Budget 2019 could be a populist one; Nifty unlikely to breakout soon

Despite the Union Budget being an important event to watch, the mood of the street is not positive.

Budget 2019 being Nirmala Sitharaman’s first in a stable majority government, we expect it to be a populist one. The centre of focus could be on the micro industries and farmers, Umesh Mehta, Head of Research, SAMCO Securities, said in an interview with Moneycontrol’s Kshitij Anand.

Q) Nifty50 closed June on a negative note after three straight months of positive closing. Do you think have we hit an intermediate top with respect to markets, or could we see a breakout above 12,103 after the budget?

A) The current anatomy of the market structure is fractured. A large number of stocks are trading below the long-term average i.e. 200-day exponential moving average (EMAs).

The Union Budget is indeed an important event to watch which will set the right policy initiatives for the economy.

However, the mood of the street is not positive and, therefore, policy initiatives, if any, will not be immediately reflected in the stock prices.

Therefore, we believe, the market might have achieved an immediate top and a breakout above the recent top i.e. is placed at 12,103 on the Nifty, is not likely to happen in the near-term.

Q) What are the events to watch out in the month of July apart from the budget? And, what are your expectations from the finance minister this time around?

A) Budget 2019 being Nirmala Sitharaman’s first in a stable majority government, we expect it to be a populist one.

The centre of focus could be on the micro industries and farmers. However, having very high expectations from the budget could hurt as the Interim Budget rolled out many major reforms and policies implying the inherent benefits to the general public as a whole.

Apart from the budget, global cues and Q1FY20 earnings are the main events to watch out for.

Q) Any three stocks which you think are good buys in terms of fundamentals ahead of the budget – the ones which are likely to benefit the most from the policies that could be rolled out from the new FM?

A) We remain slightly sluggish and do not expect any bumper event from the budget. Thus, after the budget, given the dire state of the economy and rich valuations, our advice is to stay with the Industry leaders such as HUL, Infosys and Federal Bank in the banking space.

Q) What are your views from the recently concluded SEBI board meet? Do you think high pledge shares will witness further volatility and outflows from the liquid schemes?

A) “Mutual Funds are not banks and need to have an aspect of safety and investment” as quoted by Ajay Tyagi, SEBI Chairman.

SEBI’s latest changes will have a significant impact on India’s Rs. 25.93-trillion mutual fund Industry. However, most of the measures mentioned in the policy were voluntarily adopted by the mutual funds.

On high pledged shares, we believe the policy roadmap was very clear. Eventually, such shares may have to face an exit from liquid funds.

Q) Crises at NBFCs, HFCs are a big threat to markets? RBI report calls for tougher supervision of NBFCs. What should investors do with NBFC in their portfolio? Are there any bright spots?

A) Recently, the NHB has made some amendments to the capital adequacy ratio and the liability raising norms for HFCs.

The regulator plans to strengthen the balance sheet of HFCs by increasing the minimum capital adequacy ratio, reducing leverage and capping the extent to which HFCs can raise public deposits.

The past eight months have been tough for HFCs, while the companies have managed the situation by curbing disbursements, increasing sell downs, but the structural issues still persist.

Thus, we would like to remain cautious on the sector and advise to invest in companies with strong balance sheet such as HDFC Limited, Bajaj Finance, and Bajaj Finserv.

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