Budget 2024: Top 8 Sectors and Stocks to Watch Out for on Budget Day

The Union Budget 2024 is just a few weeks away. The Indian stock market is already excited about the prospects of pro-market policies.

As the first full budget of the Modi 3.0 government, there could be many important announcements made by the finance minister. Thus, many sectors and specific stocks will be impacted on budget day.

These impacts could be sharp one day price moves or the start of significant long-term trends. Also, stock prices could move in either direction. If the market is not satisfied with the budget speech, expect a knee-jerk downward reaction.

On the other hand, if the budget speech is to the market's liking, then expect fireworks. The Nifty will soar to new highs. Investors in midcaps and smallcaps will feel like it one big party.

Having said that, we believe there are specific stocks and sectors that you should keep an eye on. The budget could disproportionately impact them.

In this editorial, we will examine eight sectors/stocks spread across three themes.

#1 The Rural Theme

This should come as no surprise. As the BJP is in a coalition government without a majority on its own, it will need to please its alliance partners.

As the two major parties in the coalition are more focused on rural voters than urban, the budget will reflect this reality.

The market expects a significant spike in the government's rural spending. This is not a bad thing. Most of India's poor live in rural areas. Any improvement in their standard of living, will result in an increase in rural consumption.

Such policies always benefit, either directly or indirectly, companies in rural-oriented sectors. It's just a matter of finding the right stock.

The rural sectors that you should keep an eye on are - tractors, seeds, fertilisers, irrigation, and agrochemicals.

What about the stocks?

Well, there are many ways to play the rural India theme. There are multiple fundamentally strong companies among the sectors mentioned above. You can keep the following on your watchlist for further evaluation.

Please note, the following are not recommendations.

• Mahindra & Mahindra (M&M)

  M&M is one of the leading tractor and auto manufacturers in India.

  After streamlining its operations recently, M&M is ready to ramp up again. It exited non-core 15 business and thus, unblocking funds worth 13.9 bn.

  The company is now laser-focused on its expansion plans. It has unveiled a massive investment plan of Rs 370 billion (bn) over the next 3 years.

  This cash infusion will be spread across their various businesses, with the auto sector receiving the biggest chunk of the investment.

• Kaveri Seed

  Kaveri Seed Company engages in the production, processing, and distribution of seeds. Its products include field crops and vegetables.

  The company constantly launches new products across segments including cotton, maize, vegetables, and rice. These are backed by strong R&D.

  The company has gained market share in cotton seeds in states like Gujarat, Maharashtra, and Haryana.

  It's a debt free, dividend paying company with stable profit margins.

• Coromandel International

  Coromandel International is part of the Murugappa group. The company is in the business of fertilizers, pesticides, and speciality nutrients. It's one of the leading crop protection firms in India with a diverse range of products and services.

  The management aims to make the company a complete plant nutrition solutions provider. To that end, it has also introduced a range of speciality nutrient products, including organic fertilizers.

#2 The Consumption Theme

There are expectations of some form of tax relief for citizens in the budget.

This would not be surprising. We have seen it before whenever a new coalition government is formed.

The rumour mills suggest an increase in the income tax exemption limit to Rs 500,000. This will increase the take home salary of the employed class.

In the past, tax relief has been a precursor to higher consumption. This is because citizens tend to spend their 'extra' income.

Over the last few years, consumer spending has received a boost as Indians have shown an increasing willingness to spend as opposed to save. Any tax relief will only give a boost to consumption.

The three sectors likely to benefit from this are travel, FMCG, and home improvement.

You may keep the following stocks on your watchlist.

• Interglobe Aviation Ltd (IndiGo)

  Interglobe Aviation Ltd (IndiGo) is India's largest passenger airline. It operates as a low-cost carrier. It's currently the 7^th largest airline in the world measured by daily departures and the first Indian airline to have a fleet size of 300+ aircrafts.

  After consecutive losses for four years, IndiGo recorded an annual net profit of around Rs 82 billion (bn) in FY24. It's a turnaround stock.

  Due to favourable macro-economic trends in the country such as the rise in per capita income and favourable demographics, and new travel trends, the company is well placed in the long-term.

• ITC

  From being a one-product category company, ITC is now a company with a portfolio spanning 20 categories with over 1,500 products. This is due to its expansion into the FMCG sector. The company is now among India's largest in the FMCG sector.

  Recognising the rising consumer preference for natural and healthier products, alongside traditional options, the company is actively expanding its rural distribution.

  Considering its past growth as well as its current plans, ITC is quite capable of achieving a growth of 15% per annum in earnings over the medium term.

  It's also a dividend paymaster. ITC has paid out consistent dividends since 1994 and has consistently raised the dividend.

• Hawkins Cooker

  Hawkins Cookers is an Indian company which manufactures pressure cookers and cookware. The company and has three manufacturing plants at Thane, Hoshiarpur, and Jaunpur. The company has historically been a beneficiary of rising incomes in India.

  It's a steady growth company with stable margins and a good history of dividend payouts. The debt on the balance sheet is negligible. The company enjoys strong cash flows.

#3 The Investment Theme

• The Modi government has been laser focused on building excellent physical infrastructure in the country. Every year, the capital expenditure in the budget has received a generous increase.

  The market expects more of the same this time as well. The infrastructure sector will be closely watched during the budget speech.

  The top infrastructure sectors likely to benefit this time are railways and housing.

  Here are a couple of stocks you must have on your watchlist.

• Ircon International

  Ircon International is an engineering procurement and construction (EPC) company that undertakes railway projects.

  Specifically, the company undertakes technologically complex infrastructure projects across various sectors, including railways and highways.

  The company has a strong government backing which helped the company secure several orders over the years. In the last 50 years, the company has delivered over 400 projects in India and 130 projects across 25 countries.

• HUDCO

  Housing and Urban Development Corporation (HUDCO) is an Indian public sector undertaking (PSU) engaged in housing finance and infrastructure project finance. The government granted Navratna Status to PSU on 18 April 2024.

  The government's focus on affordable housing in the upcoming budget is expected to introduce measures beneficial to HUDCO.

  On 11 June 2024, the NDA government announced that it will expand the Pradhan Mantri Awas Yojana by constructing an additional 30 million (m) rural and urban homes.

  There is also market speculation about the company being included in section 54EC of the Income Tax Act. This could be aimed at enhancing investment opportunities.

  HUDCO aims to increase its assets under management (AUM) to over Rs 1.5 trillion (tn) by financial year 2026, up from the current Rs 840 billion (bn).

  The company is well placed to grow in the future. Currently, it's focused on reducing funding costs, resolving stressed assets, and diversifying its loan portfolio.

Conclusion

Investors should not base their specific investment decisions on events like the budget. History has proven that the market forgets about the budget very quickly.

However, some decisions will be important. These decisions could have a material impact on specific stocks and sectors. Investors should keep an eye on such decisions and assess its impact on the stocks in their portfolios.

Investing in stocks that receive a boost in the Union Budget can be profitable in the short term. But you should exercise a lot of caution here.

The rules of long term investing don't change just because of the budget. You will still need to do your due diligence on any stock before investing in it.

Happy investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...