Budget related stocks rally. Will the up move last?

This time around, analysts say, there is a lot of optimism as regards the defence, railway and manufacturing sectors

Ahead of Budget 2015-16, capital goods, defence, railways, fertilisers, sugar and textiles stocks have outperformed the market. Last week, these stocks gained up to 57 per cent on the BSE, compared with a fall of about one per cent in the benchmark Sensex.

While Titagarh Wagons, Texmaco Rail Engineering, Stone India, Cimmco and Kalindee Rail Nirman from the railways segment outperformed, those from the defence segment were Dynamatic Technologies, Pipavav Defence, Bharat Electronics, BEML and Astra Microwave Products.

Titagarh Wagons, which gained 57 per cent last week, more than doubled compared with Rs 317 a month earlier.

Vaibhav Sanghavi, managing director, Ambit Investment Advisors, said: “Usually, we see railway, defence and infrastructure stocks doing well ahead of the Union Budget. This time, too, this has been the case…Usually, the rally in these stocks tends to fizzle out after the Budget and perform according to the merit of the Budget.”

In the capital goods segment, Petron Engineering, Suzlon Energy, Bharat Heavy Electricals Ltd and Siemens rallied about three per cent each on the BSE in the past week. During the same period, the Sensex lost 0.6 per cent, closing at 28,975 on Monday.

Dynamatic Technologies surged 23 per cent in the past week, hitting a record high of Rs 3,230.

Stock strategy
Through the past decade, there have been six occasions when the Sensex has lost ground in the month following the presentation of the Union Budget — 2005, 2007, 2008, 2009, 2012 and 2013.

Rajat Rajgarhia, managing director (institutional equities), Motilal Oswal Securities, believes Railway Budget 2015-16 is also significant, considering the government’s focus on this area. He expects railways to report an improvement in finances, announce new sources of funding and make some headway in taking public-private partnership schemes forward.

After the Budget, Sanghavi of Ambit expects action to continue in manufacturing and, to an extent, banking and financial services, depending on the government’s fiscal deficit estimate. “The recent quarterly numbers haven’t been good and weren’t supportive of the immediate valuation. Once there is an improvement in the macro economy, the overall performance of India Inc should also improve.”