Brokerages raise bets on FMCG, IT, consumer stocks after Budget 2024

Union Budget for 2024-25 pivoted to demand stimulus and employment generation after focusing on the supply side of the economy for many years. Budget proposals such as a cut in effective tax under the new Income Tax regime, subsidy for hiring interns by the corporate sector, and higher allocation for rural infrastructure and affordable housing is expected to put more money in the hands of consumers. This will translate into higher consumer demand which is positive for companies in sectors such as FMCG, consumer durables and two-wheelers.

The announcement for a cut in basic import duty on mobile phones and accessories, and gold and silver are also pro-consumer moves and is positive for jewellery and telecom companies. A turnaround in consumer demand is also expected to have a positive rub-off effect on retail lenders.

 

“Higher allocation towards rural development and agriculture as well as various schemes for employment and skilling of youth is expected to boost both rural and urban consumption for FMCG products,” write analysts at JM Financial in their report on Union Budget.

Analysts at Emkay Global are overweight on FMCG, consumer durables and information technology sector and expect headwinds for companies in industrial and financial space.

Here are ten stocks where brokerages expected the maximum upside in their share price over the next 12 months:

Aptus Value Housing Finance

* Aptus Value Housing Finance (AVHF) is expected to be a key beneficiary of the Budget’s focus on affordable housing

* AVHF largely operates in Tier-II and -III cities and will gain from a big jump in outlay under the Pradhan Mantri Awas Yojana

* The company has grown steadily in recent years thanks to the expansion of mortgage finance business in smaller towns and rural areas

* In FY24, AVHF’s gross interest income was up 17.1 per cent and net profit by 13.2 per cent on a year-on-year (Y-o-Y) basis

* Loan book was up 16.3 per cent in FY24 and reached Rs 6,895 crore. Brokerages expect the growth momentum to continue as Budget proposals will expand the housing market in smaller cities

Dabur India

* A slew of measures for the agriculture and rural development sectors, which saw a 8-11 per cent hike in allocations, is positive for rural sales

* Change in tax rate and increase in standard deduction for personal income tax of salaried employees is positive for the consumption sector given savings of up to Rs 17,500, say brokerages

* Announcement of the Prime Minister’s package for employment and skilling is also positive for the consumption space

* The measures will indirectly either lead to job creation or money in the hand of the consumers, which will eventually lead to higher consumption especially for low-income groups, says YES Securities

HDFC Bank

* India’s top private sector bank has been one of the top picks for brokerages for its strong retail lending franchise and low valuations

* Various brokerages expect 20-25 per cent upside in the stock in 12 months, driven by a decline in its credit-to-deposit (C/D) ratio and margin expansion

* The bank’s loan book is also likely to benefit from the Budget’s push for the further expansion of PM Awas Yojana (PMAY), a credit-linked subsidy scheme to facilitate access to affordable housing

* The expansion of the formal job market announced in the Budget is positive for retail lending and credit card business of all banks

* HDFC Bank's net profit in Q1 FY25 was ahead of street expectation driven by an improvement in net interest margins and a sequential decline in its C/D ratio

Hero MotoCorp

* The introduction of new tax slabs and exemption of tax up to Rs 300,000 should bolster consumption demand for low-ticket purchases such as two wheelers (2W), say brokerages

* Provision of one-month wage for persons newly entering the workforce, employment linked incentive scheme for employees and employers could improve affordability for those eligible and would aid in 2W demand as mobility becomes primary need, says Elara Securities

* The Budget’s focus on rural development, agriculture and allied activities bodes well for the auto sector, especially entry level two wheelers where Hero is a dominant player

* Likely gains from production linked incentive scheme for auto and auto components should also benefit Hero

Hindustan Unilever

* The government's increased Budget allocation for rural development is expected to aid FMCG companies with a substantial share from rural areas, especially Hindustan Unilever (HUL)

