Capex boost to infra may put spotlight on cement, metals, road companies
The market is expecting the Union Budget to be a path-breaking one, similar to the one presented in 1991, which led to liberalisation of the Indian economy.
The government's financial accounts for the last few years have been dominated by a runaway fiscal deficit and ballooning subsidies. But with the fiscal improving, the focus has shifted back to reforms and growth. The market is working on a couple of big assumptions, which would give the much needed fillip to several sectors. There would be investment implications, if the Budget actually plays out as anticipated by the market.
Budget 2015: Complete Coverage
The Street's first big assumption is government's capital expenditure programme is expected to rebound in a big way, as the private sector continues to be heavily leveraged. Credit Suisse says capex is set to rebound sharply from multi-decade lows. Identifying the different buckets of expenditure could be immensely rewarding, but it comes with its own risks.
Even though predicting the exact direction of the expenditure push may not be easy, but analysts and equity strategists believe there are some broad sectors that would benefit from the measures announced in the Union Budget on Saturday. Neelkanth Mishra of Credit Suisse believes highways, railways, rural roads, rural and urban housing are most likely areas where the government may spend.
This would have a cascading effect on the construction sector. With the government focused on making the road sector less risky by issuing EPC contracts, the private sector balance sheets may see material improvement. Analysts expect Larsen & Toubro, IRB Infra and Sadbhav Engineering to benefit the most from this.
Budget 2015: Complete Coverage
Government spending on housing and infrastructure will have a direct impact on the cement industry. Ashish Jain, Morgan Stanley's cement analyst, expects the government to outline some steps to support low-cost housing, development of smart cities and initiatives for overall infrastructure capex that would be drivers for cement demand.
The market likes mid-cap cement names too where valuations are still attractive. Analysts are also focused on metals and mining space, which has been struggling to get raw material linkages.
The boost to infrastructure will also lead to demand for credit. While the government borrowing may increase in FY16 compared to the current year, the market is not worried about the private sector getting crowded out. However, recapitalisation of public sector banks is a big overhang for the sector and the market will expect a roadmap from the government.
Overall, analysts believe that the Union Budget should be positive for most sectors. Financial analysts at Goldman Sachs expect measures to boost financial savings through instruments such as insurance and mutual funds. A large number of incentives for the industrial sector to promote domestic manufacturing are also expected.
| Sectors | Key Recommendations | Impact |
| Automobiles | No major change excise duty expected | Neutral |
| Cement/Metals & Mining | Potential increase in capex may boost demand | Positive |
| No change in excise/import duty for cement, steel or metals | Neutral | |
| Consumer | 8-10% increase in excise duty on cigarettes | Negative |
| Reduction in gold custom duty | Medium | |
| Lower rural spending | Negative | |
| Financials | Possible boost to savings instruments like insurance and mutual funds | Positive |
| Higher tax breaks on interest paid on housing loans | Positive | |
| Boost to infra & manufacturing may drive credit growth | Positive | |
| Real Estate | Tax clarity on REITs with respect to dividend distribution tax | Positive |
| Information Technology/Internet | Clarification on SEZ regime regarding tax exemption | Positive |
| Clarity on rollout of GST, clarification on VAT on for internet marketplace companies | Positive | |
| Source: Goldman Sachs/analysts | ||
