The FY22 Union Budget, the first since the COVID-19 pandemic outbreak, has been announced amid a challenging backdrop.
Ahead of the budget, fears/concerns of a potential increase in taxation, the imposition of a COVID ‘cess’ and hikes in capital gains taxes had kept the market nervous for the past couple of weeks.
However, these fears, fortunately, did not materialize, which cheered the markets. The benchmark indices rose around 5 percent on Budget day, marking the best rally since 1997 on a budget day.
Reviewing the budget, brokerage house Motilal Oswal (MOSL) said that the budget, on balance, has turned out well, with no negatives on the taxation front and several long-term structural initiatives that augur well for medium-term growth.
The push for capex and investments could trigger the revival of an investment cycle, which could then spread to multiple sectors – Cement, Auto, BFSI, Metals, and Capital Goods, it added.
In its recent model portfolio revision, MOSL doubled its weights in Cement and added several cyclical plays from Auto/Metals, while maintaining its preference for Corporate Banks.
The brokerage also came out with a list of its top stock picks post the budget announcement.
In the large-caps space, it prefers ICICI Bank, SBI, Axis Bank, UltraTech, M&M, L&T, Hindalco, Infosys, HCL Tech, Titan, Sun Pharma, and HUL.
Meanwhile, its top stock ideas in the mid-caps space include Ashok Leyland, SAIL, Shriram Transport, JK Cement, AU Finance, ICICI Securities, IEX, Crompton Consumer, Varun Beverages, and L&T Technology.
However, MOSL believes that once the fine-print is absorbed, the market focus would return to the fundamentals, which is corporate earnings growth.
It noted that Nifty50 earnings growth for the December quarter is at 24 percent for 29 companies (which have posted earnings so far) as against the expectation of a 4 percent growth.
It also sees earnings upgrades in Q3 for the second consecutive quarter. Incrementally, earnings drivers are shifting to cyclical, with Corporate Banks, Cement, and Metals driving growth, it added.