Stock market: Which sectors Morgan Stanley's Ridham Desai is bullish on
Changes in LTCG should make private equity and venture capital investments into India more attractive, Ridham Desai said in a note
Morgan Stanley India's Ridham Desai shared a note on the key takeaways from the Union Budget 2022 from a stock market perspective. Asset sales are likely below market expectations and also lower than last year, which is good for the stock market from the perspective of fresh equity supply, he said.
The change in long-term capital gains (LTCG) tax was positive (versus expectations that there may be an increase in the tax rate), with non-listed securities brought on par with listed securities as surcharge on tax has been capped at 15%. This should make private equity and venture capital investments into India more attractive, the note stated.
"Apart from direct spending proposed by the government, other steps – such as extending the special 17% tax rate for new companies starting new manufacturing facilities – imply that the government continues to promote crowding in of private capex. Lower tax rate plus production-linked schemes are direct fiscal benefits for the companies wishing to spend on capital," Desai added. Though, lack of clarification on the tax issues around the fully accessible bonds was a disappointment, as per Desai.
He has suggested to Buy industrials as a new capex cycle is underway and may surprise on the upside. Rising capex is good for corporate profit margins until the capex becomes unproductive. Further, growth will likely be strong and could also surprise on the upside which can be a positive trigger to buy cyclical consumption.
"The Reserve Bank of India (RBI) will likely exit from its current accommodative stance at a faster pace than the consensus estimates. Buy Financials. We favour domestic cyclicals and financials over exporters and defensives. We are overweight on Financials, Consumer Discretionary, and Industrials whereas we are underweight on Technology, Healthcare, Energy, and Materials," suggested MS' Ridham Desai and Sheela Rathi.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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