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Market Outlook ~ Key Positives

Strong GDP growth India maintains a world leading GDP growth rate.

Deleveraged Corporate Balance Sheets: Indian corporates have significantly reduced their leverage, and the banking sector is well-capitalized.

US Tightening Cycle Nearing End: This could trigger Foreign Institutional Investor (FII) buying in India, as they have been underweight due to the rising dollar and US interest rates, causing redemptions in their Emerging Market funds.

Stable Political Mandate: This ensures fiscal prudence and hopefully a stable tax regime.

Above-Average Monsoon: Expected in July, which will positively impact rural-centric businesses.

Moderate Inflation Inflation in India is relatively moderate compared to other countries

Our Budget Expectations

-> Fiscal deficit and borrowing programme will continue to be same i.e  5.1% fiscal deficit as mentioned in Interim budget.
-> The deficit will be managed prudently with assumption of 11% nominal GDP growth and resultant growth in GST and Income tax collection plus RBI cheque of Rs 2.11 lac crores will further provide cushion on fiscal front.
-> Infrastructure will continue to be the  focus are so capex driven growth will continue mainly led by Housing, Defence, Railways, Renewable,  Power, Energy Transition, Rural Infrastructure like power, water and roads for everyone will continue.
-> Focus on manufacturing to create jobs in sectors like Garments, textiles and electronic manufacturing.
-> We are of the view disinvestment target will be kept realistic but sincere efforts will be made to monetize in this stock market rally through OFS in PSUs at right prices and right time and strategic sales in PSUs like SCI or Concor will be undertaken in coming few quarters.
-> In order to make this happen logically they will not change the current capital gain tax structure although either in budget or outside budget some changes to reduce speculation in future and option market will be taken which might cause some volume drop in markets. However, we believe that this will not change intrinsic values of any business apart from capital market linked stocks.
-> Some increase in Kisan Nidhi allocation where they are giving Rs 6,000 to farmers can come but that will not upset fiscal maths.
-> Strong focus on affordable housing and building - 3 crores pakka  houses by increasing subsidy for affordable housing will be done.
-> Some increase in disposable income of middle class by increase in tax limit is possible so that consumption can get some boost.

Companies set to benefit due to this (Our budget picks)

1) Larsen & Tourbo (CMP 3636 , target 4400)
2) Ambuja Cement (CMP 685, Target 800)
3) Jyothy Labs (CMP 493,Target 575)

These are budget specific themes but we continue to like IT stocks like Infosys due to free cash flow generating nature of business and likely bottoming of IT spending as Interest rates have clearly peaked due to inflation cooling off in US.

Comfortable CD ratio banks like ICICI, Federal Bank, City Union Bank, SBI, and DCB where they can grow at higher then their deposits and PEG wise or ROA/Price to Book or ROE/Price to book ratios are attractive, although the peak margins and growth in banking are behind us.

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