With the Union Budget barely two weeks away, a section of the market will be eyeing tactical bets that could pay off if some of the policy expectations come through. The Union Budget for 2023–24 will be presented by Finance Minister Nirmala Sitharaman in the Lok Sabha on February 1.
Experts believe that since this would be the last full-fledged budget of the incumbent central government, it is likely to focus on capital expenditure (capex) as a growth driver and give an impetus to manufacturing, and infrastructure while continuing with the post-pandemic fiscal consolidation. Sectors including manufacturing, capital goods, defence, sustainability, railways, and public sector banks are expected to remain in the spotlight.
Ahead of the main budget announcement, brokerages have come out with stock and identified them as pre-budget picks. LKP Securities is bullish on six stocks. These stocks are from diverse sectors like FMCG, infrastructure, Agri, and power among others.
The brokerage is expecting a double-digit upside in these six stocks with target prices likely to be achieved in a 3-4 months timeframe. Thes six stocks are Power Finance Corp, ITC, Tata Power, NTPC, Siemens, and Chambal Fertilisers and Chemicals.
Power Finance Corporation:
This government-owned company is the financial backbone of the Indian power sector. LKP picks PFC to play the changing face of the sector. The brokerage is optimistic about the company due to the resolution of legacy portfolios coupled with encouraging asset quality trends. Also, enforcement of discipline in the power sector through calibrated penalties on defaults by discoms alongside the incentivized clearing of old overdue is some of the positive tailwinds for PFC ahead.
LKP believes that the power sector is likely to be in strong focus ahead of the budget and also be one of the highlights of the session.
LKP has recommended buying PFC shares for a target price of Rs 156/167 with a stop loss of Rs 118. The duration is 3-4 months for the target price.
ITC
This FMCG giant is a diversified conglomerate that is seeing strong traction in all its business verticals thereby making the 25% ROE business an attractive proposition.
ITC is positioned in a sweet spot due to new product launches and positive tailwinds across its business verticals.
LKP’s note said, “we envisage a moderate tax scenario for cigarettes and the improving margin profile across its business verticals resulting in robust free cash generation thereby enhancing prospects of a de-merger going forward."
ITC is among the top performer in the entire FMCG space and is likely to continue to lead the sector in the coming months. LKP’s note said, the stock is trading in a strong uptrend with the higher high and higher low formation on all the time frames confirming the strong bullishness.
LKP has set a target price of Rs 370-385 on ITC shares with a stop loss of Rs 285 apiece.
Tata Power
The Tata Group-backed company is the country’s largest power distributor in the private sector with a presence across the power value chain and is seen as an attractive bet to play Clean Energy and EV infrastructure.
In LKP’s view, the company’s de-leveraging and strategic roadmap on the renewables business should bolster its prospects ahead.
Notably, capital allocation towards high-growth areas of renewables, solar roof-tops, solar water pumps, and EV charging stations provides a structural growth story for Tata Power.
LKP’s note said that the diamond stock from the prestigious Tata Group had seen a strong up move past 2020 after a massive underperformance for 12 years.
LKP has set a buy rating on Tata Power stock for a target price of Rs 260 to Rs 270 ahead with a stop loss of Rs 180.
NTPC
NTPC, which is the country’s largest power producer with over 70 gw of capacity, is looking to quadruple its share of non-fossil energy from the present level of 10% in the next decade through its subsidiary, NTPC Green Energy.
Further, NTPC with a 25% market share is expected to transform itself from conventional energy into an ESG accretive energy company and its recent collaboration with Energy Vault is aimed at accelerating its energy transition goals. LKP believes its low cost of funds and aspirations in growing its RE portfolio would improve ESG score and boost investor confidence in NTPC.
The brokerage expects a decent rally in NTPC over the medium term. While recommending buying, LKP has set a target price of Rs 180-200 on NTPC with a stop loss of Rs 148.
Siemens
LKP picks Siemens to play the upcoming Railway CAPEX theme on electrification and signaling. The company has a strong order pipeline in railways, metros, airports, and infrastructure projects which gives clear visibility going forward given its undisputed leadership in technology.
Traction has been witnessed across energy, mobility, and smart infrastructure positioning Siemens at the forefront.
The brokerage believes over the medium term, Siemens stock could rally between Rs 3,200 to Rs 3,400 with a stop loss of Rs 2,600.
Chambal Fertilisers and Chemicals
Chambal stock has corrected substantially on account of higher subsidies from the government which together with the rupee weakening and the Russia-Ukraine conflict put pressure on its working capital and leverage position.
However, LKP picks Chambal to play the Agri theme ahead of the Union Budget given the assurance from the Finance Ministry regarding payment of subsidies and the company’s strong footprint in both Urea and NPK.
LKP recommends buying for a target price of Rs 325-360 on Chambal with a stop loss of Rs 260.
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