Budget 2023 stock picks: L&T, Dabur, M&M, HAL, PNC Infratech, Finolex Cables, Gati, Mahindra Logistics

Brokerage Sharekhan has come out with a list of stocks it believes may gain from likely Budget announcements. The brokerage has picked these stocks based on hopes that the government may maintain its focus on development of infrastructure including roads, energy, water and affordable housing, which would give the economy a much-needed earnings stimulus.

It said a much-needed increased support to the rural economy may result in higher incomes and improved consumption, which should aid sectors like automobile, cement and consumer.

BFSI, infrastructure, Real estate, construction, and energy (especially green energy) are some sectors, which may be in focus in the upcoming Budget 2023-24, it said, adding that the government can announce incremental incentives for EV infrastructure and incentives to promote the circular economy.

Sharekhan's Budget picks include Axis Bank, State Bank of India (SBI), Punjab National Bank (PNB), L&T, Dabur, M&M and HAL among largecaps. Its Budget picks from the midcap and smallcap spaces include PNC Infratech, Finolex Cables, APL Apollo, Hi-tech Pipes, Gati, Mahindra Logistics and Macrotech Developers.

Automobile

Sharekhan said a GST rate of 5 per cent for EVs and average 18 per cent for EV components is charged. The auto industry wants the applicable GST rate on EV components should also be 5 per cent. If the demand is met, it would be positive for OEMs and ancillary players. The inverted duty structure is resulting in high working capital burden for EV players and a reduction in GST rates on EV components would reduce the overall cost of EVs.  Key beneficiary, as per Sharekhan, would be Bosch, Greaves Cotton, TVS Motor, Tata Motors, Gabriel industries.

If the FM announces PLI support for manufacturing of components for batteries, it would be positive for Exide Industries and Amara Raja Batteries. Any reduction in cess on hybrid vehicles would be positive for Maruti Suzuki. At present, hybrid vehicles are attracting GST rate (including cess) at 43 per cent, Sharekhan noted.

Banks

Sharekhan noted that the government had announced  privatisation of two PSBs other than IDBI Bank in Budget 2022. This coming Budget could provide more clarity on the planned privatisation of two PSBs.

Sharekhan said any such announcement would be positive for Central Bank of India and Indian Overseas Bank as both are  the likely expected names to get  privatised.

Capital goods

There are hopes, Sharekhan said, of increase in capital outlay for railways by 15 per cent this Budget. The funds could be utilised for laying of new lines (at least 2,000 km), gauge conversion, electrification and signalling, apart from improvement in rolling stock. Any such announcement would be positive for L&T, KEC International and Kalpataru Power Transmission. Any budgetary announcements regarding capital allocation for 300-400 new Vande Bharat trains would be positive for Siemens India, KEC International, BHEL and Titagarh  Wagons, Sharekhan said.

Incentives or increase in capital allocation for renewable energy projects and a likely increase in tax benefits/subsidies for companies installing solar panel manufacturing plants would be positive for capital goods companies that are focusing on alternate energy solutions. They include Thermax, Triveni Turbine, Cummins India and L&T, Sharekhan said.

Budgetary support or incentives for inland waterways, shipping and shipbuilding to increase global trade and modernise domestic shipbuilding sector.

Defence

Amid ongoing military stand-off with China and also for promoting indigenous manufacturing of defence  equipment as well as increasing export targets, there is an expectation of a higher allocation (15 per cent YoY increase) for defence capex in Budget FY2023-24 over Rs 5,25,166 crore for FY23. It would be positive for the entire defence sector particularly for companies like

Bharat Electronics, Hindustan Aeronautics, Bharat Dynamics, Mazagaon Dock Shipbuilders, L&T and Astra Microwave Products, among others.

Shipping

Sharekhan noted that Sagarmala Program and Maritime Vision 2030 (MIV 2030) focused on developing India’s maritime sector including ports, shipping and inland waterways. It said budgetary support or incentives for inland waterways, shipping and shipbuilding to increase global trade and modernise domestic shipbuilding sector Positive for companies like Cochin Shipyard, Container Corporation of India (CONCOR), Garden Reach Shipbuilders & Engineers (GRSE) and MDL (non-defence business).

