Top stocks that are likely to benefit from FM's Budget proposals

The Union Budget gave a shot in the arm to the stock market bulls as the benchmark indices rallied nearly 8 per cent in the last two days, wherein they not only wiped off the losses witnessed last week but also reclaimed the 50,000 mark on the BSE barometer Sensex.

A higher allocation towards capital expenditure with a focus on roads, infra and railways can give a significant growth impetus to the economy, according to analysts. Meanwhile, a lack of change in the taxes, both personal and corporate, along with the proposal of bad banks, disinvestment and bank recapitalisation helped market participants overlook a bloated fiscal deficit target for FY22.

Amid this backdrop, these are the stocks that brokerages believe will benefit the most from Budget announcements:

Agri-inputs | Outlook: Positive

In the Union Budget, the focus was on agriculture credit, irrigation, and marketing of agriculture produce. The government also revised fertiliser subsidy allocation to Rs 1,339 billion for FY21 as against Rs 811 billion in FY20.

"Urea companies such as Chambal Fertilisers, National Fertilizers Limited, and Rashtriya Chemicals & Fertilizers are expected to benefit the most due to a larger share of pending subsidies," said brokerage Phillip Capital.

Meanwhile, analysts at Prabhudas Lilladher are betting on stocks of Chambal Fertiliser and Bayer Cropscience. They believe Coromandel International and Gujarat State Fertilizers and Chemicals will be among losers.

Automobile | Outlook: Neutral

The government announced a voluntary scrapping policy in which vehicles. "This move will likely incentivize replacement growth for passenger vehicles and medium and heavy commercial vehicles, but the impact would be limited," said analysts at Elara Capital in a note.

Ashok Leyland, M&M, Maruti Suzuki among OEMs and Motherson Sumi and Endurance among auto ancillaries are some of the top bets of analysts at Prabhudas Lilladher. "We expect OEMs like Ashok Leyland, HMCL, Maruti and M&M will also be prime beneficiaries of high government focus on rural, agriculture and infrastructure spend," they said.

Banks | Outlook: Positive

Under the Budget, the government proposed setting up of ARC to buy bad loans of state-owned banks, announced capital infusion of Rs 200 billion for state-run banks and privatisation of two state banks and one general insurance company.

According to Phillip Capital increased allocation for capital expenditure will bode well for large banks, namely ICICI Bank, Axis Bank, HDFC Bank and State Bank of India.

Elara Capital believe mid-sized public sector banks will be beneficiaries of divestment and recapitalisation.

Meanwhile, ICICI Bank, HDFC Bank, Axis Bank and mid-sized PSBs are the top picks of analysts at Prabhudas Lilladher.

NBFCs & HFCs | Outlook: Positive

The government announced that tax exemption of Rs 1,50,000 on purchase of an affordable house will continue for another year. Amid this backdrop, HDFC remains a top pick of the brokerages. Prabhudas Lilladher believes LIC Housing Finance and Can Fin Homes will be among other beneficiaries of the scheme.

Infrastructure | Outlook: Positive

In the Budget, the total expenditure towards road and highways construction, shipping, metro projects, smart cities and 'Jal Shakti' Abhiyan increased significantly. The government also proposed 100% railway electrification by December 2023.

PNC Infratech, KNR Construction, Dilip Buildcon, Ashoka Buildcon, Sadbhav Engineering, HG Infra Engineering and IRB Infrastructure will be key beneficiaries from measures related to the construction of roads, said analysts at Elara Capital. Meanwhile, rail infrastructure companies like Rail Vikas Nigam, IRCON International and RITES would also benefit, they said.

L&T, Kalpataru Power & Transmission, Voltamp Transformers, PNCL and HG Infrastructure are among top bets of Prabhudas Lilladher.

Cement | Outlook: Positive

Government's continued and improved thrust on infrastructure spends – specific announcements of infrastructure projects in eastern states bodes well for the entire sector, according to Phillip Capital.

UltraTech Cement, Shree Cement, Birla Corporation, JK Cement and Ambuja Cements will be key beneficiaries, according to Elara Capital. While Ultratech Cement, Dalmia Bharat and JK Lakshmi are the top picks of analysts at Prabhudas Lilladher.

FMCG | Outlook: Neutral

A reduction in basic customs duty from 12.5 per cent to 7.5 per cent will be partially offset via the imposition of 2.5 per cent agriculture infra and development cess on gold prices, said Phillip Capital in a note, adding that such a move is positive for Titan as this will lead to a net reduction of up to 2.5 per cent in gold prices and shore up demand. Meanwhile, no hike in cess on cigarette and tobacco products also bodes well for ITC.

Insurance | Outlook: Positive

The government has proposed to increase foreign direct investment limit in the insurance companies to 74 per cent from 49 per cent earlier. While it would benefit all insurance players, SBI Life is the top pick of brokerage Prabhudas Lilladher.

Elara Capital said that this move will be positive for ICICI Lombard as ICICI Bank needs to sell 30 per cent stake in the next 3 years.