The domestic benchmark equity indices dropped more than 7% in the month of
February as investors maintained caution ahead of the Union Budget 2016-17
and on account of weak global cues. However, post the budget, the market
witnessed a strong rally as there were no adverse changes pertaining to long-term
capital gains tax on sale of shares in the budget, and given the governments
pronounced thrust on the infrastructure sector. The government’s decision to stick
to the fiscal deficit target (3.5% of GDP) for FY2016-17 also contributed to the
positive sentiments in the market. Further, with the government well on target in
containing the fiscal deficit, it provides room for the RBI to implement a further
rate cut in the upcoming Monetary Policy meet.
Over the past few quarters, companies with a considerable rural exposure have
been underperforming on the earnings front due to rural slowdown caused by two
consecutive sub-normal monsoons. However, to ease rural distress, the
government has announced higher allocations towards rural schemes in the
budget which will provide a much required boost to the rural economy.
Additionally, the implementation of the Seventh CPC would also drive rural
consumption, thereby benefiting rural consumption based companies. Further, the
government has also increased allocation towards roads & highways, housing,
irrigation, and power etc, which will drive demand for EPC companies, asset
developers and cement companies.
On the global front, Europe has announced the expansion of the QE program
which is expected to increase liquidity in the Indian market as it poses as an
attractive investment destination compared to other emerging markets.
We are positive on consumption driven stocks like Blue Star, Radico Khaitan and
Siyaram Silk Mills, TVS Motors. Further, we expect rate sensitive sectors like
automobile, assets developers, real estate, and housing finance to benefit from an
anticipated rate cut by the RBI. In this space, our top picks include, LIC Housing
Finance, Mahindra Lifespace, and IL&FS Transportation Networks, amongst others.
