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Where to Invest Ahead of Budget 2021?

by Jyoti Roy (DVP- Equity Strategist, Angel Broking Ltd)
Jan 31, 2021
Where to Invest Ahead of Budget 2021?, Knowledge, KonexioNetwork.com

The markets have seen an all-time high with both the benchmark indices, the BSE Sensex and the Nifty, scaling peaks in the recent past. While the Sensex scaled the 50k summit, the Nifty touched a new high of 14700, a sustained bull run ever since the markets recovered from the March 2020 lows of 25k levels.

Stimulus packages across the globe, including India, vaccine development and rollout news, the optimism induced by the new US Presidency and the possibility of a larger second US stimulus package of USD1.9 trillion to fight Covid-19 have helped the markets. Further, record low-interest rates have added to the market’s good performance. Increased liquidity owing to foreign institutional investors (FIIs) renewed interest in India has played a key role in sustaining the bull run. In 2020, Indian equity attracted flows of over Rs 1.6 lakh crore from FIIs, making India the highest among emerging markets to receive such inflows.

Apart from these factors, the expectations that come with the Budget and the hopes triggered by the Finance Minister’s statement around a one of a kind Budget have meant that the markets will see some volatility in the week ahead of Budget 2021.

While some analysts expect a correction in the stock market post Budget, others expect a sustained run because of continued liquidity and low-interest rates. The volatility ahead of the Budget may be a good time for investors to assess their investments. It is also the time to continue investments with discipline and focus on goals over the long-term and not time the markets. Cashing out or switching too often may mean losing out on opportunities. This happened in March 2020, when investor wealth was wiped out in the blink of an eye.

Areas of focus and growth: Sectors to watch out for

Expectations of the Budget focusing on growth, investment and revival will bolster the bull run further. Towards this end, the Budget is likely to focus on sustaining high infrastructure expenditure to bring jobs and economic revival. The capital expenditure expectation for 2021-22 is said to be in the Rs 5 lakh crore range, as compared to Rs 4.1 lakh crore that was targeted the year before, apart from Rs 25,000 crore announced as part of many Atma Nirbhar schemes through the year. This capex will be aimed at creating infrastructure such as roads, ports, railways, power, which are all likely to receive a boost in the Budget.

Manufacturing: This is one area that is most likely to receive a shot in the arm, as the thrust on manufacturing will generate jobs, bring in investments and trigger an economic revival.  The product-linked incentive (PLI) scheme for sectors like auto components, medical equipment, textile, food products, speciality steel, among others could be extended to other areas like capital goods or consumer durables. In such a scenario, these sectors will drive earnings.

Health: Healthcare is an area that is expected to receive greater thrust as the Covid-19 situation showed the importance of public health. The pharma sector too expects incentives and extended support in the area of research and development. There are hopes of the health sector allocation receiving a 40 per cent increased allocation in Budget 2021. In last year’s Budget, the allocation towards the sector was in the range of Rs 69,000 crore.

Real estate: The realty sector expects tax rebates on housing and waiver of GST to boost liquidity for the sector. In 2020, the government and the RBI announced several measures to enhance liquidity including huge repo rate cuts of up to 140 basis points, resulting in record low-level home loan interest rates. The industry expects setting up of more stress funds to fund stalled housing projects and raising LTV (loan to value) ratio up to 90 per cent for home loans offered on affordable homes worth Rs 30 lakh or less and offering the same benefit to mid and high-income categories as well.

Defence: The defence budget may see an increased allocation, with reports suggesting that it could touch nearly Rs 6 lakh crore, way ahead of the Rs 4.71 lakh crore announced during Budget 2020. The Atma Nirbhar push and embargo on certain defence imports further ensure that the sector is of great significance.

Others: Tourism and the hospitality sectors may also receive some thrust and expect incentives as these sectors had to face the brunt of the pandemic.

All these above sectors may add to the overall market enthusiasm if the expectations are met and allocations are in line.

LTCG: Will it go?

Expectations of abolishing long-term capital gains (LTCG) tax on equities will also result in a boost in investor confidence and encourage Indians to invest in listed equities. Even increasing the threshold for exemptions on tax for gains beyond Rs 2 lakh from the current 10 per cent tax on LTCG beyond Rs 1 lakh will lift investor spirit, especially small investors.

GST cuts

Several sectors have sought lower Goods and Services Tax (GST) in order to boost consumption. The government has already in the past brought down GST on certain categories to 18 and even 12 per cent on certain foods or services in the 28 per cent category. Electric vehicle start-ups, realty and mobile industry are some examples of sectors seeking reduction or reforms in the GST structure to boost consumption. Retail investors need to watch the GST space closely as well.

The importance of striking a balance

The stock market has seen a roller-coaster ride during 2020 but has recovered well and is seeing record levels post a crash in March. The drop in interest rates made certain investments like fixed deposits not so viable while making certain other investment options more viable. Certain asset classes such as gold rose over 30 per cent in the year. All this points to the importance of diversification and striking the right investment balance in your portfolio.

Conclusion

With Budget 2021 coming up, it needs to be seen how the markets react and whether there will be a sustained bull run or some sort of correction. As an investor, you would want to keep yourself updated on what the Budget means for the markets and what to look for. Check out #BudgetKaMatlab campaign to get the lowdown on all things budget and what it means for you, as an investor.