Budget 2022: From infra to pharma sector, here are stocks that may benefit

Construction spending, including on roads and ports, as well as incentives for electric mobility and renewable energy are likely going to be a focus in Nirmala Sitharaman's budget speech

Infrastructure, rural development and health-care stocks are among analysts’ top picks as India’s government is set to step up spending in a budget aimed at kickstarting investment to boost growth.

Construction spending, including on roads and ports, as well as incentives for electric mobility and renewable energy are likely going to be a focus in Finance Minister Nirmala Sitharaman’s budget speech on Tuesday, as policy makers seek ways to help the economy out of the malaise left by the pandemic.

With India’s equity benchmark tumbling amid the recent global selloff spurred by concerns over the Federal Reserve’s imminent rate hikes, and foreign funds fleeing the market, investors are hoping budget announcements will bring some reprieve.

That said, the benchmark S&P BSE Sensex has climbed in the month following the budget day in only three of the past eight years since Prime Minister Narendra Modi came to power in 2014. It fell or traded rangebound on the other five occasions.

“The overall focus of the budget is likely to be on job creation and investment-driven growth, implying encouraging thrust to infrastructure development,” Neeraj Chadawar, head of quantitative equity research at Axis Securities Ltd., wrote in a note. “This will include public infrastructure capex towards roads, water, metro, railways, defense, digital infrastructure, and green technologies.”

Here are the top sector and stock picks by some leading brokers:

 

Infrastructure
 

A gauge of India’s top-30 companies in roads, air, ports, shipping, railways and other utility services, climbed 36% in 2021, its best gain since 2009, as the government continues to fire up the public spending to create jobs and boost growth. ICICI Direct expects the allocation to remain “buoyant” with higher spending on roads, defense, water, housing and railways.

Top picks include Polycab India, HG Infra Engineering, KNR Constructions, PNC Infratech, Larsen & Toubro, Thermax, KEI Industries, ABB India, Siemens India, Ramco Cements, UltraTech Cement, ACC, Ambuja, Bharat Dynamics, Bharat Electronics, NTPC, Container Corporation of India

Renewable Energy/EV
 

In line with the government’s focus on reducing emissions and dependence on fossil fuels, analysts expect a raft of support for infrastructure development for electric vehicles and green energy generation. 

“Thrust is expected on sustainable technologies with certain benefits aimed at accelerating the adoption of EVs in India. Moreover, the EV charging infrastructure segment is expected to receive a boost to support EV adoption further,” according to Chadawar of Axis Securities.

Top picks include Maruti Suzuki India, Tata Power, Adani Green, Hero Motocorp, Bajaj Auto, TVS Motors, Mahindra & Mahindra, Tata Motors, Minda Corporation, Gabriel India, Dixon Technologies

Rural/Agriculture
 

Sell-side analysts expect continued support for farming and rural areas through more aid for food processing, incentives linked to production as well as higher farm credits, and subsidies for fertilizers and crop protection. Increased agricultural industry spending will benefit consumer goods companies struggling with higher input costs.

“Given the backdrop of rising Covid cases, we think that policy makers will need to strike a balance between boosting rural demand and investing in infrastructure while continuing on the path of fiscal consolidation to maintain macro stability,” Goldman Sachs (India) Securities Pvt. analysts led by Santanu Sengupta wrote in a note. 

Top picks include PI Industries, Dhanuka Agritech, Rallis, Godrej Agrovet, Hindustan Unilever, Britannia, Dabur and Nestle India

Health Care/Pharma
 

In continuation of its focus on bolstering health-care infrastructure, the government is expected to increase spending on companies to boost production, as well as tax relief for individuals buying health insurance, better access to medical care and a generous push for drug research. 

Top picks include Apollo Hospitals, Narayana Healthcare, Shalby Ltd., Gland Pharma, Krishna Institute of Medical Sciences, Healthcare Global Enterprise, Max Health, HDFC Life, SBI Life and most drug makers