Union Budget 2022 and the Sector Impact
Budget 2022 has come and gone and while the fine print will be read and re-read many more times, the broad impact is getting clearer. For equity investors, one of the major areas of focus is what the budget means for various sectors of the economy. Before that, let us take a quick look at the broad gist of the budget.
It is a futuristic budget and not so much about instant gratification. It is normal to be disappointed when there is lack of instant gratification, but scratch the surface and there are a lot of sectors that are likely to gain from the budget. Of course, like in every budget, there will be some sectors that will be left out in the cold. Here is an objective look at the sectoral impact of Budget 2022.
SECTORAL GAINERS OF BUDGET 2022 (CHAK DE INDIA)
A number of sectors have emerged as clear winners and of course, some companies within the sectors have also emerged as winners.
The Budget 2022 announced cuts in customs duty on acetic acid and methanol. Both are critical inputs for manufacture of value added chemicals and will be positive to the users. The cut in customs duty on acetic acid is likely to benefit stocks like Alkyl Amines, Balaji Amines and Atul, which use acetic acid as a critical raw material input. This will also benefit companies like GACL and Meghmani Organics which use methanol as a key input.
Sugar stocks were among the gainers after the government imposed a penal duty of Rs.2 per litre on fuel that is non-blended. This is going to be an added incentive for the oil marketing companies to get more aggressive on ethanol blending. This announcement will benefit companies like Dalmia Bharat Sugar and Balrampur Chini which are aggressive on ethanol capacity expansion.
The Budget 2022 announced an aggressive plan to promote clean and mean transport. There is going to be a full-fledged battery swapping policy for electrical vehicles which should help EVs become items of mass consumption.
The EV ecosystem was the missing link and now that will be addressed. While this will be positive for the auto companies with a strong EV franchise, it is likely to benefit battery manufacturers like Amara Raja and Exide, which have aggressive EV battery plans on the anvil.
Cement and Construction sector
Both these sectors are likely to be big gainers of aggressive programs like 25,000 KM of fresh highways this year, a big push to affordable housing, mass transit systems etc. More than the cement companies, it will be the infrastructure companies that will stand to reap benefits from this announcement. Companies to benefit from this move would be L&T, IRB Infra, KNR Construction etc.
Pipes and Metal Longs
The steel industry is broadly classified into flats and longs. Pipes come under longs and that is the segment that has attracted interest due to the Rs.60,000 crore allocation to supply piped tap water to 3.8 crore additional households. Some of the big beneficiaries in terms of stocks would be Tata Steel, JSW Steel, Saw Pipes, APL Apollo Tubes etc.
Long on solar short on thermal
That seems to be the predominant theme of the Union Budget 2022. Let us first look at why long on solar. The Budget 2022 has allocated Rs.19,500 crore towards production linked incentives or PLI scheme for the manufacture of solar modules, solar panels and other support systems for solar energy. Among the big beneficiaries could be the companies like Adani Enterprises and Tata Power.
For the traditional thermal power plants, this focus on green energy is not very positive. Also, the budget has mooted the use of biomass pellets instead of coal and that is negative for coal mining too. For NTPC it could be neutral as it would lose on its core power business but gain on its renewable franchise.
Telecom and Data get a boost
The government in the Union Budget 2022 has confirmed the launch of 5G services in India during FY23. That is not too far away. In addition, the data centres have been given infrastructure status, with all concomitant benefits. This is likely to help stocks like Bharti Airtel, Tata Communications and Tejas Networks.
Local defence manufacturers get a leg-up
There is a lot going in favour of defence companies. Government has set aside 68% of its defence capex for farming out orders to local defence companies. This was just 58% last year. That would mean most Indian defence equipment manufacturers would gain from overflowing order books. This move will benefit companies like Paras Defence, L&T, Bharat Forge, MTAR, Data Patterns etc.
Are there any losing sectors?
A number of sectors did not get what they had hoped for. For example, PSU banks did not get any special package, automobiles are still grappling with microchip shortage and stainless steel could take a hit on lower import duties. However, it has overall been a budget favourable to industry.
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