2021 Budget review and Top stock picks

2021 Budget review and Top stock picks

 

       2021 Budget was amazing, bold and un-conventional budget from all perspective where the FM(Ms.Sitharaman) , Chief Economic advisor (Sanjeev Sanyal) and the team thought beyond the conventional deficit constraints and scares of rating agencies and did what was required for the Indian economy when it was simultaneously hit by 2 crisis – medical as well as humanitarian/ economic crises when millions of people lost their jobs because of lockdown which was enforced due to the medical crisis ( Carona pandemic) . I am so happy that we finally loosened our fiscal strings to give a real boost to the expenditure/economy and kept the budget growth oriented , rather than getting over obsessed about budget deficits when the whole world has spent about 20 Trillion $ in monetary and fiscal packages(>20% of world GDP). We actually spent additional 6% of our GDP in fy 21 (9.5% of Budget deficit instead of planned 3.5% of GDP) and will plan to run fiscal deficit of 6.8% instead of 3.5% in FY 22 .That translates to about additinal 280 Billion $(9.3% of GDP or (20 lakh crore Rs  ) of fiscal expenditure . You can include anther 8% of GDP through RBI /monetary packages including loan/ credit guarantees and loan moratorium announced by RBI/ government in earlier packages which will total to about 17.5% of GDP which is not a bad figure , considering that India is a developing country with a high debt/GDP score(about 70% in 2020).and not so good credit ratings by unfair rating agencies 

 

Replying to

@sanjeevsanyal

Sir.thanks for leadership during this biggest crisis..All major nations have come out with fiscal packages of 2.6% to 18% of GDP, mainly monetized by central banks.Our package is just 0.7% of GDP. Pl dont bother about deficit now. http://valueinvestmentindia.com/better-balance-between-livelihood-and-life-twin-crisis-during-corona-tide/

7:08 PM · Apr 27, 2020·Twitter for Android

 

 

https://pbs.twimg.com/profile_images/1848781690/30f1582_1__mini.jpg

amardeep mallik

@amardeepmallik

 · Apr 13, 2020

Replying to @narendramodi

Sir.thanks for leadership during this biggest crisis. Its twin crisis – medical crisis and economic crisis due to Carona . am blogging on size of urgent fiscal and monetary stimulas required to take care of big sufferings of the poor & middle class http:/

/valueinvestmentindia.com/better-balance-between-livelihood-and-life-twin-crisis-during-corona-tide/

 

      Its better late than never. I had tweeted(above tweets and blog links) about this vision of loosening the fiscal strings and ignoring the budget deficit / rating agencies and being growth oriented long time back at the start of the crisis to PM/FM and CEA(Chief economic Advisor). Finally , they have done that,  after a year , which is good for Indian economy, business growth and equity market friendly. Extra ordinary situations ask for extra ordinary actions and that’s what they have done .The market gave it a 22 Gun salute immediately and reached its historical peak (Sensex > 52000 for the first time) , the same market which had given a thumbs down to the first Carona related package in April 2020.. Though I feel that markets are inefficient in short term and overreacts many times, my respect for its efficiency in long term has gone up, after these events and corresponding reactions of the equity market.

 

Following are the key highlights of the budget 

  – It is growth and development oriented with 6.8% planned deficit (instead of 3.5% earlier)for this fiscal year(fy 22) , gradually reducing to 4.0% in FY 2026.

– It gave a big push to infra spending (24% annualized increase over FY20 actuals) – in Highways , Road transport and Railways etc , capital expenditure (37 %increase , increase by 1.1 Crore Rs ) and healthcare spending (137% increase).

– DFI(Development Finance Institution) to be set up with target of raising 5 lakh crore(2.5% of GDP) in 5 years for infra investing 

– AMC/AMR/ Bad bank to be set up for resolving the NPA woes of the PSU banks. Besides, 20k crore has been provided for Bank Recapitalization of PSU banks .

– Rural Infra spending to be increased by 40,000 cr and Agriculture credit of Rs 16.5 lac crore( equivalent to >8% of India GDP)

– FDI for Insurance has been raised from 49% to 74% . All these above mentioned few steps are very good for BFSI(Banking & Financial Services & Insurance) recovery and attracting Investments which in turn will lead to credit recovery which in turn will kick off the private credit and investment cycle back..

– Current account deficit became surplus at 3.1% after a long time with surplus projectionss for FY 22. FDI jumped up by 15% in for  6 months of FY 22. Both these factors are good for Indian Rupee exchange rate which in turn will invite more $ flow from FII for the market .

