Budget 2015 likely to be positive for most sectors

Capex boost to infra may put spotlight on cement, metals, road companies

The market is expecting the Union Budget to be path-breaking, similar to the one in 1991, which led to the liberalisation of the Indian economy. The government's financial accounts for the past few years have been dominated by a runaway fiscal deficit and ballooning subsidies. But with the fisc improving, the focus has shifted back to reforms and growth. The market is working on a couple of big assumptions, which would give a much-needed boost to several sectors. There would be investment implications if the Budget actually plays out as anticipated by the market.

The Street’s first big assumption is that the 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 the capital expenditure or 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. (SOMETHING FOR EVERYONE)

Predicting the direction of the expenditure push is not easy, but analysts and equity strategists believe some broad sectors would benefit from the measures announced in the Budget on Saturday. Neelkanth Mishra of Credit Suisse believes highways, railways, rural roads, and rural and urban housing are the most likely areas where the government might spend. This would have an effect on the construction sector. With the government focused on making the road sector less risky by issuing engineering, procurement and construction contracts, private sector balance sheets might see improvement. Analysts expect Larsen & Toubro, IRB Infrastructure Developers, and Sadbhav Engineering to benefit the most.

The government spending on housing and infrastructure will have a direct impact on the cement sector. 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 the 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 with the current financial year, the market is not worried about the private sector getting crowded out. But, recapitalisation of public sector banks is a big overhang for the sector and the market will expect a road map from the government.

Overall, analysts believe the Budget should be positive for most sectors. Financial analysts at Goldman Sachs expect measures to boost savings through instruments such as insurance and mutual funds. Many incentives for the industrial sector to promote domestic manufacturing are also expected.