Top 8 Sectors and Stocks to Watch on Budget Day

July 4, 2024

With the Union Budget 2024 just a few weeks away, the Indian stock market is already excited about the prospects of pro-market policies.

As the first full budget of the Modi 3.0 government, the finance minister may make many important announcements. So many sectors and specific stocks will be affected on the budget day.

These effects can be wild one-day price swings or the start of significant long-term trends. In addition, stock prices can move in either direction. If the market is not happy with the budget speech, expect a sharp downward reaction.

On the other hand, if the budget speech goes down well with the market, expect fireworks. Nifty will soar to new heights. Midcap and smallcap investors will feel that it is one big party.

That said, we think there are specific stocks and sectors you should be looking at that could be disproportionately impacted by the budget.

In this editorial, we will look at eight sectors/stocks, divided into three themes.

#1 Country Theme

This should come as no surprise. Since the BJP is in a coalition government without a majority, it will have to please its alliance partners.

With the two main coalition parties focusing more on rural than urban voters, the budget will reflect that reality.

The market expects a significant increase in government spending on rural areas. This is not a bad thing. Most of India’s poor live in rural areas. Any improvement in their standard of living will increase rural consumption.

Such policies always benefit, directly or indirectly, companies in rural-oriented sectors. It’s just a matter of finding the right shares.

Rural sectors to watch include: tractors, seeds, fertilizers, irrigation systems and agrochemicals.

What about stocks?

Well, there are many ways to play the rural India theme. There are many fundamentally strong companies in the sectors mentioned above. You can keep the following on your watchlist for further evaluation.

Please note that the information provided below does not constitute recommendations.

• Mahindra and Mahindra (M&M)

  M&M is one of the leading tractor and automobile manufacturers in India.

  After recently streamlining its operations, M&M is ready to boost turnover again. It has exited 15 non-core businesses, unlocking funds worth 13.9 billion.

  The company is now laser-focused on its expansion plans, unveiling a massive investment plan of Rs 370 billion (bn) over the next three years.

  The cash injection will be spread across various businesses, with the largest share of investment going to the automotive sector.

• Kaveri seeds

  Kaveri Seed Company is engaged in the production, processing and distribution of seeds. Its products include field crops and vegetables.

  The company is constantly introducing new products in various segments, including cotton, corn, vegetables and rice. These are supported by strong research and development.

  The company has gained market share in cotton seeds in states like Gujarat, Maharashtra and Haryana.

  It is a debt-free company that pays dividends with a stable profit margin.

• Coromandel International

  Coromandel International is part of the Murugappa Group. The company deals in fertilizers, pesticides and specialty nutrients. It is one of the leading crop protection companies in India, offering a wide range of products and services.

  The management’s goal is to make the company a complete plant nutrition solution provider. To this end, a range of specialist nutritional products have also been introduced, including organic fertilizers.

#2 The topic of consumption

The budget is expected to include some tax breaks for citizens.

This would not be surprising. We have seen this before when a new coalition government was formed.

Rumors suggest increasing the income tax exemption limit to Rs 500,000. This will increase the net salary of the employed class.

In the past, tax breaks have been a precursor to higher consumption. This is because citizens tend to spend their “extra” income.

Consumer spending has increased over the past few years as Indians have shown an increasing willingness to spend rather than save. Any tax relief will only increase consumption.

Three sectors stand to benefit from this: tourism, fast-moving consumer goods and DIY.

You can add the following stocks to your watchlist.

• Interglobe Aviation Ltd (IndiGo)

  Interglobe Aviation Ltd (IndiGo) is the largest airline in India. It operates as a low-cost carrier. It is currently the 7th largest^t the world’s largest airline by number of daily departures and the first Indian airline to have a fleet of over 300 aircraft.

  After four years of uninterrupted losses, IndiGo reported an annual net profit of around Rs 82 billion in fiscal 2024. This is a trend-reversing move.

  Favorable macroeconomic trends in the country, such as rising per capita income and favorable demographic situation, as well as new travel trends, make the company well-positioned for long-term growth.

• ITC

  From a single product category company, ITC is now a company with a portfolio spanning 20 categories with over 1500 products. This is due to its expansion into the FMCG sector. The company is now one of the largest FMCG companies in India.

  Noticing that consumers are increasingly choosing natural and healthier products in addition to traditional options, the company is actively expanding its distribution in rural areas.

  Taking into account the company’s past development as well as its current plans, ITC is likely to achieve profit growth of 15% per annum in the medium term.

  It is also a dividend payer. ITC has been paying steady dividends since 1994 and has been increasing them consistently.

• Hawkins cooker

  Hawkins Cookers is an Indian company that manufactures pressure cookers and cookware. The company has three manufacturing plants in Thane, Hoshiarpur and Jaunpur. The company has historically been a beneficiary of growing revenues in India.

  It is a stable growth company with stable margins and a good history of paying dividends. The debt on the balance sheet is negligible. The company enjoys strong cash flow.

#3 Investment Topic

• The Modi government has focused on building excellent physical infrastructure in the country. Capital expenditure in the budget has received a generous increase every year.

  The market expects the same this time as well. The infrastructure sector will be closely watched during the budget speech.

  The infrastructure sectors most likely to benefit this time are railways and housing.

  Here are some stocks you need to have on your watchlist.

• Ircon International

  Ircon International is an engineering, procurement and construction (EPC) company that executes railway projects.

  The company implements technologically complex infrastructure projects in various sectors, including rail and road.

  The company has strong government support which has helped it secure several orders over the years. In the last 50 years, the company has completed over 400 projects in India and 130 projects in 25 countries.

• HUDCO

  Housing and Urban Development Corporation (HUDCO) is an Indian public sector undertaking (PSU) engaged in housing finance and infrastructure project financing. The government granted Navratna status to the PSU on April 18, 2024.

  The government’s focus on social housing in the upcoming budget is expected to result in the introduction of measures favourable to HUDCO.

  On June 11, 2024, the NDA government announced that it will expand the Pradhan Mantri Awas Yojana by building an additional 30 million (m) houses in rural and urban areas.

  There is also market speculation about the company being included under Section 54EC of the Income Tax Act. This may be to increase investment opportunities.

  HUDCO plans to increase its assets under management (AUM) to over Rs 1.5 trillion (tn) by fiscal year 2026, from the current level of Rs 840 billion (tn).

  The company is well positioned for future growth. It is currently focused on reducing financing costs, addressing non-performing assets and diversifying its loan portfolio.

Application

Investors should not base their specific investment decisions on events such as the budget. History has shown that the market forgets the budget very quickly.

However, some decisions will be important. These decisions can have a significant impact on specific stocks and sectors. Investors should pay attention to such decisions and assess their impact on the stocks in their portfolios.

Investing in stocks that receive support from the EU budget can be profitable in the short term. But you have to be very careful.

The rules of long-term investing don’t change just because of your budget. You’ll still need to do your due diligence on each stock before investing in it.

Successful investing!

Reservation: This article is for informational purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here…