Now That the Budget's Done, It's Time to Buy These stocks! - The 5 Minute WrapUp by Equitymaster
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Now That the Budget's Done, It's Time to Buy These stocks!

Mar 1, 2016
In this issue:
» Private investment capex cycle to revive?
» Will FMCG companies utilize their cash pile ups well?
» ...and more!
0.00
Devanshu Sampat, Research analyst

Whew! The Union budget is finally behind us. The media, corporate heads, and Dalal Street are still trying to figure it all out. Was it disappointing or along expected lines? Was it average? Below average? Poor? The opinions are many. Ours is that the budget was a lost opportunity.

But now what? The markets seem confused. They crashed to a new 52-week low yesterday during the speech. Then recovered most of the losses by the end of the day. Today, the mood is buoyant. Is it just a short covering rally? Will the down trend resume? Or has the market really found a bottom?

Trust us when we say that no one has honest answers to these questions. So what is a retail investor to do? If you have reduced your activity in the market recently, you are not alone. But should you start buying stocks again? If yes, which ones? Or should you continue to sit on the side-lines?

We are not good short-term market forecasters. Honestly, we don't care about day-to-day price movements. But we are good at finding out which stocks will do well in the long run. This is because we are good at identifying the best businesses. In the long run, the best stocks and the best businesses usually go hand in hand.

Mind you, this is not an easy task. We have to figure out if a great business will remain great. We worry about the risks these businesses face. We need to find out how the growth story will play out. Most importantly, we have to calculate the right price to buy.

Did you notice that I didn't mention the budget? That's not because budgets don't matter. Of course they do. But the best businesses aren't usually impacted negatively by what the government does. They are market leaders. They generate tons of cash. They act as pillars of stability for your wealth. They are called blue chips for good reason.

If you buy blue chip stocks at the right prices, you could hold them for decades. Or you could sell them at a good profit a few years down the line. Our duty at Equitymaster, is to let the aam investor know two things: the names of such stocks and the right price to buy and sell them.

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So why worry about what the budget will do to stock prices in the short-term? StockSelect has a list of 25 scrips you can buy today! Seven of these stocks are right at the top of her recommended buy list. Tanushree believes these stocks can do well irrespective of the government's actions.

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2.35 Chart of the day

A key aspect of yesterday's budget speech was that of better resource utilization of central public sector undertaking (PSUs). In a nutshell, these entities will be encouraged to divest their non-core assets and plough back money into their respective businesses (apart from paying out the excess capital) to boost the capex cycle.

As reported by Business Standard, PSU expenditure is likely to rise by a fifth to Rs 3,981 billion in the current year.

In addition to this, a lot of thrust was given to the infrastructure sector. The central plan outlay for power, new & renewable energy (NRE) and transport sector has been increased by a sharp jump of 50% (from the revised budget) to about Rs 3,380 billion. The largest allocation will go towards the transport sector (roads and railways) followed by power and NRE.

Infra Spending Gets a Boost this Budget

Will this 'revival in capex cycle' provide an incentive for the private players to up their capex as well? Well...that's a tough question to answer. As compared to the government's motive for boosting spending, returns play a very strong role for private players. For India Inc., the return ratios have been at their lowest in many years. A key reason for the same has been unutilized capacities, which has led to lower asset turnover ratios for India Inc. As we had written earlier, in FY14, the asset turnover for the companies stood at its lowest in over a decade. With financial performance in past two years not really showing signs of considerable improvement, it would be safe to assume that the scenario in this regard may not have improved much.

So it all boils down to how one looks at the half full glass. Can things only get better from here...or can the situation still worsen? We take the side of the former...

3:40

Moving on from the infrastructure sector to the FMCG space, it seems that the pro-Bharat budget is likely to provide the much needed push to FMCG companies. With a slew of announcements aimed at boosting the farm sector coupled with the tax relief for small tax payers, FMCG companies are bound to benefit from the higher rural demand.

FY15 was one of the slowest for the sector in terms of value growth. The situation in FY16 has not improved much either (given the lower realisations). As such, looking for ways to maintain growth levels, FMCG companies are expected to take on the acquisition route given their rising cash balances. As reported by Business Standard, all of the major players have seen their cash balance double over a five-year period. While investments and acquisitions do make sense to keep the momentum going, it must be kept in mind that there have been times when companies have overpaid for select brands/ businesses; and results in the process have not been as envisaged - in other words, companies would have been better off paying out the amount rather than earning substandard returns on those investments.

Nevertheless, business from abroad now forms a good chunk of revenues for select companies. To offset the slowdown witnessed in local markets, it would thus not be a bad time to scout for investment opportunities given the not so rosy economic scenario in other parts of the world.

4.45

Indians markets were trading firm today. The BSE Sensex was trading higher by 3% or 700 points at the time of writing. Gains were seen across the board with FMCG and information technology stocks leading the pack of gainers. Mid cap and small cap stocks were in favour as well with their respective indices trading higher by about 2.5% each.

4:50 Today's investing Mantra

"The best investment against inflation is to improve your own earning power, your own talent. Very few people maximise their talent. If you increase your talent, they can't tax it or they can't take it away from you." - Warren Buffett

This edition of The 5 Minute WrapUp is authored by Devanshu Sampat (Research Analyst).

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1 Responses to "Now That the Budget's Done, It's Time to Buy These stocks!"

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Mar 1, 2016

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Equitymaster requests your view! Post a comment on "Now That the Budget's Done, It's Time to Buy These stocks!". Click here!
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