Three Sectors You May Like To Watch Closely In The Post-Budget Days

While we believe the Union Budget tabled by Finance Minister Arun Jaitley on February 1 can be easily termed as a growth-oriented one, we also see a serious balancing act done by the Finance Minister working under the guidance of Prime Minister Narendra Modi. Jaitley aimed at spending most of the available funds in rural India, but then, he ensured bit of happiness even for the urban population. The Finance Minister also tried to pacify the angry and upset populace due to the demonetisation drive initiated three months ago by easing income tax rules. The markets within few minutes of the Budget document unfolding in the parliament, reacted sharply and clocked significant gains, showing investors’ confidence on the crucial government decisions. Even as we feel the sentiment here onwards may remain positive at least for some time, after analysing 10 sectors, we have identified three sectors which have been affected by this Budget. Two sectors, agriculture and infrastructure, have immensely gained from this Budget while pharmaceutical sector was grossly ignored and indirectly got even adversely impacted. So what will be the key takeaways for the retail investors who remain invested in these three sectors—we try to analyse the situation and reach to a conclusion.

POSITIVE

Agriculture

Shares of fertiliser and irrigation firms and tractor-makers surged up to 6 per cent in trades on February 1 after Finance Minister Arun Jaitley doled out a big bonanza for the farming sector. Among a slew of measures, the Finance Minister raised agriculture credit to farmers to a record Rs 10 lakh crore.

The Budget pointed out that the farmers’ earnings will almost double in the next five years. Good monsoon along with Rabi season will help increase expenditure on modern equipments required for farming. The manufacturers of farming equipments like KSB Pumps, Jain Irrigation Systems, Escorts, Mahindra & Mahindra may gain in the near future.

This is against the government's agriculture credit target of Rs 9 lakh crore in the ongoing financial year. The Finance Minister said that the agriculture sector will grow at 4.1 per cent, adding that the total area sown under Rabi and Kharif season is more than that of the last year.

The Finance Minister said that the Fasal Bima Yojana coverage will be increased to 40 per cent from 30 per cent earlier. Jaitley proposed Rs 13,240 crore for crop insurance in FY18.

NEGATIVE

Pharmaceutical

While Sensex cheered following the announcement of the Union budget, shares of pharmaceutical companies were trading on a weaker note on February 1, due to the lingering concerns over the US healthcare policies under President Donald Trump and Indian government's focus to make medicines more affordable.

In the Union budget for 2017-18, the Finance Minister said the government proposes to amend the drugs and cosmetics rules to ensure availability of drugs at reasonable prices and use of generic medicines. This statement hinted that pricing environment in the domestic market will remain tough, which weighed on the market sentiment.

Also, not many announcements were made for the pharmaceutical sector. So, no clear picture could be drawn as far as the expectations of the sector was concerned.

POSITIVE

Infrastructure

In a cheer for Nitin Gadkari’s Ministry, Finance Minister Jaitley stepped up the Budget allocation for highways to Rs 64,900 crore in FY18, which is an increase of close to 12 per cent as compared to FY17 for National Highways Authority of India (NHAI).

The investment in infrastructure earmarked for the fiscal will be towards building of new roads and re-development of existing road network in the country.

The Finance Minister also announced that Rs 27,000 crore would be specially kept for its rural roads programme, the Pradhan Mantri Gram Sadak Yojana (PMGSY), in FY18 to improve the connectivity of hinterlands to towns and cities in order to spur economic activities in the areas. The money allocated is 42 per cent more than the allocation in FY17.

Soon after the Budget 2017 was tabled, the stocks of the infrastructure sector traded in the green.

The government's massive thrust towards infrastructure spending is certainly going to benefit companies operating in this space, the likes of IRB Infrastructure, J.Kumar Infraprojects and NCC, among others. These companies will be key beneficiaries from NHAI road project awards in months to come.

Conclusion

The decoding of Union Budget gives clear picture of the government’s implementation thrust after completion of half of its tenure. 

Union Budget 2017-18 aims to grow the economy into a more consumption driven one. Jaitley has already allocated major chunk of the funds towards roads, highways construction and infrastructure development followed by defence, rural development with more than Rs 3 lakh crore, Rs 2.67 lakh crore and 1.87 lakh crore, respectively. Therefore, the consumption driven growth will fuel stock markets in the upcoming financial year.

The government has eased out common man’s taxing structure and also given relief to the small and medium enterprises (SME) in terms of taxation. It has cut down taxes from 30 per cent to 25 per cent for SMEs having turnover up to Rs 50 crore.

There are no changes in the capital gains taxing structure, which further cheered the markets.

The decision of the government to demolish FIPB was a wise one. The FIPB offered a single window clearance for applications on Foreign Direct Investment (FDI) in India that are under the approval route. The sectors under automatic route did not require any prior approval from the FIPB and are subject to only sectoral laws.

The Union Budget has outlined the agenda of ‘Transform, Energise and Clean India’. The entire emphasis will be on implementing all these proposals for the benefit of the farmers, the poor and the underprivileged sections of the society.

Going forward, the sectors to remain under focus in FY18 are infrastructure, NBFCs, realty and capital goods as majority of the funds will be allocated to these sectors. There are various technology-driven companies and banks which also will remain in focus on financial inclusion along with government’s focus on digital cashless economy. Overall, the bull rally will continue from here onwards. We are in a bull market, though there will be some pull-back situations like BREXIT, US President Donald Trump’s yet to be unveiled policies, demonetisation. One should take an advantage to enter the markets whenever there is an opportunity of a pull-back rally.