For equity investors, the biggest factor to cheer about this Budget is that it did not trigger a significant sell-off in the stock markets. Weighed against the mountain of expectations that had been built up on everything ranging from bold tax reforms to big-ticket announcements, this Budget has delivered very little.

With the Finance Minister focussed on the deficit, there were few tax breaks for India Inc. With the Budget sticking to a ‘roadmap’ approach, there was no relief on retrospective taxation or the General Anti-Avoidance Rule.

But the fact that markets have accepted this sobering Budget rather calmly is a good sign. It shows that this bull market has strong legs and that the foreign investors buying into India in recent months aren’t of the short-term variety. For retail investors sitting on the fence waiting for a correction to get in, with the big event risk behind, it is time to act. If you’ve been allocating the bulk of your portfolio to gold or physical assets, buy into diversified equity funds. If you are an equity investor who ‘booked profits’ early in this rally, it is best to resume investments.

Cyclicals are in Though the Budget did not have any revolutionary solutions for beleaguered cyclical sectors, it did single out banks, infrastructure, real estate and power for some special concessions. This provides ammunition for cyclicals to build on recent gains. Banks did not get an easy way out of their bad loan problems, but the proposal allowing them to raise funds for infrastructure lending without setting aside the mandatory Cash Reserve Ratio and Statutory Liquidity Ratio should help the more discerning lenders earn better yields.

Public sector banks and specialised infrastructure lenders such as IDFC and L&T Finance (if they transform into banks) should reap benefits from this move. While the demands for capital infusion by public sector banks have not been met, the Centre has shown the way by promising to dilute its own stake in the banks.

The sharp improvement in the valuations of public sector banks from 0.5-0.6 times their book value to over 1 time ensures that such fund-raising is value-accretive. This, combined with lower government intervention in lending, should help the recent re-rating of public sector bank stocks to be sustained.

Budget proposals for the infrastructure sector are a mix of actual allocations (which can be immediately used) and statements of intent. The NHAI and state highways winning one of the biggest allocations in this otherwise frugal Budget, at ₹37,880 crore, augurs well for the immediate prospects of road developers and construction companies such as IRB Infrastructure, Ashoka Buildcon, IL&FS Transportation and Sadbhav Engineering.

But the plans to develop new ports and airports may not offer any near-term opportunities for Adani Ports, Gujarat Pipavav, GVK or GMR, as deciding on the bidding process and selection criteria for these projects is bound to take time. The diversified Larsen &Toubro seems to be the single biggest winner from the infrastructure proposals.

Players in residential real estate, who have been struggling with excess inventory, may see a revival in demand with the additional ₹50,000 tax break on housing loans. Continuation of a three-year tax holiday for power plants may give a leg-up to stalled projects, once they become operational. But the bigger issue of fuel supply has not been sorted out and so power stocks may have limited steam left after their recent rally.

Consumer back on the radar Consumer stocks, both from the FMCG and durables sector, have been laggards in the recent market move. But the Finance Minister’s decision to trim personal tax, expand the Section 80C limit and increase the home loan exemption limit can together add up to a significant sum saved for ordinary householders.

This, combined with the unexpected decision to retain allocations for MNREGA and the Food Security Bill, augurs well for rural spending too. Given the sector’s recent underperformance, investors can consider adding to stocks such as Hindustan Unilever, Godrej Consumer (who will also benefit from import duty cuts on soap inputs) and Marico.

Public sector opportunities

Public sector stocks have been significantly re-rated in the last six months on expectations of restructuring and subsidy overhaul and signals from the Budget suggest that these are realistic.

The Budget has flagged off plans for PSU capital investments of ₹2,50,000 crore. Deployment of their idle cash in core operations should lift the return on equity for the large cash-rich PSUs.

The promise to phase out diesel and LPG subsidies lends better revenue visibility to oil majors such as ONGC, GAIL, Oil India and BPCL and investors can consider adding them. Given the 60 per cent increase in PSU stock valuations in the last one year, the divestment target doesn’t appear particularly daunting.

The voracious appetite for Indian stocks from foreign portfolio investors and their shrinking investment options should come to the aid of the divestment programme this time around.

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