»Fast Profits Daily by Equitymaster

On This Day - 1 FEBRUARY 2021
What to Trade After the Budget

Vijay Bhambwani, Editor, Fast Profits Daily

Well the big day has finally come. The Finance Minister has presented the much awaited Union Budget 2021.

And the markets have taken it very well. They have closed near their all-time highs.

So in this bullish environment, which stocks and commodities should you trade?

I'll share my first thoughts with you in this video.

More budget related videos are in the pipeline as I study the fine print.

Let me know if you liked or disliked about the budget. I love to hear from you.

Hi, in this video, I am with you to talk about my initial reactions to the budget speech, which I just heard the finance minister present in the Parliament.

Do keep in mind that the budget speech only contains the broad proposals. The finer details invariably follow in the press release, which will be covered in the newspapers and the print and electronic media only on the next day.

So as dissemination, dissection of the proposals basically happens over due course, you will have more and more reactions coming out in the public domain and showing their impact on financial markets.

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From the commodity point of view, the biggest thing that I noticed was the reduction in the import duty on bullion. Now the finance minister was not very clear about the quantum of reduction in the import duty. She merely mentioned rationalisation of the duty downwards.

The immediate reaction was gold falling into negative territory and silver surrendering more than 1,000-1,500 per kilo after the announcement itself. Now I've made ample videos on silver, especially with the onset of the reddit traders. A video on reddit is something that I recorded on Friday. If you scroll down this list, you're sure to find it.

Now the reddit guys are now squeezing the shorts in silver. So silver reacted less than gold in percentage terms after the budget was announced. The other thing from the commodity point of view that I liked was there was a huge degree of focus on developing infrastructure like ports, roads, airports.

Which would mean that number one, there would be employment generation because if you go to the website statista.dot com, which is full of statistics on the Indian economy, you will realise that the largest employment generator is actually the infrastructure sector. So not only would it generate employment but consumption of base metals, you can't build buildings or roads without having metals, sand, cement, etcetera. So it's going to be a boost for the inference sector.

The other thing that I liked from the commodity markets specific point of view was the voluntarily vehicle scrappage policy. Now two things about the policy. Being a democracy, this was basically not enforced as a rigid law, but it is expected to be self-compliant, kind of a voluntary move I think they will still be an impact on people voluntarily giving up 15-20 year old personal vehicles.

Now that would mean that you're going to have more and more fuel efficient vehicles on the road, which means the fuel consumption in India for transport purposes will come down. I have been bearish on the outlook of national gas from cyclical reasons, barring the reddit guys coming out there and ramping up prices and the polar vortex, which is again another outlier event which has boosted prices.

But cyclically speaking, I'm bearish on natural gas and I have also told you why crude oil prices are unlikely to sustain at these levels because output is rising, whereas consumption is taking a hit.

So India being a swing consumer of fossil fuels, it's on only after US and China that India is a huge, humongous consumer of hydrocarbons or natural gas and crude oil based products. If India's consumption were to reduce even marginally, it would make an impact on the international prices of gas and crude oil.

So from the commodities point of view, these were of course, very noteworthy events, and the other thing was that the government would continue to support the economy by way of even borrowing to the extent of 12 lakh crores in the financial year 2021-22.

Immediately the bond markets reacted. The yields shot up from 5.95% to 6.3%. The bond markets are not yet shut at the time of me recording this video around lunch hour, and this is actually work in progress. Bonds will, of course, update themselves till the bond markets shut.

Now the other aspects of the budget which are likely to impact the commodity markets, is that Jal Jeevan Mission, which is fresh water supply to the common citizen. It will obviously need metal pipes. Here again, consumption of base metals.

In the coming five years, there will be recycling of waste, including polluted water, industrial effluents, etcetera and this Swatch Bharat, this has been made a part of the Swatch Bharat Abhiyan, and over the next five years, the allocation to this recycling aspect is Rs 141,678 crores.

Here again, it's a bullish for consumption of metals and the national pipeline, which, of course, is likely to piggyback the infrastructure of GAIL, Indian Oil Corporation, BPCL, etcetera is a gain very bullish for consumption of base metals here again.

The other thing I noticed was the highway construction 3,500 kilometres of national highways in Tamil Nadu, 1,100 kilometres of national highways in Kerala, 675 kilometres of national highways in West Bengal, 1,300 kilometres of national highway in Assam. Now this is again very bullish for base metal consumption, and I think India will need more industrial metals.

Railways, again you have one 110,055 crores outlay. You can't have railways in the country without consuming metals. So here again, I think it's bullish for base metals.

Urban bus transport services and the metro rail projects in many cities that have been announced. So there again, consumption of base metals is likely to go up.

Power distribution companies or discoms will receive 305,000 crores for a deeper penetration of the power distribution grid. Here again, you can't distribute power unless you consume copper, which again is conducive for base metals.

You also would basically have the divestment of public sector units to the extent of 175,000 crores. Let me just tell you why the FDI in the insurance sector has been raised to the extent that it has been proposed in the budget. The simple reason being that the biggest IPO that the government is banking on to receive a lot of divestment proceeds is the LIC IPO.

Now the word on the street is an estimate between 80,000-90,000 crores, and it's imperative that the foreign direct investment in the insurance sector be driven up if you want to let, if you want to ensure that the LIC IPO is a full-fledged success and the government is halfway through to the disinvestment process is being completed from one company itself.

Now the agri sector has also received a lot of allocation, which would mean that the farmers is assured of 1.5 times the cost of production as the basic MSP, or the minimum support price. Which means agricultural prices are also likely to go up.

In terms of taxation the big relief was that the rumours of covid cess or additional taxation etcetera has not been imposed. So the markets and heaved a sigh of collective relief. Of course, this is what has triggered a whole lot of short covering or bear squeeze in the market, and the markets are appearing to give a thumbs up to the budget.

I remind you again the fine print will be available only tomorrow. So early days yet but the initial reaction of the market to this budget is no bad news is equal to good news, and therefore the markets have taken this budget well. Of course, the fact that they're no additional taxes mean that the common taxpayer is spared of the burden of at least the fears of burdens of additional taxes.

So I will, of course, be coming up with more and more videos about the budget as and when the date streams in, I digest it and process it for you but as far as I am concerned in my personal capacity, I still remain of the opinion that the most bankable think to do as a blueprint for trading this market post budget is to ride the coattails of the government.

The most powerful person in the country and therefore the financial markets is big brother, big daddy, government of India. If they want to take up prices of public sector undertakings or share prices of the government companies, before divesting their shares, I would want to piggyback on those companies stock prices.

I have only a small amount of money to lose. The government has a lot more to lose than I do. So I am banking on the fact that the government will pull out all the stops to all it has to do to be able to meet its targets and therefore, I have a high probability of success.

So maybe some of you may find public sector unit shares boring. I'm more focused towards the profit rather than what is boring and what appears exciting. I'm 55 years old. Show me the money, honey. That's what matters to me.

On this note, I bid goodbye to you. Not before reminding you, if you're watching this video on YouTube, please click on the like button. Subscribe to my YouTube channel if you already haven't done so. Click on the bell icon to receive instant alerts for fresh video uploads. In the comments section, communicate with me. Please tell me what you think of this video and what you would want me to record next and help me reach out to fellow like-minded traders who believe in a 360 degree worldview by referring my video to your family and friends.

Viewers, I wish you a very profitable day ahead. Vijay Bhambwani signing off for now. Thank you for watching me. Take care. Bye.

Warm regards,

Vijay L Bhambwani
Vijay L Bhambwani
Editor, Fast Profits Daily
Equitymaster Agora Research Private Limited (Research Analyst)

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