Union Budget 2023 may focus on Capex, infrastructure; 5 stocks to buy before 1st February

Union Budget 2023 may focus on Capex, infrastructure; 5 stocks to buy before 1st February

Union Budget 2023 is just around the corner and Dalal Street is buzzing with speculations about what Finance Minister Nirmala Sitharaman would present in her fifth Budget. 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 Budget, here are the top five stock picks by Siddharth Khemka, Head – Retail Research, Motilal Oswal Financial Services Ltd.Stocks to buy before Union Budget 2023JK Cement(Target Price: Rs 3,490)

“After an initial hiccup in demand during early 3QFY23; we believe cement demand recovered strongly over the quarter. We estimate 10% YoY volume growth in 3QFY23, aided by strong infrastructure and real estate demand as well as the low base effect of last year. We remain positive on the cement industry dynamics for the next few years given: a) better demand prospects, led by infrastructure and housing sectors, b) heightened industry consolidation, and 3) regulatory changes in the allotment of limestone blocks. JK Cement is set to increase grey cement capacity to 25mtpa by FY25E. We believe profitability should improve driven by cost efficiency measures and improvement in geo-mix. We estimate EBITDA CAGR of 13% over FY22-25.”

KNR Construction(Target Price: Rs 310)

“Infra sector is expected to get a big boost in the upcoming budget in order to speed up the construction pace. KNR which provides EPC for roads & highways, irrigation and urban water infrastructure management, is well-placed to capture this opportunity. It is net debt free owing to timely execution and asset-light policy. It has the best balance sheet among the mid-cap Road EPC companies. The company has consistently displayed robust execution capabilities since its inception. This has been possible with: a) robust asset base and b) top management’s active involvement across all stages of project execution.”

NHAI’s robust tender pipeline of Rs 1,144b provides a huge opportunity for KNR. Also, strong execution of its Rs 80bn OB (2.5xFY22 revenue) provides visibility over next 3 years. KNR is our top pick for 2023 in infra space given strong growth visibility. We expect 14% revenue CAGR over FY22-24, with EBITDA margin of 18-19%. We expect its margins to be stable with input costs reducing along with some execution carried out in the high-margin irrigation projects.

SBI Life(Target Price: Rs 1,600)

“Insurance Amendment Bill is likely to be introduced in the budget wherein many changes are likely to be proposed. SBI Life is among our preferred picks in the life insurance space given its wide product offerings combined with robust distribution capabilities. It is seeing healthy traction in premium growth across segments, with Individual WRP delivering strong 20% growth over FY23 till date – higher than industry and other listed peers. The distribution machinery of SBI Life has exclusive access to over 22,000 branches of SBI, thereby, strengthening its banca channel. A strong agency channel in bancassurance provides company a distinct competitive advantage in the distribution of its insurance products. We expect SBILife to claw back its market share going forward, led by focus on protection and non-par savings, annuity segment. We estimate 25%/34% APE/VNB CAGR over FY22-25E, driven by continued momentum in Non-PAR Savings and Protection products.”

Cummins India(Target Price: Rs 1,775)

“Government awards picked up 12-18 months prior to the 2019 central elections, and the same could happen in 2023, which is the last window before the ordering embargo comes into effect in 1Q24 for the April-May 2024 elections. Cummins India, manufacturer of diesel & alternative fuel engines and power generator sets, is likely to benefit from this capex cycle recovery, adoption of alternative fuels, revival in industrial segment. Cummins recently tied up with Tata Motors to power latter’s CV with the fuel-agnostic engine systems from 2HFY24. It is also looking to launch lithium Iron Phosphate battery pack solutions for E-bus market in India over next 5 years. Management expects, with reduction in commodity prices and price hikes taken, gross margin to revert to ~35% over 18-24 months.”

(The stock recommendations in this story are by the respective research analysts and brokerage firms. FinancialExpress.com does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)