Indian shares buckle up for Budget; agri, housing, fertilisers are top draws

Indian stocks are likely to climb to fresh peaks over the next fortnight as top investors realign portfolios towards sectors that may get inordinate preference in the forthcoming budget of the newly installed coalition government of Prime Minister Narendra Modi.

India, the world’s fastest growing major economy, also saw a record Rs 34,000 crore coming into domestic equity funds during the past 45 days as investors took advantage of a sudden dip in equity prices during national elections that lasted more than 2 months.

The benchmark 50-share Nifty index is already the best performing index globally so far in June as investors reaffirmed their faith into stocks as Modi took oath as Prime Minister for a record third time on June 4. Stock picking is now focused on the annual budget for year to March 2025.

"There is no change and there is continuity of government policies,” a Mumbai-based equity strategist, who declined to be named, told Business Today. "This is the best part – budget could be rural focussed. It will have a positive impact on the electorate.”

While Modi’s Bharatiya Janata Party (BJP) emerged as the largest elected bloc in 2024’s elections, it failed to win a simple majority in Parliament after two successful 5-year terms as a single party ruler. A depleted opposition ran a successful campaign focussing on rural distress, worrisome inflation and jobless growth, reducing the BJP to 240 parliamentary seats from 303 earlier. The half way mark is 272. The BJP-led National Democratic Alliance (NDA) won 292 seats. 

WHAT TO BUY?

Companies focussed on financing low-cost housing, railways, agriculture, basic food needs, fertilisers and agrochemicals are expected to do well in the coming fortnight, analysts say, as the BJP was able to retain a vast majority of ministries and important portfolios for itself, projecting continuity of government policy.

Soon after assuming charge, the Prime Minister announced a fresh plan to construct 3 crore homes for the needy. Rising defence production, a fresh thrust to railways and the banking sector were also talked in government circles. These sectors have outperformed the main index handsomely.

A good monsoon, as forecast by the India Meteorological Department, has further spurred shares in the sugar, fertiliser, FMCG and auto industries on hopes that rising rural incomes thanks to bumper crops will boost profit for such companies in the second half of the financial year.

"Agrichemical shares are bottoming out. They were not hyped and aren’t overvalued,” the equity strategist said. "Already, volume uptake is seen rising and pricing power is likely to return in the second half of the year.”

Overall, Indian markets present a long-term opportunity to create fabulous wealth for patient investors as a global race to set up parallel supply-chains, newer factories and a huge domestic, aspirational market favour New Delhi over it’s larger rival Beijing.

What is needed is patience, quality stock picking and regular investments by buying the dip in benchmark indices.