Chemicals & fertilisers

Sharekhan said there are hopes of increase fertiliser subsidy to Rs 2,25,000 crore against Rs 1,05,222 crore for FY2023. Sharekhan said such an announcement could be positive for Gujarat Narmada Valley Fertilizers & Chemicals, Rashtriya Chemical and Fertilizers, National Fertilisers Limited, Madras Fertilisers, Chambal Fertilisers and Deepak Fertilisers.

Hotels

Sharekhan noted that there are hopes that hotels with capital expenditure above Rs 25 lakh should be granted infrastructure status. Also, CII has proposed registration fees of 1 per cent of the overall lease amount payable annually from the existing 10 per cent and one-time relaxation of any penalty or arrears to the hotels or restaurants whose lease agreement is unregistered till date.

"If the hotel industry is granted infrastructure status, it can avail loans at lower rates for greenfield projects. It will also help hotel companies get water and electricity at industrial rates. If industrial status is granted it will be positive for Indian Hotels Company, Chalet Hotels, Lemon Tree Hotels, Jubilant FoodWorks Restaurants," Sharekhan said.

Infrastructure, cement

Sharekhan noted that there are hopes of an increase in budgetary support to Rs 2.1-Rs. 2.5 lakh crore for FY2024. Sharekhan said an improvement in project awards in the road sector would be positive for companies like KNR Constructions, PNC Infratech, JMC Projects, Ashoka Buildcon.

Incremental demand will be positive for cement sector companies such as Ultratech, Shree Cement, Dalmia Bharat, The Ramco Cements and JK Lakshmi Cement, Sharekhan said.

Metals & mining
At present, steel mill rolls attracts custom duty of 7.5 per cent.  There are hopes of a reduction in this custom duty. Key gainers could be steel companies such as JSW Steel, Tata Steel and JSPL and SAIL, Sharekhan said. Any increase allocation for PLI scheme for steel sector from present Rs 6,322 crore could be positive for APL Apollo Tubes. 

Oil & gas
If SAED is removed due to the recent drop in oil prices, it would be positive for upstream companies such as ONGC and Oil India, and Vedanta. Any removal of service tax on royalty on oil & gas would be positive for upstream companies (ONGC, Oil India and Vedanta. A potential inclusion of gas under the GST could be positive for Gujarat Gas, Mahanagar Gas, Indraprastha Gas and GAIL (India), Sharekhan said.

LNG attracts an import duty of 2.5 per cent. If remove, it would benefit GAIL, GSPL, IGL, MGL, Gujarat Gas and Petronet LNG. Any increase in subsidy on LPG and also provide subsidy provisions on auto fuel would be positive for OMCs IOCL, BPCL and HPCL, as it would lower under recoveries, Sharekhan said. Lastly, offshore contract services on oil & gas exploration attracts a GST of 12 per cent. Any exemption of exploration activity from levy of GST would be positive for Positive for ONGC, Oil India and Vedanta, the brokerage said.

Real estate
There are expectations of an increase in limit of rebate on housing loan interest rates to at least Rs 5 lakh from Rs 2 lakh under section 24 of the IT Act. If met, it would be positive for for DLF, Macrotech, Oberoi Realty, Prestige Estates, Puravankara, Sobha among others.  It would also be positive for building material players like Kajaria Ceramics, Century Plyboards, Greenlam, Astral and Supreme Industries.

A reduction of capital gains tax to 10 per cent from 20 per cent and holding period toone year from two years at present would be positive for the sector.  There are also hopes of increase exemption from capital gains tax on two properties to Rs 5 crore from Rs 2 crore. 

Real estate sector is also expecting increase in deduction limit under 80 C for principal repayment to Rs 4 lakh from Rs 1.5 lakh earlier. The sector wants price cap of affordable housing in metro cities to be raised to Rs  75 lakh from Rs 45 lakhs and capping of GST rates at 1 per cent for under-construction properties.
At present, GST for under construction non-affordable properties is 12 per cent with ITC and 5 per cent without ITC. For under-construction properties affordable properties, GST is 8 per cent with ITC and 1 per cent without ITC. 

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