Larsen and Toubro, KEC International, Kalpataru Power Transmission II Key stocks to watch out in Budget from Capital Goods sector

Sharekhan says at this stage, Railways’ outlay for capital expenditure was Rs 161000 cr in Budget for 2020-21. With the recently -unveiled National Infrastructure Pipeline and government stress to strengthen railway and urban infrastructure. Higher allocation of capital expenditure is expected in the current budget FY 2021-22. This will provide further momentum to railway expenditure and fasten the government initiatives to strengthen the railway infrastructure (electrification of railways, more of Rapid Regional Transport System, modernisation of railway station, dedicated freight corridor etc.). This will be Positive for Larsen and Toubro, KEC International, Kalpataru Power Transmission, etc.

Currently, Defence outlay for capital expenditure was Rs 337553 cr (Rs 471378 cr includes pension) in Budget 2020-21. Amid ongoing military standoff with China and also for promoting indigenous manufacturing of defence equipment there is expectation of a higher allocation of capital expenditure in Budget FY 21-22. A reasonable hike would provide necessary support for forces deployed in eastern Ladakh including India’s Atmanirbhar Bharat Abhiyaan, under which the government has announced a number of far-reaching measures to promote the indigenous manufacture of defence equipment. This is Positive for L&T, Bharat Electronics.

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Also, Free trade agreements (FTAs) with countries namely Japan, Singapore, South Korea, etc. enabling duty-free imports is resulting in disadvantage to Indian manufacturers who have to pay Customs duty on raw materials. Duty exemption under FTAs should be limited to raw materials and not for finished goods. The move will provide a level-playing field to domestic manufacturers of the finished goods. This is Positive for L&T, KEC International, Kalpataru Power Transmission, etc.

The Nifty opened on a flat note and selling pressure from the previous trading session has continued on January 18 as well. Currently, the index is trading down 100 points. On the hourly charts, we can observe that the Nifty has corrected sharply after it failed to hold the support of the key hourly moving averages. The hourly momentum indicator has a negative crossover and is in sync with the price action. Currently, the Nifty is trading around the 23.6% Fibonacci retracement level (14294), which can provide support and help the Nifty resume its upmove. In terms of levels, 14294-14250 shall act as a support zone, while 14440-14500 shall act as an immediate hurdle zone for the Nifty. Overall, Sharekhan maintains a positive stance on the Nifty for a short-term target of 15000.

On the hourly chart, the Nifty is trading below the 20-hour moving average (HMA) and the 40-HEMA, of 14504 and 14443, respectively. The hourly momentum indicator has a negative crossover. Market breadth is negative with 346 advances and 1508 declines on the National Stock Exchange (NSE).