Hero MotoCorp, UltraTech Cement, Ashok Leyland, HPCL, IGL to SBI - Stocks to focus on ahead of Budget 2021-2022: Sharekhan Preview

Sharekhan believes that it is imperative for the Centre and states to continue with counter-cyclical fiscal measures to sustain the momentum of the recovery. Hence, the government may maintain its focus on development of infrastructure (roads, water and affordable housing) that would give the economy a much-needed earnings / employment stimulus. Further extension / granularity of PLI schemes to spur manufacturing might also be announced in the Budget. There could be some initiatives to support urban poor especially from the disruption in the MSME sector. Infrastructure, Real Estate, Construction, and Railways are some sectors, which may be in focus in the upcoming Budget 2021.

Capital markets:

Sharekhan expects positive announcements on reforms viz. key reforms in labour laws & judicial reforms, which will support a recovery and re-ignite animal spirits. Measures to help iron out bottlenecks and boost industry and employment will be positive. Moreover, a multi-year roadmap for the economy and a policy framework to boost GDP and exports is likely to be shared. However, expectations are running high, which is never good news before any event.

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Fiscal Discipline:

The combined fiscal deficit (central + state) could shoot up to 11.5-12% in FY2021, due to the combined impact of an increase in deficit balance and a reduction in world output. India is no exception. Therefore, the FY22 budgetary assumptions, particularly on revenue and borrowing fronts will be keenly watched. The central fiscal deficit is expected to be at around 7% in FY2021 and the government is likely to project an improvement of 150-200 basis points in FY2022. Even though the government’s gross borrowings are almost entirely met through domestic sources, going forward, as the government plans to raise a part of its borrowings in foreign currency, sovereign ratings and financial markets become important. Hence, it would be a tightrope walk.

The Union Budget 2021- 2022 would likely focus on investments that create jobs and therefore infrastructure, construction and significant incentives for high employment-generating sectors (like textiles, affordable housing, MSME, etc) are key areas, which may get priority focus from the government end. We believe that the pandemic has caused significant business and livelihood disruptions and the focus of the Union Budget will be to soothe and support the economy with a special focus on the common man.
Pre-Budget Picks: 

Large-caps:

L&T, Hero MotoCorp, UltraTech Cement, Ashok Leyland, M&M, HPCL, IGL, SBI

Mid-caps:

BEL, Coromandel International, KEC International, KNR Constructions, Century Plyboards, Carborundum Universal