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Pre-Budget Expectations for 2019 - Epic Research

Posted On: 2019-01-22 09:16:54

Mr. Mustafa Nadeem, CEO, Epic Research.

The budget has always been an event when we expect volatility to expand with perception to safeguard the portfolio and hedge the overall risk in the market we see a lot of activity in the derivatives. This budget is no different than previous but the fact remains it is coming in an Election year.

Definitely, We believe the coming budget will be about giving benefits that make an impact at large. Since there are many things to do so as the current environment is favorable. The low inflation environment, growing GDP with a rate above 7%, Higher FDI's and on the top of it all a contained Fiscal deficit. This certainly gives extra space for the budget to be populist. A recent wave of farm loan waiver has also increased the expectation in the economy and is now seen as a game changer for any political party during elections. So yes, We expect there may be some populist measures that can be seen in this budget.

The range for the market is likely to be in a range of 11200 to 10700 on the downside. So given the days left to budget, we expect the market to test 11100 - 11200 while only a decisive break beyond that we may see a next move since that would call in for a much aggressive rally that may be supported by short covering as well. On the downside, support is established at 10700 - 10650. These are important for this move and a breach of these levels will see a downward move to take the Index to lower levels of 10200 - 10250.

Construction, Infrastructure, real estate & housing at large are likely the sector that is going to see special attention in the 2019's budget since that been the trend for last few years in present government. Water and sanitation along with a focus on rural projects will be seen. Fertilizer, as an industry, may see some good news since a lot of focus will be seen on improving the present circumstances in the Agricultural sector. These sectors are driven mainly based on government policies and rely on the subsidized and favorable environment.

Markets are likely to see an expanded move though study suggests we may see a move higher that can take the market to higher levels of 11100 - 11150. We expect a halt at levels of 11100 - 11200 since it's a very strong resistance placed there. Historically market has reacted to budget in a positive way if we take out last year when global markets were taking a toll of volatility. So a kind of return post Budget we have seen is in two digits.

Post Budget we can see some profit booking as the rebalancing of the portfolio will be there and shifted to specific sectors and stocks that will be highlighted. Though the earnings outlook for most companies in Nifty 50 remains in double digits but we may see some margin pressure. The Small-cap and Midcap have been beaten down due to lower earnings, rising pressure on margins hence we expect the rally to be participated largely by Blue chips with visible earnings growth. this makes our view specific on select stocks in 2019. Though the trend overall remains largely positive it would be prudent to utilize the dips. Post Budget we expect volatility to rise but the undertone of the trend may be visible due to the fact that a lot of news will be discounted in prices. A lot will also depend on global macroeconomic activity and fed rates. A tightening environment may dampen the outlook while Soft crude prices shall continue to support the positive sentiment in Indian equity markets. Any change there might hamper the trend. Lastly, It all comes down to the mandate that is given in LS as a decisive mandate brings a lot of money flow into the market for a longer time horizon that can help in a capital generation. UPL Ltd, Titagarh wagon, NCC, NBCC, Dilip buildcon are few stocks we expect to see some positive momentum after the budget.

It may be a budget that is expected to attract the masses and when we put that in perspective we simply mean common man, the largest tax base. So to put it in numbers we have seen a growth of 40% in total taxpayers in the last 5 years. That is huge when we talk about Tax to GDP ratio and which actually keeps our budget deficit lower. So that ratio has jumped by 56% in the last few years. And when we talk about individual taxpayers, it has been up almost 41%. So these numbers are big for us and definitely gives a huge liquidity that drives the overall consumption based economy.

So the much talk about Tax rates - slab change if comes into effect can flourish the market with the liquidity and certainly consumption based stocks, Automobiles, and to an extent, the Real estate will see its direct effect.

Source: Equity Bulls

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