Budget 2023: From Ashok Leyland to L&T, brokerages bet on cyclical stocks

The Union Budget for 2023-24 has forced brokerages and equity market analysts to recalibrate their investment strategy. The Budget focused on public capital expenditure (capex) on infrastructure and modest income tax sops to the middle class. 

The allocation for capex is up 33 per cent to a little over Rs 10 trillion, and brokerages have begun to tweak their model portfolio to include stocks that will gain the most from this spending push. Most are now overweight on cyclicals such as banks, steel, cement and construction, and infrastructure stocks.

Analysts also expect an improvement in private consumption in FY24 on the back of income tax sops, which is positive for consumer stocks.

Here are 10 stocks across sectors that are expected to gain the most from the various proposals. According to the average price recommendation by various brokerages, the upside in these stocks over the next 12-months range from 10 per cent to a mouth-watering 43 per cent.

 

Ashok Leyland

 

• The only listed pure play commercial vehicle (CV) player is expected to be a key beneficiary of the 33 per cent increase on capex
• It is expected to benefit from the continuation of the on-going vehicle scrapping policy, both for the central government and support for states in replacing old vehicles
• A 36 per cent increase in outlay for roads are expected to help commercial vehicle companies like Ashok Leyland, as a better road network will cut logistics costs

Century Plyboards India

 

• Ancillary real estate segments such as plywood could be a major gainer from the 66 per cent increase in outlay for PM Awaas Yojana
• Higher tax exemption limits, increased rebate and lower number of slabs are incentives which could lead to higher spends on plywood products
• Decision to set up Urban Infrastructure Development Fund and allocate Rs 10,000 crore annually under the scheme is positive for the company
• Increase in consumption from urban/rural schemes and a better outlook for the sector, going ahead, makes it the highest potential gainer from the Budget picks
• Analysts’ target prices suggest an upside of 43 per cent over the next one year

Cipla

 

• The Budget lays strong emphasis on improving and expanding India’s health care system, which will further expand the domestic market for pharma and health care products
• A new scheme to promote R&D in the pharma sector was also announced
• These measures are expected to boost the growth of Cipla, one of the top pharma companies in the domestic market
• The stock has outperformed in the last 12 months, and analysts see a further 15 per cent upside over the next one year

Hindustan Unilever

• The budget proposals providing income tax relief to individuals are expected to boost private consumption
• HUL being the market leader in personal and home care segments, is likely to the biggest gainer in the FMCG segment
• The company has been an outperformer in FY23 and analysts expect it to maintain the momentum in FY24 as well
• Analysts also expect HUL to gain from premiumisation
• HUL’s net sales was up 16.2 per cent YoY in Q3 of FY23, while its net profit was up 12.6 per cent YoY
• The stock was up 2.5 per cent on Thursday but analysts see a further 11 per cent upside over the next 12-months

Indian Hotels

 

• The government has taken up promotion of tourism on mission mode, with active participation of states, and public-private partnerships. This augurs well for Indian Hotels in the medium to long term, says SBI Securities
• Anand Rathi Research notes that a record outlay for railways and steps to promote civil aviation are positive for the company, which is present across the value, mid and luxury hotel segments
• Analysts’ target prices suggest an upside of 17 per cent over the next one year

Jindal Steel & Power

• Brokerages say infrastructure accounts for 60 per cent of steel demand in India, followed by construction at 20 per cent
• Given the Budget’s focus on infrastructure and housing, the steel sector could reap higher domestic volumes in FY24
• Steel producers will benefit from continued exemption from basic customs duty on raw materials for manufacture of cold rolled steel, ferrous scrap and nickel cathode
• JSPL has been a top performer and is up 40 per cent in the last 12 months. Brokerages see another 12 per cent upside in the stock over the next one year

Larsen & Toubro

• Being a market leader, L&T is expected to be the prime beneficiary of the Budget’s push on capital expenditure and infra 
• Analysts expect a big jump in L&T’s order book in FY24, thanks to the big increase in allocation on public capex in the budget
• L&T’s order inflow in Q3 FY23 was up 20.6 per cent year on year (YoY), driven by order wins across multiple segments
• Analysts expect 18-20 per cent CAGR in L&T’s engineering & construction division over FY22-25 period
• Analysts see an upside of 12 per cent from current levels over the next one year

Tata Motors

• India’s largest CV maker is a major gainer from the move to sharply increase infra spends boosting demand from manufacturing, mining and construction 
• Customs duty exemption on import of capital goods for making lithium ion cells will lower battery costs, making EVs more affordable and boost green mobility; Tata Motors will be a key beneficiary, says Kotak Securities
• Increased outlay for roads and expansion of the road network could boost demand for trucks and buses

UltraTech Cement  

• Analysts expect cement demand to improve going forward, led by the government’s thrust on infra spending and a pick-up in demand from the urban real estate sector
• UltraTech Cement, India’s top cement maker, is expected to be a key beneficiary of the Budget’s big push to public spending on infrastructure
• Analysts say that investing in top cement and building material manufacturers such as UltraTech is a good way to benefit from Budget’s capex theme

ICICI Bank  

• ICICI Bank is the top pick by brokerages post-Budget, and the stock has been among the top gainers in Bank Nifty in the last two days
• Brokerages expect ICICI Bank to be a top beneficiary of the budget’s push on infrastructure and capex, which is positive for bank credit
• Faster growth in bank credit will help ICICI Bank maintain the growth and earnings momentum that it has displayed in FY23
• In Q3 of FY23, ICICI Bank’s gross interest income was up 29.1 per cent YoY, while net profit was up 34.2 per cent YoY