MUMBAI: Nomura’s India Equity Strategy has stuck to its Nifty target of 12,900 post-Budget as well, as the Budget at least removed the fears of higher fiscal deficit, showed its intent to revive investments and address some teething issues like the NBFC liquidity crisis. Saion Mukherjee, Nomura’s Head of Equity Research India, said the steps taken by the government and the Reserve Bank of India in the NBFC issue reduces the possibility of a material slowdown in economy.
Until the Budget presentation, there was a worry as to how serious the new government was about the NBFC crisis and its repercussions about it, Mukherjee said. But, whether it is enough or not, providing the liquidity window is a signal that the problem has been acknowledged and they are willing to take steps, he said.
The Budget also shows that the focus is on getting back the investment cycle. “It has been a consumption-led economy for long; there is a change in direction, trying to get the investment cycle going,” he said.
How does that change things for stocks, the consumption story that has been a favourite theme, be it for consumer goods firms, autos or retail-focused banks? Nomura feels it can see a slower growth. It is underweight on consumption stocks and autos as it feels the valuations are rich, and earnings growth expectations are high. “I am not saying consumption story is over … stocks are very expensive, leaves little room for error there,” Mukherjee said.
There are opportunities in the market to build a portfolio from broader markets from large and mid-cap stocks. In case of economic recovery, worse will be behind in the next couple of quarters, he said. They are overweight on financials, infrastructure and in a contrarian bet, healthcare.
Among financials, the feeling is that financial intermediaries would benefit from lower cost of funds, and some of the players might be able to gain market share from their peers who are facing problems.
While the visibility on private investment is limited, there is intent to get private investment in infrastructure. But, the government has committed high infra-spend over five years, and the current years, Nomura pointed out, the Centre’s capex is expected to rise by 13 per cent, 15 per cent and 18 per cent for roads, railways and metro respectively.
“Allocation for National Rural Drinking Water mission has also increased substantially by 70% YoY. This indicates a thrust on water-related projects as the government strives to achieve 100% rural drinking water penetration ... by 2024,” Nomura said in the strategy report. “Within infra, we have weightages on construction firms; firms that are related to water projects,” Mukherjee said.
Taking a contrarian view on healthcare, Nomura said that “healthcare remains a turnaround prospect, where valuations are attractive”. So far the sector hasn’t worked, but now the expectations are low, earnings beaten down, and one may expect earnings revival there, Mukherjee said.
Among one of the negatives in the Budget has been the higher tax on high income earners, which would also impact foreign portfolio investors. While the tax on buyback and increase in free float limit from 25 to 35 per cent were viewed negatively, there could be some positives out of it, Nomura said.