With the Union Budget 2021-2022 just a few days away, it is now essential for investors to plan their bets accordingly. Budget expectations are aflush, and markets have corrected more than 5% from their all-time highs, making equities that were very expensive a few weeks back scale down a little bit. However, many analysts do believe that valuations need to be ignored at this point as earnings will catch up, so the current correct arguably paves a good entry point. Domestic brokerage and research firm HDFC Securities has chalked out a list of stocks that they expect will react positively to the budget and extract gains in the coming two quarters.
Fair value: Rs 148
The brokerage firm expects the defence sector to receive an increase in budgetary allocation. The new defence policy 2020 also works in favour of the stock. “BEL is well-positioned to deliver strong performance in the coming years given its robust order book (current 4x of FY20 revenues) and could capitalize on increasing emphasis on indigenisation,” the report said. The stock is currently trading at a valuation of 13.7x FY23E EPS, according to HDFC Securities. Analysts advise buying on dips. Currently, the stock trades at Rs 130 per share.
Fair value: Rs 1,457
Union Budget 2021 is expected to cater to the agriculture sector and linked beneficiaries. “Escorts, being one of the large tractor manufacturers in India, is likely to benefit from increased budgetary support towards agriculture,” said HDFC Securities. Along with this, a budget that focuses on infrastructure will also benefit Escorts which makes construction equipment as well. “We feel investors can buy the stock at LTP and add on dips to Rs 1180-1190 band (13.0xFY23E EPS) for fair value of Rs 1457(16.0x FY23E EPS) over the next two quarters,” the report said. Escorts is trading at Rs 1,217 apiece today.
Healthcare Global Enterprises
Fair value: Rs 180
In this year’s Budget, the government may provide incentives for health infrastructure such as rationalize GST structure for hospitals and tax sops for new hospitals, according to HDFC Securities. Healthcare Global is the largest provider of cancer care in India. “HCG is poised to see strong growth in the health-related surgeries which had got postponed due to Covid-19. With the capex cycle coming to an end and we could see an improvement in return ratio,” the brokerage said. Shares of the firm are trading at Rs 153 per share.
Petroleum products sector
Fair value: Rs 250
The central government could initiate the steps to transform India into a gas-based economy. “For the coming budget, the government could further reduce kerosene subsidies and divert more towards the LPG subsidy. Apart from this, expectation of reduction in excise duty on petrol and diesel for FY22E could be favorable for HPCL,” said HDFC Securities. Shares of the firm currently trade at Rs 219 per share.
Fair value: Rs 2,400
Infrastructure is again a big theme that could pan out after the budget if the government does focus on development along with providing the economy with an extra push. JK Cement has a multi-region presence which will help the company to take benefits of demand from different regions. “The company is trading at FY22E EV/T of $151/T. We feel the fair value of the stock is Rs.2400 (12.99x FY22E EV/EBIDTA, FY22E EV/T of $170). We feel investors can buy the stock at LTP and add on dips to Rs.1940-1975 band,” the report said. Shares of JK Cement were trading at Rs 2,102 per share.
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