Power, Utilities and Capital Goods Stocks Lead Pre-Fiscal Rally on D-Street: Mehta Equities’ Prashanth Tapse
Prashanth Tapse, VP (Research) at Mehta Equities Ltd, believes that sectors such as power, utilities and capital goods are leading the recent rally due to hopes of a large attention of the next Union budget 2022.
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Q) Despite a muted Friday, Indian markets have closed with gains of over 2% over the past week. What led to the price action on D-Street?
A) On Friday, the Nifty50 staged a smart rally in the latest session amid a bargain hunt supported by short coverage. Technically speaking, there are plenty of opportunities on the buy side as long as Nifty stays above 17889 marks.
The immediate goal post on Nifty is seen at an all-time high at 18605. We have seen market declines being bought aggressively on the back of better than expected third quarter earnings reported by IT majors and private banks like HDFC Bank and high hopes for the Union budget. 2022 by keeping the atmosphere of the market green.
Over the past few sessions, traders and investors have been hogging all the negative news feeds and building positions based on fiscal events that can give structural direction to the market.
Overall, we expect the street to see a volatility reaction to global and local events before moving on to reclaim a lifetime high, therefore, we advise investors to trade balancing carefully good news and bad news.
Q) What are your market expectations for the coming week? Are there any important levels that investors should pay attention to?
A) We see four major themes that still revolve around lingering uncertainties for investors in the week ahead, including:
High hopes for a better than expected 2022 EU budget
Worrying rise in inflation
Sooner or later the Fed will start raising rates
Fear of faster spread of Omicron
Technically we see plenty of opportunities on the buy side as long as Nifty remains above 17889 with the biggest support seen at 18057 from the current levels of 18255.
Any close below the biggest support at 18057 can quickly take the index towards 17,514-17,257-16,940 in the worst case.
Q) In terms of sectors – energy, utilities, capital goods led the rally. What led to the price action?
A) Sectors like Power, Utilities and Capital Goods are leading the recent rally due to hopes of big attention from the upcoming Union Budget 2022.
We have seen the government increase the budget allocation by 20-25% each year for capital expenditure, which keeps these areas of focus in the trading zone.
Q) Can we say that we are in a pre-budget recovery? What does the trend suggest?
A) Yes, we are in a pre-fiscal rally as traders and investors hog all the bad news and buy all the dips and focus on fiscal hopes.
The EU budget is one of the most awaited events by industrialists and investors. If we go by historical trends, the pre and post budget weeks have generally been strong market moves back and forth, this time we are trending for new highs with high hopes.
Over the last 7 years of NDA government budgets – 4 times we have shown negative returns and 3 times the markets have shown positive returns.
This time we expect a constructive budgetary increase in capital spending to revive the economy and create jobs given the improving economy and better than expected tax collections through the GST and other implements.
Q) Greaves Cotton, Deepak Fertilizers closed the week with strong gains, what led to the price action? And what should investors do?
A) Greaves Cotton stock was in action on January 22 after the company’s EV arm, Greaves Electric Mobility, posted record growth of nearly 6 times revenue growth on December 21 compared to the same month the last year and finalized the acquisition of another 3-electric. wheel company MLR Auto (Teja brand), as well as the launch of the electric vehicle mega factory Ranipet, one of the largest electric vehicle factories in the country. Overall, we have an optimistic view of the EV space and expect more action in the years to come.
Fertilizer stocks like Deepak Fertilizers were almost on the rise due to high expectations to focus on agri-economy in the 2022 Union budget, giving further impetus to the sector.
We have a positive view of the stock and can be a Multibagger candidate for a 2-3 year investment horizon, supported by additional investments in place to drive future growth.
Q) What does D-Street expect from the budget?
A) We have low hopes and expectations for the upcoming 2022 budgets
a. Increase sops in manufacturing with focus on Atmanirbhar Bharat & Make in India themes
b. Focus on boosting exports and reducing non-essential imports to control the trade deficit.
vs. Divestment/privatization of public sector companies and roadmap for IPO of Life Insurance Corporation.
D. Promoting the start-up ecosystem in the country would lead to better tax treatments.
e. GST reductions on raw materials in sectors affected by Covid.
F. Greater concentration could be observed in the health sector
g. More sops towards EVs and renewables
h. Focus on more REITs and InvITs instruments
I. Regulations related to Cryptocurrencies
(Disclaimer: Opinions/suggestions/advice expressed here in this article are investment experts only. Zee Business suggests its readers consult their investment advisors before making any financial decisions.)