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SBI to HDFC Financial institution, Escorts, Bajaj Finance, Kotak Financial institution, Cipla to SBI Life – The “Make or Break” Union Funds – Expectations 2021-22

The GEPL Capital emphasizes that the sentiment surrounding the 2020-21 Union budget is for the government to announce a series of measures that will help revitalize the domestic economy. The budget would primarily be aimed at increasing the level of investment and consumption, which will result in significant job creation. Much of this could be done through the infrastructure development path, which entails higher investment. Higher financial allocations for investments (infrastructure) and the resulting employment opportunities would in turn lead to higher consumption. Here are some thoughts on stocks from SBI to HDFC Bank, Escorts, Cipla to SBI Life.

Banking and finance sector:

According to the Reserve Bank of India (RBI), gross distressed assets (NPAs) could soar to 14.8% by September in the worst case. India’s upcoming budget could set a framework for setting up a bad bank to handle the expected influx of bad loans following the pandemic. A bad bank would allow regular banks to sell their bad loans and focus on doing new business. Non-bank financial firms look to the government to provide continued liquidity support by encouraging banks to lend more to the sector. All funds set up to fund lower-rated NBFCs that are exposed to liquidity stress are positive.

Frontliner stocks: SBI, HDFC Bank, Bajaj Finance, Kotak Bank

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Automotive sector:

The government could increase budget spending on rural areas, which would be positive for tractors and 2W. To get obsolete and polluting old vehicles (trucks and buses) off the road, GEPL expects the government to put in place an incentive-based scrapping policy that will be implemented soon. In addition, we expect the budget to incentivize the local manufacturing of EV batteries. Emphasis will also be placed on the fine print of the Production Linked Incentive program to help boost local manufacturing. A reduction in GST rates for vehicles would be a positive surprise but remains unlikely.

Frontliner stocks: M&M, Maruti Suzuki, Escorts & Amara Raja for the batteries

Health and Insurance Sector:

The Indian government has already put in place a production-based incentive system to encourage local production of Critical Key Starting Materials (CSMs), Drug Intermediaries (DIs), Active Pharmaceutical Ingredients (APIs) and the bulk drug park promotion program. Promote health insurance for individuals by increasing the deductible amount for paying the health insurance premium under Section 80D of the ITA. Public spending on health care, total center and state spending for FY20 was 1.29% of GDP, which is well below many emerging markets and needs careful scrutiny after the pandemic.

Frontliner stocks: IPCA Labs, Divis Labs, Apollo Hospitals, Cipla, Cadilla & SBI Life, HDFC Life for Insurance