MUMBAI: After any market crash – the all-important question always is where should one invest? And post budget – no prizes for guessing – all signs point to the FMCG, auto and healthcare sectors. Yet keeping the broad market sentiment in line, analysts say that though the budget has infused a fresh lease of life into these sectors, investors should adopt a stock-specific approach and invest long term.
Needless to say, auto, FMCG and pharma shares managed to withstand the onslaught of bears reasonably well on Monday. The pertinent question now is, will these sectors continue doing so well once the market factors in the budgetary goodies.
Says ASK Investment Managers’ CEO Bharat Shah, “Share price has a direct bearing on future growth prospects and fundamentals of the company. There is growth in select auto, healthcare and pharma companies; investors should have a stock-specific strategy while investing in these sectors. They should not invest in each and every stock just because the sector is doing well.”
The Budget is largely a positive for the FMCG sector. Packaging materials, an area where most FMCG companies had expectations, got some relief. The Budget cut excise duty on packaging to 8% from 16% and hence raw material costs for all FMCG firms are expected to come down significantly. “The farm loan waiver and income tax restructuring will help FMCG companies indirectly, as farmers and consumers will now have higher disposable income. This will drive FMCG consumption,” a Religare post-budget report says.
The decision to reduce excise duty to 8% from 16% is viewed as a positive for all domestic pharma companies – especially the MNCs – who get a higher share of their turnover from the domestic market. Yet sceptics advise caution, in the belief that the impact is unlikely to be as positive as it appears.
Says IDBI Capital Research head Shahina Mukadam, “From what it seems, these sectors will not always remain positive in the market. But it is pretty certain, healthcare, auto and FMCG indices would outperform the broader indices over the next one year. As these stocks are of lower beta value, investors should not look for quick gains.”
As far auto is concerned, the entire sector is likely to reap the benefits from a broad-based reduction in indirect taxes across two- and three- wheelers, small cars and buses. The income taxes rejig is also expected to benefit the sector.
The loan waiver should be a long term negative. “In the short term, we believe it improves sentiment – and possibly valuations – for the farm equipment sector (companies like M&M, Eicher). But long-term results is a moral hazard situation, which might translate into the banking sector curtailing lending to the sector,” says Citigroup auto analysts Jamshed Dadabhoy and Hitesh Goel.
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