Analysts’ Take: Impact Of Budget 2021 On Various Sectors, Stocks

Analysts remained bullish on banks and infrastructure stocks as they expect Budget 2021 to push growth and lift corporate earnings.

India will set up a new development finance institution to raise funds for infrastructure. It will be set up with a capital base of Rs 20,000 crore and will have a lending target of Rs 5 lakh crore in three years, Finance Minister Nirmala Sitharaman said during her budget speech on Feb. 1. Besides, the government extended its Rs 111-lakh-crore National Infrastructure Pipeline to cover more projects by 2025.

The government has also proposed a bad bank-like structure to better manage non-performing loans. An asset reconstruction company and asset management company structure will be set up to take over the bad loans on public sector bank balance sheets and manage recoveries, sitharaman has said. It also proposed to privatise two public sector lenders and one general insurer.

Apart from these, the budget increased spending allocation for the healthcare sector in the next fiscal, raised capex for railways, lowered limitation period for reopening tax cases and eased compliance for senior citizens, among others.

That prompted Indian equities to post their best budget-day rally in 24 years. The Sensex and Nifty 50 have erased more than 60% of their six-day drop before the budget.

Here’s what analysts have to say...

Morgan Stanley

The research firm raised its target for Sensex to 55,000 by the end of this calendar year from 50,000 projected earlier. That, it said, because Budget 2021 augurs well for a new private investment cycle, a recovery in domestic equity flows and earnings growth.

Key highlights:

• Lack of any new income tax, push for growth mainly via higher infrastructure spending and a refreshed approach to monetisation of government assets, including the proposed privatisation of two PSU banks and one insurance firm, have buoyed equity market sentiment.
• If measures are executed well, the budget has the potency to lift share of corporate profits in the GDP, augmenting the strategic shift made in government policy.
• Continues to prefer domestic cyclical sectors, rate sensitives and mid-cap stocks.
• Premium over historical averages for the Sensex reflects a higher confidence in mid-term growth cycle.
• Bull case price target of 61,000 for the Sensex, with a 30% probability.

Credit Suisse

• Focus on animal spirits, and continuation of pro-growth sentiment.
• Push to more roads and rail capex, urban infra and water, state capex, good for industrials.
• Underweights in model portfolio: Consumer discretionary, energy, healthcare and information technology.
• Positive for SBI, Ashok Leyland and ITC, while Negative for ICICI Prudential.
• Yield spike seen on Monday may not persist.

No news on ITC Ltd. is good news for the company and paves the way for re-rating of the stock, the research firm said. There was no hike in cigarette taxes in the current budget compared to the 11-16% hike last year. “ITC is now a Covid recovery plan with cigarette volumes likely to improve consistently,” Credit Suisse said in its note. “With additional levers like restructuring, FMCG growth, the stock has a path to re-rating.”

CLSA

• Expects the budget to push growth capex and improve transparency. “The fact that no direct taxes were raised despite fiscal pressures should come as a relief.”
• The budget should drive a push towards infrastructure and PSU names from more expensive consumption stocks. CLSA prefers stocks like L&T, UltraTech, NTPC, Power Grid and GAIL.
• No increase in indirect taxes on cigarettes can be a big relief for ITC.
• Increase in FDI limit to 74% in insurance may particularly be positive for HDFC Life.
• Creation of a bad bank structure to take over existing stressed debt of PSU banks can be a sentiment positive but a lot of this stress has already been recognised.
• Rationalisation of import duty on gold may be a positive for Titan.

Edelweiss

The research firm termed Budget 2021 as India’s “most focussed” in decades. “Distinctly top-down”, Edelweiss said the translation into bottom-up economics will be its test.

“The market at its current valuations, post its response to the budget, largely reflects its fair value for the year ahead,” Edelweiss said in a note. It expects the Nifty to touch 14,200 by December 2021.

The research firm remains overweight on IT, banks, industrials and real estate. It sees risks in inflation, global stimulus and liquidity support and that the market possibly not pricing it in.

JM Financial

The research firm remains positive on the banking sector, given lower-than-expected stress formation, strong capital levels and improving economic activity.

In its post-budget note on the sector, JM Financial said privatisation of PSU banks is a step in the right direction and can act as a test case for privatisation of other major PSU banks in the future.

“The most likely candidates will be from the pool of banks which were not part of the consolidation in the first round — Bank of India, Central Bank of India, Indian Overseas Bank, Bank of Maharashtra and UCO Bank,” it said.

The resolution of stressed assets by setting up ARCs and AMCs to consolidate and take over existing stressed debt and then manage and dispose of the assets to alternative investment funds or other potential investors for eventual value realisation will require swift implementation as the past attempts at creating such vehicles have not met with much sucsess, JM Financial said in its note.

The research firm recommends a ‘buy’ for private lenders such as ICICI Bank, Axis Bank, HDFC Bank, IndusInd Bank and Bandhan Bank. It’s also positive on state-run lenders like State Bank of India and Bank of Baroda.