These stocks are Jefferies' top picks after Budget 2022 announcements

02 Feb , 2022 By : Kanchan Joshi

The FY23 budget confirms the government's stated objective of fiscal consolidation & capex- driven growth. Bond yields rose on concerns about a large borrowing program. Rising yields are negative for equity market sentiment and NBFCs in particular, as per Jefferies, whereas capital goods, cement, pipe companies are beneficiaries of the budget announcements.

Jefferies' top stock picks and sectors post Budget 2022 announcements -

Capex/Infra: 15% year-on-year rise in capex outlay spend (BE vs RE) is a positive for the sector, including L&T and other companies. Further, data Centres getting infrastructure status points to prospects of a tax holiday – positive for Siemens, ABB. Defense spend is up 10% YoY which is positive for Bharat Electronics and L&T.

ITC (positive): Union budget has kept taxes on cigarettes unchanged. Buoyancy in GST trends, with the highest ever collection in Jan-22 is also a positive as there should not be any urgency to tinker with GST rate (cess) on tobacco, it highlighted.

Titan (positive): Customs duty on cut and polished diamonds and gemstones is being reduced to 5% from 7.5%, which is a positive for Titan, which has a around 30% share of studded jewelry of sales.

Pipes companies: Supreme, Astral, and Finolex Industries will benefit from 33% increase in piped drinking water scheme budget.

RIL: Expansion of PLI scheme benefits for solar cell manufacturing by $2bn and extension of the deadline to FY24 for setting up new manufacturing capacities are positives.

Financials: On the financial sector side, the key announcement in the budget was the extension of ECLG scheme by a year till March 2023, which may be marginally positive for lenders to this segment although exposure to this segment is small. Also, capex-spending will be positive for lending opportunities for banks, Jefferies said.

“The key negative from the budget is the higher than expected government borrowing program and lack of comments on attracting foreign investment, this can lead to further increase in bonds yields, which will be more negative for PSU banks and Kotak Bank (in terms of MTM losses on G-Sec bond book) as well as NBFCs," the note added.