* Formalisation and upskilling of youth and focus on increasing women participation in the workforce will help reduce unemployment and result in increased household consumption, says HDFC Securities

* Tax breaks for the salaried class, pensioners and changes in tax slabs will also boost sales

* Further rerating for HUL stock will be contingent on better visibility on volume acceleration and double-digit earnings growth, says JM Financial Research post the June quarter results

IndusInd Bank

* IndusInd Bank has been another top pick of brokerages thanks to its relatively higher exposure to the commercial vehicle (CV) finance segment compared to other private banks

* The bank also provides valuation comfort thanks to a combination of low price-to-book value ratio (1.8x) and relatively higher return on equity of 15.3 per cent in FY24

* The Budget proposals to increase investment in affordable housing and rural infrastructure is a positive for the bank's vehicle and micro financing business, say analysts

* Its retail lending portfolio is also expected to get a boost from the Budget proposals to expand formal employment and put more money in the hands of consumers

* IndusInd Bank’s net profit and gross interest income was up 21.1 per cent and 25.8 per cent respectively in FY24 and brokerages expect the momentum to continue in FY25

InterGlobe Aviation

* The Budget has proposed specific measures to develop tourist destinations, and indirect means of government promotion through improved connectivity, and setting up of new airports. This should boost passenger traffic and benefit the market leader

* Motilal Oswal Research is optimistic about the domestic aviation sector, with demand consistently exceeding pre-pandemic levels

* InterGlobe, which operates IndiGo, India’s largest airline company, is expanding its international presence through strategic partnerships and loyalty programs, aiming to capture a larger share of growth in the global market

* Despite near-term cost inflation, UBS Research sees multiple margin tailwinds over the medium term such as fall in crude prices, rising proportion of international/ Tier-II and Tier-III, shift to more fuel-efficient airplanes and fall in aircraft on ground

Kajaria Ceramics

* The 30 million houses to be built under the PMAY at a cost of Rs 30,000 crore in FY25 as part of the affordable housing push is positive for the tiles/sanitaryware makers such as Kajaria Ceramics

* PMAY Urban 2.0 to meet the housing needs of 10 million urban poor and middle-class families at an investment of Rs 10 trillion is beneficial for the building material space

* Post the June quarter performance, Kajaria’s management has indicated a pick-up in FY25 volume and growth led by capacity addition, increase in dealer penetration and showrooms, brand building and increased focus on government projects

* Kajaria Ceramics’ share price is up 5.5 per cent over two days

Kalyan Jewellers

* Kerala-headquartered Kalyan Jewellers is also seen gaining from the Budget’s proposal to cut basic customs duty on gold and silver

* The resulting decline in retail price of precious metals will make jewellery more affordable and expand the market for branded jewellery

* Kalyan Jewellers is best placed to gain from this shift given its strong footprint in Tier-II and -III cities in South and Western India

* The stock is now up 11.6 per cent in the last two trading sessions, making it one the biggest gainer post-Budget

* The company’s net sales and net profit were up 31.8 per cent and 37.9 per cent respectively in FY24

Titan Company

* Titan Company was the top gainer, up 6.53 per cent, among the index stocks on Budget day compared to 0.1 per cent decline in Nifty 50

* The rally in Titan’s share price and other jewellery companies was driven by a cut in import duty in gold and silver to 6 per cent from 15 per cent earlier

* Cut in duties led to a decline in gold and silver prices in the domestic market making jewellery more affordable enabling expansion of the market

* Lower duties will also discourage gold smuggling, say experts, thereby providing a boost for organised players 

* Consequently, analysts expect Titan’s profitability and growth to improve going ahead

* Titan’s net sales were up 20.6 per cent in FY24 and net profit was up 6.3 per cent

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Note: TTM is trailing-12-months as on March 2024 (*TTM as on June 2024); NII is Net interest income; LTP is loss to profit;  figures as on July 24, 2024

Source: Bloomberg,Capitaline;   
Compiled by BS Research Bureau