The Union Budget is presented each year on the very first day of February by the Finance Minister in Parliament. In this blog, we investment picks for budget 2022 based on Govts initiatives.

This year the Budget will be presented by Finance Minister Nirmala Sitharaman around 11 am on February 1 2022. While the recovery from the pandemic is still pivotal concern, the government may also focus on developing infrastructure, GDP, healthcare, MSMEs, income tax, provident fund and other critical aspects in the upcoming Budget. These Investment Picks For Budget 2022 Stocks would be the first pick of any in investor.

Budget Expectation:

  • The government’s prime focus while preparing Budget 2022 would be devising a robust growth map to revive the economy thumped by COVID-19. India’s economic advisory expects the nation’s growth to range between 7% to 7.5%. However, the council also mentioned that the government should not create unrealistic revenue targets.
  • Budget FY22 will primarily focus on growth and strengthening key sectors like Agriculture, Banking, Healthcare and Infra
Agriculture
  • With a view to give a boost to the agriculture sector, the government is likely to raise farm credit target to about ₹18 lakh crore in the Budget 2022-23.
Health Care
  • Since half a portion of our population is yet to be fully vaccinated and the introduction of booster dose is on cards, the government will continue to allocate a significant amount of resources towards healthcare segment. With new variants continuing to emerge across the world, our battle against COVID-19 shall go on in the next fiscal year as well.
  • The pharma and medical devices sector has gained significant momentum owing to the government’s AatmaNirbhar Bharat initiative. The budget is expected to build on the Production Linked Incentive (PLI) schemes and encourage continued investments in capacity expansion of sensitive APIs, complex excipients, drug intermediates, biopharmaceuticals and medical devices.
Banking & Finance
  • A dedicated refinance window for NBFCs directly from the central bank, on the lines of National Housing Bank (which provides refinance to housing finance companies or HFCs) has been a long standing demand for the NBFC sector.
Realty & Infra
  • The upcoming Union Budget is expected to have a huge infra push from a dual perspective – Government capital expenditure will be increased to support the economy as it transitions to recovery and the main focus would be the detailed outline of National Monetization Plan where the government would be leasing infrastructure assets to the private sector. This is expected to fetch revenues of up to $100 billion in the next few years.

Real estate developers are seeking an increase in the limit of home loan interest deduction for tax rebate to Rs.5 lakh from current ceiling of Rs.2 lakh, a review of definition of affordable housing, lower long-term capital gains tax for real estate and new provisioning for rental housing in the upcoming Union Budget for 2022-23.

MSME
  • The small business sector has been severely battered by the pandemic. MSMEs are the second largest employment generators, providing jobs to around 11 crore people in India. Furthermore, they account for 48% of exports from our country. As 30% contributors of the GDP, MSMEs are expecting the government to reduce the compliance burden in all aspects, be it taxes, loans, audits, or licensing.

Investment Picks For Budget 2022 :

Number 1:

Tata Consumer Ltd
Buy : Rs. 738 Target : Rs. 804 Stop Loss : Rs. 705

Investment Rationale:

  • Consolidated revenue grew 9.1% YoY in Q2FY22, on improving domestic performance with market share gains of 168bps in India beverages and 300bps in India Foods business during the quarter. Revenue in India Branded Beverages and Foods grew 13% and 23% YoY to Rs.1270 crs and Rs.710 crs.
  • The unlocking of sales and distribution synergies from the merger of group companies has started to yield results. This is evident from the market share increase in Tea (+190bp YoY) and Salt (+160bp YoY) in FY21 (it also increased in 1HFY22) on the back of an increase in numeric distribution.
  • As of Q2FY22, company has 1.1 mn outlets and expected to reach 1.3 mn outlets by FY22-end. Rural reach strengthened to more than 4000 distributors.

Outlook:

Strong volume and pricing growth led by rising demand should aid performance in the coming quarters. Strong momentum is expected to continue in India foods business with increased distribution network and launch of new products. International market has already reached pre-pandemic demand levels. The new DSR program with focus on premium portfolio mix should aid margin improvements.

Risks:

  • With TCPL’s business largely being marketing of branded tea and coffee, the company is susceptible to price fluctuations in tea and coffee.

Number 2:

Apollo Hospitals Enterprise Ltd
Buy : Rs. 5075 Target : Rs. 5600 Stop Loss : Rs. 4830

Investment Rationale:

  • Apollo Hospitals Enterprise Ltd. (AHEL) is India’s leading hospital chain with 71 owned and operated hospitals, 10,000+ bed capacity and 7,800+ operating beds. With hospitals across the country, particularly in the metros and large cities, AHEL has established itself as a leading name in quality care. It has an established presence in southern India with 4,300+ operating beds in this region.
  • AHEL has a retail pharmacy chain of over 4,292 (Sep’21) stores across the country. Its retail pharmacy business grew at a CAGR of 20%+ over FY13-21. On the back of network rationalization, increase in private label penetration, and improving service, its revenue per store has increased consistently from Rs.0.73 crs in FY13 to Rs.1.18 crs in FY21. Higher per stores revenue is contributing to better margins due to operating leverage.
  • AHEL operates its online pharmacy services through an omni-channel model, leveraging its existing offline presence through the Apollo pharmacy network, in which it holds a 25.5% stake post the stake sale in SAP. An omni-channel presence reinforces brand value and enables faster delivery of medicines due to closer proximity to consumers

Risks:

  • A delay in profitability improvement of new hospitals, lower-than expected share of private labels in the pharmacy business, lower-than anticipated footfall at clinics in the AHLL segment, and lower-than-estimated ramp-up in daily online orders pose a key risk.

Number 3:

KNR Constructions Ltd
Buy : Rs. 310 Target : Rs. 358 Stop Loss : Rs. 285

Investment Rationale:

  • KNR’s order book at the end of Q2FY22 was at Rs.6,511 crs, mainly contributed by irrigation (47%), roads – HAM (18%) and roads – EPC (35%) segments. Including the recently won three HAM and one EPC projects (worth Rs.5,083 crs), its order book position was robust at Rs.11,594 crs.
  • Currently, KNR is in the process to submit bids for 10 road projects having average ticket size of Rs.1,000-1,200 crs. Overall, the management is aiming to secure two to three HAM projects in FY22 and aiming to win Rs.2,000- 3,000 crs of orders in the rest of FY22.
  • The company has reported 24.5% revenue CAGR over FY16-21 and has consistently delivered industry-leading operating margin of ~20% throughout past three years. KNR has incurred capex of Rs.100 crore during Q2FY22 and the management has guided for Rs.150 crore of overall capex in FY22 (excluding investment towards Kerala’s quarry land: ~Rs.100 crore)

Outlook:

  • KNRC witnessed robust growth in toll collection led by increased passenger vehicle and goods movement due to the festive season. Going forward, company expects the momentum to accelerate further. Company is also planning on entering to the railway sector as there is huge potential of Rs.100tr.

Risks:

  • Any Delay in the execution of HAM Projects will impact the revenue and working capital stress in the water or irrigation projects.

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