Budget Picks - 2022

Finance Minister Nirmala Sitharaman would table the budget for the financial year beginning April 1, 2022,on Tuesday. This will be the fourth time Nirmala Sitharaman would be presenting the budget, joined by newlyappointed Chief Economic Advisor - VA Nageswaran, a renowned economist and a great academician. Last year budget gained significance, as the country was reeling under pandemic pressure. This year also, Budget has gained much hype and significance, as the growth of the economy for FY23 is expected to be built on last year’s recovery focused budget. This year’s Budget is expected to be a lot more populist, as nation continues to show signs of recovery.

Market watchers would be keeping their eyes on projected GDP numbers, which as per broad projection is pegged between 9% - 9.5% for the next financial year. As we have witnessed many misses in past projections of GDP estimates, including the recent GDP growth forecast at 11% for current financial year, as per previous economic survey, which came out at much lower real GDP figures. But this time around economy is showing many positive signs of growth including stellar collection in GST and robust growth in corporate profitability.

Budget is expected to be populist, with focus on broad aspects of economy providing large employments including Agriculture, Infrastructure, Pharmaceutical, and Automobile. Since budget is presented ahead of elections taking place in five key states, the government is expected to come out with several schemes to further stimulate the economy with policies to counter farmer issues. PLI scheme for pharmaceutical research sector, EV, Automobile could be on anvil.

Some of the broad challenges our economy faces today includes ballooning national Debt/GDP ratio, inflation and fiscal deficit. It’ll be interesting to see how government manages to announce populist schemes while walking the tightrope of fiscal consolidation. Economic Survey which is more like annual report of a company talks about the performance of several sectors in past and provides with future outlook on same with Projected numbers on broad macro-economic indicators including GDP.

Expectations from budget

Industries are expecting key announcements to keep their growth momentum going, while on the other hand individuals are expecting some more relief on taxation, to provide more disposable income in their hands for further consumption and investments. It will be interesting to see how the government balances the act of dealing with double-edged sword low taxation and reducing fiscal deficit.

Direct taxes

1. Further enhancement of limit on 80C deductions, from present 1.5 lac to 3 lacs a year.

2. Clarity on Cryptocurrencies and its taxation, whether to classify it as speculative income or bring it under the ambit of capital gains. Recognizing crypto as an asset would bring it under necessary taxation, including GST.

3. LTCG, reintroduced in budget 2018, is expected to be removed in order to further boost participation in the capital markets. This has gained importance in the present times, as the government is aggressively pursuing disinvestment target to make up for shortfall in revenue.

4. Allow corporates to claim Covid expenditure, as employee welfare with no strings attached.

Indirect taxes

1. Custom duty rationalization for companies engaged in manufacturing of electric vehicle.

2. Concession for companies engaged in manufacturing of Semi-Conductors, as the country struggles to meet its semiconductor demand and continues to rely on supply through imports. Setting up semiconductor industry is highly capital intensive and has a long gestation period to become profitable without government support.

3. Several exemptions on custom duty, to further encourage industries engaged in imports and re-export.

4. To have common compliance platform to bring ease of business for companies engaged in EXIM business.

While India’s top strata appears not to have been much impacted with pandemic and continues to be doing fairly well with better incomes, it is people at the bottom who have got badly affected with lockdowns and dwindling income and wages. The bottom strata is yet to come out of the uncertainty and join the bandwagon of growth and stability. We expect several schemes to provide more jobs, stable environment and ultimately pave the way for higher consumption. While the country is struggling with unprecedented inflation in the recent times, the measures to boost income of low-level employees are in focus, as these measures will improve consumption

What to Buy ahead of Budget

1. L&T – CMP: Rs 1901; SL 1730; Target 2500

   Major public spending infrastructure announcements are good for the stock in long run. The government’s focus on improving the infrastructure, as it has been in the recent years, is expected to continue in this budget as well, which would drive the share price of L&T to its all-time high of 2078 in the short-term and new high of 2400, with an upside potential of 26% in the long-term

2. HUL – CMP: Rs 2280; SL 2200 Target 2850

   Focus on improvement in farm income and income of lower strata would lead to higher disposable income, which would improve consumption. HUL, with a strong presence in the rural areas and a strong supply chain is expected to benefit from the increase in disposable incomes of the people. HUL’s power to transfer costs to the consumers and position of market leader can take the share price to its all-time high of Rs 2850, with an upward potential of 25%.

3. Maruti Suzuki India – CMP: Rs 8630; Target 10,000

   Automobile being one of the biggest employment generator of the economy might see some announcement including rationalization of GST to 18%, reduced price limit per unit to meet the PLI criteria for EV manufacturers would be good for industry and stock. Some announcements on subsidies for vehicles for shifting from ICE to EV could also be expected.

4. Hero Motors – CMP: Rs 2725; Target 3100

   Announcement to include low speed EV would be a good news for the stock. Hero’s foray into the EV segment and recent investments and acquisitions will make the company a strong contender for dominance in 2-wheeler electric wheelers, in addition to the already dominant position in 2-wheeler segment.

5. Titan – CMP: Rs 2360; Target 3000

   Stock does well when the agrarian economy does well; we expect some major boost for agriculture sector. Increase in the rural income would lead to purchase of jewelry, which abodes well for Titan.

6. ITC– CMP: Rs 220; Target 260

   Although the stock hasn’t performed well in past, we still recommend this as must-have in one’s portfolio. ITC’s dominant position in the cigarettes and other segment, makes it a strong stable business, as the company provides its investors with a stable annual income in the form of dividends.

7. Amara Raja Batteries – CMP: Rs 618; Target 800

   Batteries is one of the cost-driving factors of EVs. So, some GST announcement on batteries is expected in order to make the EVs more competitive when compared to normal vehicles. Such a move would drive the price of this company higher. This company’s batteries commands a good size in the market share.