Mumbai: Analysts expect the last full-year budget before general elections in 2019, which will be presented against the backdrop of uncertainty over tax collections post implementation of the goods and services tax (GST), to have a heavier dose of populism.

The government is expected to further enhance its focus on spending towards agriculture and rural themes in this year’s budget. Analysts expect higher allocation to Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), other rural development schemes and irrigation projects are likely to receive a big boost, while higher minimum support prices (MSPs) for agricultural crops could also be on the cards.

According to Motilal Oswal Securities Ltd, consumption pick-up (especially rural and discretionary), cyclical recovery in corporate facing banks and gradual pick-up in private capex are our key themes to play in 2018. It said that from an equity market perspective, it is important to see how the budget is able to make a difference to the rural sector, how the government is able to carry the burden of expectations, and whether the budget strikes the right balance between good economics and good politics, especially with the general elections around the corner next year.

With the budget ahead, here are few stocks to watch out for.

Auto stocks, particularly Hero MotoCorp, TVS Motor, M&M: Focus on rural markets is expected to place the two-wheeler industry back on the growth path. Motilal Oswal said benefits of normal monsoon and 7th Pay Commission could drive two-wheeler volume compounded annual growth rate of 10-12% over FY17-19.

ITC: Cigarette volumes have come under pressure after a 16% increase over earlier levels of GST. Motilal Oswal expects ITC to implement a weighted-average price hike of 14-15% to pass on the impact of higher GST rate. Any increase in ad valorem duty needs to be watched out. Unlike earlier years, the company has not taken any price increase ahead of the budget this year. If the expected increase comes through, volumes could come under further pressure.

Increase in total budgetary allocation towards rural and MNREGA will be positive for FMCG firms.

HDFC Securities sees a neutral to mild increase in taxes during the upcoming budget, since the government has taken two hikes recently.

“Its other businesses like paper, agriculture, FMCG and hotels are doing well, and could be beneficiaries in the forthcoming Budget. Going by the valuations enjoyed by the players in each of these segments, ITC could see a re-rating to play catch up with them," HDFC Securities said.

Banks and insurance companies: Analysts said higher allocation of funds to core sectors like infrastructure, housing, particularly affordable housing, and urban development. The budget is expected to bring more clarity over recapitalisation bonds for state-owned banks. All corporate banks—particularly State Bank of India, Punjab National Bank and ICICI Bank—will be worth watching out for.

Non-banking financial companies (NBFC): Analysts expect higher budgetary allocation for the MUDRA scheme. All housing finance companies will be beneficiaries of it.

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