16E GDP growth could be 0.75-1.00 pp.

A pick-up in growth should boost the broader Indian market. In addition to a boost to earnings growth, Credit Suisse expects India's P/E premium to global equities to expand.

"So far, despite the strong market rally over the past year, this premium has barely moved up to 13%, vs 40% in 2010 and 80% in 2007," added the report



Credit Suisse expects construction GDP to pick up from very low levels. This is because the construction share of GDP is at decade lows as impaired balance sheets and regulatory issues have slowed private sector capex.

With the government clearing regulatory roadblocks and also issuing EPC contracts, not only does construction activity pick up, balance sheets of contractors are likely to improve as well.

Also, cement demand growth in India has been anaemic despite very low per capita consumption levels. Government spending on roads and housing is likely to drive a pick-up in cement demand.

Stocks like Ultratech, which has expanded capacity by 50% in the last two years through organic and inorganic expansion and is likely to reach a 24% market share post consolidation of cement assets of the BK Birla group, is the best proxy to play the cement upcycle. Among the mid-cap names we continue to like JK Cement.

While theoretically a fiscal expansion is negative for banks (crowding out), even in the most aggressive scenario, i.e., the government providing a 2% stimulus, bond issuance is likely to rise by Rs1 tn.


Improved housing construction should also drive a pick-up in paint demand. Growth has slowed to low double digits over the past two years, and should pick up going forward to the mid-teens.

Credit Suisse also expects consumer discretionary demand in particular autos to pick up because post elections the demand acceleration has been short-lived. As the government shifts gears from a sharp slowdown in plan expenditure in FY15E to an equally sharp pick-up in FY16E, discretionary demand is likely to pick up.

(The above article is compiled from a Credit Suisse report)