Investment Ideas: Winners and losers from Union Budget 2020

Investment Ideas: Winners and losers from Union Budget 2020

It would, perhaps, be easy to say that the budget did not have too many industry-friendly measures. However, there have been some structural and long term changes that have been attempted by the Budget. Some of the macro and micro announcements are likely to make a difference to the performance of companies. Let us look at some of the sectors that will be positively impacted and some that will be negatively impacted.

Big push for roads and infrastructure – Positive for infra stocks
Budget 2020 unveiled some very aggressive plans for India’s highways and railways. In all, the budget has laid out a $23.7 billion plan for transport infrastructure. This encompasses accelerated development of highways, plans to monetize 12 highway parcels and the big push to 100 airports. In addition, the budget has also given a thrust to privatization of railway stations and one large port. This is likely to benefit key infrastructure players like IRB Infra, L&T, Adani Ports and Dilip Buildcon.

Assemble in India and replicate China model – Positive for Electronics companies
The budget has given big thrust to electronics despite no apparent cost advantages for Indian companies. The government plans to encourage manufacture of mobile phones, electronic equipment, semiconductor and medical devices in India so that foreign companies can make India the intellectual manufacturing hub. This could be positive for stocks like Redington and Dixon Technologies.

Big push to fisheries farming – Positive for feed and aqua companies
Budget 2020 has acknowledged that doubling of farm incomes by 2022 is not going to happen through farms alone. It is talking about a big thrust to horticulture and fisheries; where India is growing in a big way. Total budgetary allocation for rural farm sector was Rs283,000cr. There  is a proposal to expand fisheries and create 500 fish farmer producer organizations apart from a big push to fish exports. This is positive for stocks like Avanti Feeds and Apex Frozen Foods. In addition, this thrust to rural incomes will be positive for FMCG stocks like Hindustan Unilever, Dabur and Marico.

Addressing the water crunch – Positive for water solutions
The budget has acknowledged that the biggest crisis in the next few years could be on the water supply front. Budget has laid out plans to help the farm sector grow in water-stressed districts. In addition, the budget also envisages plans to provide piped water across all Indian households by 2024 with an investment of Rs360,000cr. This is positive for stocks like VA Tech Wabag, which designs and builds water and sewage treatment plants. Jain Irrigation could also benefit due to the focus on drip irrigation as could PI Industries.

Bharat Broadband and AGR Resolution – Positive for telecom companies
The Union Budget has spoken at length about developing Bharat Broadband Network (Bharat Net) to bring broadband to villages. The government has allocated Rs6,000cr for next fiscal. Reliance Industries is likely to be the major beneficiary of this move. In addition, the budget has also hinted that the AGR payment issue could see an early resolution and that could also be positive for leading telecoms like Bharti Airtel and Bharti Infratel.

Online education and data centres – Positive for select IT stocks
Online education business could benefit from an allocation of Rs993cr in 2020-21. The trigger is the establishment of degree-level, fully-fledged online education programs to be offered by institutions that are ranked within the nation’s top 100. Apart from IT education, the policy will allow private sector to build data center parks (on the lines of STP). This  will benefit most of  the mid to large IT firms. Beneficiaries could include names like NIIT, HCL Tech, Wipro, Tech Mahindra, Persistent, etc.

LIC IPO  and Section 80C optionality – Negative for insurance companies
If you are wondering why insurance stocks cracked sharply on Budget Day, there were two reasons. Firstly,  the budget announced the LIC IPO during the fiscal year 2020-21 with valuations closer to $140 billion. This would crowd out demand for private life insurers and also take away the scarcity premium of insurance stocks. The bigger worry was that Section 80C would become optional in the new tax regime. That would take away one of the biggest attractions of life insurance policies. Optionality of Section 80C will negatively impact stocks like HDFC Life, ICICI Pru Life and SBI Life.

No bank recap and higher bond yields – Negative for PSU banks
Bank Nifty also cracked sharply on Saturday and there were 2 distinct reasons. The finance minister maintained  a studied silence on infusion of new capital into state-run banks for 2020-21. Clearly, after infusing Rs350,000cr in last 6 years, the government is not keen to pump additional funds. Secondly, the higher fiscal deficit is likely to push up yields and that is not great news for bond portfolios of banks. That will hit PSU banks.

Overall, the budget has been a mixed bag for sectors with the heavyweight financials likely to take the big hit from the budget.

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