Watch out for infrastructure, banking and FMCG stocks

With the Budget approaching, financial market players have gone into overdrive speculating about the sops that the Finance Minister (FM) will dole out this year.However, given the present state of finances of Union Government the FM can't behave like Santa Claus. There is talk of long-term capital gains tax (LTCG) on equities being abolished and removal of dividend distribution tax (DDT). There is also an expectation among financial market participants that the period over which capital gains get classified as long-term or short-term could be streamlined across asset classes. Government may come out with ambitious disinvestment target of Rs 1.5 trillion for the year starting 1 April, mostly because many of the strategic sales planned for the current year, including that of Air India, have been delayed.

Also IMF lowering the global growth forecast rattled the sentiments of the investors. For the week ahead, chartists predict trading range of 40,750-42,750 and 12,025-12,500 for the benchmark indices. Support for the indices evident at 41,225 & 4,850 and 12,125 & 12,025. Though the impact of Budget on the market has been on the wane since the past few years, factors that are likely to have maximum impact include the government spending plan on infrastructure and farmers, a credible fiscal deficit target, and re-alignment of direct taxes (including long-term capital gains tax for all classes and scale of privatization.

FUTURES & OPTIONS

Ahead of Union Budget 2020, derivative segment continued to witness brisk and volatile trading. True to warnings in this column, markets took breather during the week ended. The Implied Volatility (IV) of calls closed at 15.64% while that for put options closed at 16.10%. The Nifty VIX for the week closed at 16.36% indicating continued volatility. PCR OI for the week closed at 1.05. In coming week, traders should remain very cautious as far index is concerned as volatility is likely to grip the market ahead of upcoming Union Budget. Expect stock specific action on the back of ongoing result season and news driven activity from Union Budget. With Union Budget 2020 on a Saturday, the stock markets which are generally closed on Saturdays and Sundays, stock markets will be open for normal trading on February 1, Saturday. Trading would be conducted during normal hours from 9 am to 3.30 pm.

Budget disappointment may trigger sharp unwinding of long positions warn punters. Ahead of Union Budget 2020, Infrastructure, Banking and FMCG stocks will be on investors' radar.

Top banks including HDFC, ICICI Bank, Axis Bank and Kotak Mahindra Bank to do well in the coming months. Incentive based vehicle scrappage policy may give "lift" to automobile stocks. If rumors of one-time capital gains and GST exemption for affordable housing come true, realty sector will be big gainer. Buy on declines ACC, Amaraja Batteries, Ambuja Cement, Bata India, Infosys, Petronet LNG, HCL Tech, PVR and Ujjivan.

(The author is a stock market expert. He is former vice chairman of AP Planning Board)

STOCK WATCH

AVT Natural Products Limited is engaged in the production of nutraceutical grade products. The company's principal products/services are Marigold Oleoresins, Spice Oleoresins and De-caffeinated Tea. It operates through the solvent extracted products segment. It engages in contract farming in which it provides farmers with seeds. In Spice oleoresins segment, the company's focus on increasing the topline while retaining the margins has started paying rich dividends. It continues to grow and consolidate the Decaff business to maintain its global leadership status.

The company made good breakthrough in the instant tea business and the value-added tea business vertical is expected to become a key pillar for the company in the years to come. The company has also entered the animal nutrition market with new feed additives to meet the changing needs of the customer. The business has begun its operations in June of 2019 with the formation of a new subsidiary in Mexico to service the Latin American markets. The Company's subsidiaries include AVT Tea Services Ltd. and AVT Tea Services North America LLC. High promoter stake (75 per cent), sharp increase in net profit in trailing quarter by 111 per cent and good visibility of earnings make this company good investment bet for price target of Rs 75 in medium term.