Invest in equity
Three problem areas of economy – Oil, Power and banking
To me, this Budget holds the potential to boost overall consumption demand in the economy, led by the rural sector. Further, the Budget contains several measures which give impetus to growth, e.g. opening up road transport sector in the passenger segment, 100 per cent FDI in food processing, promotion of affordable housing via tax incentives, both to builders and buyers, dividend tax exemption to REITS, and lower corporate tax rate of 25 per cent to new companies.
The Budget will help put state-owned banks on a sound footing via recapitalisation of Rs.25,000 crore with a promise of additional capital if required. With this, in the last 12 months, the government has bitten the bullet in three problem areas of the economy – Oil (complete deregulation of most products, and Direct Benefits Transfer for LPG and kerosene), Power (planned revival via UDAY scheme) and now banking.
Sectors which should benefit from all the above include housing finance, infrastructure construction, and select rural plays such as tractors and pipes.
The Indian equity markets are at an inflection point. Valuations are in line with long-period averages, but corporate earnings growth is lagging. If executed well, this Budget could go a long way to revive corporate earnings growth to its long-period average of 15 per cent, paving the way for a major market bounce back.