– Strategic disinvestments – PSU banks, 1 general insurance company and LIC IPO has been announced. Apart from this all 7 disinvestments announced last year and few more will be carried out this year with a clear target of 1.750000 crore

–  Asset monetization will be carried out for various non-core assets like Toll roads, Railways assets, Airports, Coal assets, central warehousing assets etc. to generate funds for the Govt.

– Only negative factor, I saw on the budget was that no DBT (Direct benefit transfer) was given to people below poverty line and there was no increase in rural jobs scheme (MGREGA) – FY 22 budgeted was flat over FY 20 actual expenditure. That’s why I will tend to give rank of 9 out of 10, which is still an decent score in these type of challenging situation and India high debts/ low credit rating situation

Now , that the budget is gone , all the Budget positives and expectations have already been factored into the prices and now onwards Q3/Q4 actual earnings , actual  economic recovery, FII flow , global factors , vaccination drive , execution of the budget plan , RBI/ Fed monetary actions , interest rates/inflation ,Dollar exchange rate , etc will take over as the actual drivers of the equity market.

Since the markets are at an all time high and trading at high valuations (almost 33 times Forward FY22 earnings estimates which is at > 60% premium to 10 year average of 20 times , I am not expecting a high double digit growth this year . Hence this year is going to be a stock picker’s year and not a broad based market growth.. I am going to invest in Gold ETFs and some short term debt funds also in case the market which could come in bubble zone crash mode . I have already kept 10% of my money in Gold ETFs and short term debt funds and plan to invest more , to diversify my risks against bubbles / counterproductive monetary actions by central banks which might withdraw the liquidity measures or increase interest rates. The quality of businesses/stocks and their competitive moats, quality/ vision/execution of management. Growth expectations/projections, consistent delivery on topline/ bottom-line growth projections , strength of balance sheets, valuation and clean governance of the stocks will become the driving forces of returns and hence the criteria for picking stocks. Hence most of my top 25 odd stocks in my model portfolio would be lap cap oriented as big will get bigger in these pandemic times and size/ dominance/brands are come of the key competitive moats/advantages  in these difficult times.

   Top 25 Picks -2021

      All these top 25 stocks/businesses have been selected after a careful bottoms up analysis/fishing from key sectors which has come out after COVID and budget  even .  Stocks I  picked are deeply moated and strong leaders of the respective sectors. First of all , I picked up few sectors which were Covid positive sectors(who got benefitted by the pandemic) and they were – IT , Telecom and Pharma/ health care (e.g TCS, HCL Technology, Bhart Airtel , Reliance , Dr Reddy , Apollo Hospital and Dr Lal path lab) . Then , I also picked up Covid Immune sectors(who didn’t get impacted) like FMCG(defensive sectors) ,agrochemicals/ chemicals and Tractors/ 2 wheelers( heavily rural sector dependent), For example , HUL , Nestle, PI Indistries , Pidilite, Escorts, Hero Honda etc. Then I picked up some sectors being benefitted by Budget and sectors which  will show V-shape recovery like infrastructure/ construction sectors, BFSI(Banking,  Finance services and Insurance) and also consumer/retail sectors , For example – stocks like Larsen , Shree cement , Tata Power,HDFC bank , Kotak Mahindra Bank , Muthoot Finance, SBI life Insurance , ICICI Prudential Life,, ICICI Lombard, Titan , Asian Paints and Avenue Super marts  . All these above mentioned sectors and businesses have either been positively impacted/immune by Covid or will be positively impacted by budget measures as well as have shown or will show V-shaped recovery. All the 25 stocks that have been carefully chosen after lots of research, have strong competitive moats and are market leaders , have strong balance sheets , great quality with high ROEs, strong management with fair / reasonable valuations with a potential to give returns of 15-20% (CAGR)over long term(5-6 years) which means they will double up or more in that period.

                                Remember picking quality stocks(being a stock picker’s year) is very important and key now after stocks have run up > 80% after its March dip last year and showing  high valuations now . So , buy high quality businesses/ stocks only with a long term perspective . Economy is going though a positive transformation , with a  potential V shaped recovery(nominal growth projections @FY22 of 14% , as per Moody and Govt ) and vaccination already started and hence equity markets are in a nice and growing stage with potential decent returns(8 to 15% returns), provided you pick the right stocks and don’t take too much of risk and show a long term perspective.

Happy Investing and have a great time creating wealth in tthese unprecedented times.

regards

Am

I am an IIM Bangalore Alumnus & NIT Allahabad Engineering graduate with 18 years of global experience into service and outsourcing industry. Value Investing has been one of my passions for last 8 years.

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  • Colvert , @

    Infrastructure, Real Estate, Construction, and Railways are some sectors, which may be in focus in the upcoming Budget 2021

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