Equitymaster's Editors on the Union Budget

For the Indian stock market, a big event of the year is done.

The finance minister presented the Union Budget today. The stock market cheered and soared high before cooling off.

Views and opinions on the budget are flying around thick and fast.

In this edition of the Profit Hunter, we bring you the views of all our editors.

So let's dive right in...

My take

Before the market fell intraday, 70% of the Sensex stocks and almost 60% of the midcap and smallcap stocks are trading in the positive. This clearly showed that the Union Budget buoyed investor sentiments and has led to buying interest from majority of the market participants.

And why not? As one commentator on a news channel put it, 'This was a no harm done budget'.

So, although any big bang announcement was lacking, there was something for every constituent of the society, right from farmers to the middle class, to high-net-worth individuals.

What's more, the capex outlay and strong hints at fiscal discipline by the government were some of the other strong points.

However, Rome was not built in a day. It will take time for the steps taken in the budget to trickle down and start reflecting in the performance of companies.

Thus, investors should exercise caution. In my view, the tendency of entering a stock just based on a positive budget should be curbed. Pay attention to the underlying fundamentals as well as the overall valuations of stocks.

Richa Agarwal's view

My favourite investing themes - infrastructure creation and capex - are likely to get further tailwinds.

The Budget mentions a rise of 33% in the capex target, estimated at Rs 10 trillion (tn). The impact of this is likely to go beyond frontline plays like road, railways, ports, and logistics.

The increased spending in public capex is likely to have a virtuous impact on the private sector as well, along with the demand. A key highlight of the Budget was the highest ever capital allocation to railways since 2013-14, Rs 2.4 tn.

Further, an increased outlay of for PM Awas Yojana, to Rs 790 bn is likely to keep the demand in affordable housing segment healthy.

This is positive for infra stocks in sectors such logistics, construction, and ancillary plays like plastic pipe manufacturers, cable and wire manufacturers, cement companies, furniture makers, and so on.

Along with infrastructure, the seven priorities of the Budget included green growth, a sunrise industry in India that could witness significant boom with right policies. Incentives for battery energy storage is positive for companies in the ecosystem, including the chemical plays.

Nonetheless, I believe it will be better to focus on companies with lean balance sheets that can ride this opportunity in an asset light way.

The tax cuts are likely to increase disposable income, which in turn, is likely to boost consumption.

All in all, I think the Budget is likely to boost growth across many sectors.

But when it comes to stock selection in the context of the Budget, I insist on maintaining focus on a bottom up approach.

In my view, instead of chasing themes blindly, one should always keep in mind the quality of the management, balance sheet strength, and the margin of safety in the valuations of the stock.

Tanushree Banerjee on the budget

The government's capital expenditure and tax sops for individual taxpayers were the highlights of Budget 2023. Both are likely to have implications on consumption demand and boost growth of sectors from FMCG to commodities to real estate, in the coming year.

However, setting up institutes for research in artificial intelligence, the tax incentives for critical manufacturing sectors, and a meaningful growth in the government's capex plans, are the things that long term investors in Indian stocks should be excited about.

Particularly, the tax sops for manufacturing Lithium-ion batteries (for EVs), green hydrogen cells, mobile phones, and electronics, will go a long way in drawing more investments and technology to these sectors.

More streamlined KYC process, amendments to the banking regulations, and capacity building in the capital markets, can also bode well for the fintech sector.

The Budget does not warrant any immediate revision to my earnings estimates. However, the banking sector may continue to be outlier in terms of earnings growth, being the key beneficiary of the heavy capital outlay.

While it is important to decipher the fine print on capex plans for various sectors, investors would do well to understand that execution will be key here.

So, it's better to be cautious about fundamentals and valuations of stocks and stick to a long-term approach.

Brijesh Bhatia's technical view on the Nifty

The golden period of outperformance for the Indian markets has ended as we step in to 2023.

In the month of January, when global equities ended in the green, the Nifty ended in the red with a loss of 2%.

History has repeated itself on the most anticipated and volatile day of the year as the Nifty fell from 17,972 to 17,353 and then went back up to 17,650.

The monthly chart of Nifty signals a red flag for the bulls.

Nifty Monthly Chart

 

On the monthly chart, the bearish engulfing candlestick pattern is visible at a high of 18,887.

The bearish engulfing in December 2022 was followed by the bearish candle in January 2023.

This signals a red flag for the bulls. The bearish engulfing is a reversal candlestick pattern indicating the short-term top is in place.

With the top-down approach, we see the daily chart trending at the crucial support zone.

Nifty Daily Chart

 

On the daily chart, the index is trading at the long-term Exponential Moving Average of 200 days (orange line).

In technical analysis, the 200DEMA is considered to be a strong support and resistance level.

On the Nifty, the 200DEMA is placed at 17,553 and the index is holding this average on a closing basis.

The risk for the bulls on the daily chart is the weakness in the Relative Strength Indicator (RSI) highlighted in the lower panel.

As the index is trading around the 200DEMA, the RSI trading below the integer line is a sign of weakness. It did manage to reverse but has now turned back southwards.

With the weakness in the broader market on budget day, the focus will be on the US Fed's interest rate decision scheduled tonight.

Any weakness in global markets going forward may trigger another round of sell-off in Indian markets as it's one of the weakest equity indices right now.

The bulls can get back in the game only on a close above 18,054.

Traders should be cautious about the volatility ahead while investors should cherry-pick stocks and start to accumulate from the end of February as the bearish tone continues in the market.

The time-cycle theory indicates bearish to range-bound market conditions for February. The market may witness an uptrend from March 2023.

Aditya Vora on the sectors that will benefit

Finance Minister, Nirmala Sitharaman used the word tax a whopping 51 times, development 28 times, states 27 times, income 26 times, and finance 25 times, in her 87-minute-long speech.

There is an old saying in stock markets and life during times of uncertainty, 'No news is good news'.

We went into the budget plagued with the Adani-Hindenburg uncertainty and expectations of tweaking the capital gains tax which could have been a sentiment dampener for the equity markets.

However, the union budget wasn't a negative for the capital markets.

In my opinion, enhanced emphasis on capital expenditure spending which has been the bed rock of the previous two budgets was reiterated. This could boost earnings growth in the capital goods sector.

Also, being the last meaningful budget before the general elections of 2024, an increase in exemption limit under the new tax regime is likely to increase disposable incomes in the hands of consumers leading to higher spending on consumer durables and consumer staples. These stocks will benefit.

So on the whole, the use of the word tax 51 times during the 90-minute speech was a positive along with development being asserted 28 times. This indicates a strong capex and infrastructure push.

So what did you think about the budget, dear reader? Have your say.

Share your views with us here.

Warm regards,


Rahul Shah
Editor and Research Analyst, Profit Hunter