Hi friends,
We are well past budget and there is no news in it, no news is good news in any sense but let me come to my thesis immediately as promised.
Instead of taking you through what all our FM said, let’s directly jump to the place where there can be possible action. I will try to find triggers in the budget proposal, with potential opportunities, so this can be a bit longer than anticipated. Here we go…
The biggest capital expenditure was proposed for infrastructure development under PM Gati shakti's mission and then there were many interesting triggers in other sectors as well, I have highlighted most interesting to me, with the list of companies and their relative valuations right now. Treat it that way, nothing else.
Expanding highways by 25000 km this year, which is ~30% more than what is done in the last two years.
A big trigger for Infrastructure, Cement, and Steel companies.
L&T, Ultratech/ACC, Tata Steel/JSW.
But most of them are already trading at higher valuations.
High risk - Average reward.
Also, the addition of 400 Vande Bharat trains
Metal companies, especially aluminum.
Hindalco, Nalco
Trading at a lifetime high.
High risk - Average reward.
Unified Logistics Interface Portal for data exchange.
IT company building that, still not known to me.
If a small company gets the tender there can be an opportunity.
Wait and Watch.
100 cargo terminals to be developed for multimodal.
Cargo and Logistics companies started picking up last year.
VRL/Allcargo/Concor/TCI, any other suggestions?
Trading at reasonable valuations.
Average risk - Average reward.
1.5 lac post offices to be integrated into the core banking system.
Large-cap IT company doing that.
Infosys/TCS
Valuations are reasonable.
Average risk - Average reward.
The outlay of Rs 44,605 crore for implementation of Ken Betwa Link Project
Massive opportunity for infra companies in MP/UP.
Engineers India/L&T/Local companies (suggestions?)
Reasonable valuations.
Average risk - High reward.
68% of the capital procurement budget for Defence earmarked for domestic industry
Huge opportunity for Indian defense manufacturers.
HAL / MTAR / Paras defence.
Some of them are trading at very expensive valuations.
Average risk - High reward.
Battery swapping policy as an alternative to setting up charging stations.
The massive trigger for EVs, especially 2W.
Hero/Startups/Reliance.
Some of them are at historically lowest valuations.
Low risk - High reward.
If you like this list, do share it with interested people in your circle.
There were many other interesting triggers in the budget like the use of drones for farming, digital tech for farmers, infrastructure status for data centers, PLI scheme for 5G equipment, Solar equipment, digitization of land records, etc.
I found these interesting but since the budget outlay in many of them was not discussed and some of them are already running schemes, I neglected them.
If you find any interesting bets on these ideas, do share in the comments.
Coming to the decision-making process, now since we have a lot of triggers identified, we have to trim down this list to a favorable stock that we can bet on. But before that…
I suggest you not take these names for granted without studying them deeper before putting in your money. Based on my experience, it’s very difficult to rely on what the government is proposing and what are the actual results, you never know when the macro scenario change and it might happen that the companies are stranded waiting for government action. So this is a real risk. Beware.
Coming back,
I would always like to focus on a sector that has already picked up in work instead of something that is yet to start.
Also prioritizing clean companies with no political/moral/legal problems is a MUST.
Picking up the private company over government was favorable for the last decade, and I think it will take time to change that perception, perhaps a few more years.
Bet on sectors which you personally like more and companies whose products are known to you, that gives you added advantage at times when the market is crashing.
For me, EV is the space where I am more biased and I have already told you about the HERO of the EV in last month's post. It is more resolved now.
Also, the startup’s area in EV can be a game-changer, I am looking for some of them, will share If I choose to invest in those startups.
Another developing area is defense and drones, but I have no knowledge of them, so it’s difficult to provide you with any concrete names there.
Revisiting EV thesis for battery swapping technology.
Reliance Industries have signed a partnership with Britain’s BP pIc, if the policies are favorable they can take one of the biggest chunks in battery swapping tech, you already know what reliance can do with its deep pockets.
But what is more interesting is the partnership of HERO with Taiwan-based Gogoro.
You should do a simple google search on it, or see their achievements on youtube. They have proven battery swapping tech and with a favorable policy, Hero is ripe to bear the fruits.
If things go according to schedule, the March 2022 launch of HERO's first EV with Gogoro’s backed battery swapping tech, can be a game-changer in Indian two-wheeler space.
However, there are always ifs and buts in execution, let’s wait for the story to unfold.
I will keep you posted on any further development on this space.
If you like this discussion, do share it with interested people in your circle.