Great Budget expectations take small-caps to record heights

The BSE SmallCap index and Nifty Smallcap 100 index hit record highs on Monday led by stocks from sectors such as sugar, fertilisers, realty, power, utilities, and capital goods. Analysts said investors are betting on some of these sectors on expectations of a share price run-up ahead of the Union budget.

The advance to decline ratio, a popular market-breadth indicator that compares the number of stocks that have risen as against those that have fallen, has risen to an average of 60.34% so far in January, the best since June 2020. A rising ratio shows more stocks have advanced than declined. In December, this measure was 57.94% and 52.33% in November.

The BSE SmallCap index gained 5.71% since January 1, 2022, compared to a 5.34% run-up in the Sensex. The BSE MidCap index rose 4.7% during this period, while the Nifty Smallcap 100 index rose 6.13% compared to a 5.5% gain in the Nifty50 index.

Analysts said investors are expecting the government to focus on capital expenditure in the upcoming Union budget on February 1. Sectors such as urban infrastructure, housing construction and manufacturing could receive further impetus in the budget, they said.

“Higher allocation is expected towards sectors such as defence, renewable energy, and infrastructure projects,” said Amnish Aggarwal, head of research, Prabhudas Lilladher. “Incentives towards localisation of defence products and renewable sector, fiscal support or policy measures to boost clean energy adoption is also expected in the budget.”

The BSE Realty index has gained 6.6% so far this year, while the BSE Power index jumped 12%. About 11 sugar stocks have un up between 5% and 25% in the last week. In the previous five trading sessions, almost all fertiliser stocks surged between 5% and 30%.

Deepak Fertilisers gained 29% in the past week, while Southern Petrochemicals and Madras Fertilizers gained 12% each.

Capital goods stocks such as Triveni Turbine, Praj Industries, Kirloskar Industries, and Thermax have gained 10-15% last week. The BSE Capital Goods index gained 5% in one week.

“There could be the inclusion of chemicals in the PLI scheme or providing incentives for capacity addition of key building blocks to reduce import dependency and incentives to encourage domestic capacity for intermediates and active ingredients and support exports of the same and formulations,” said S Ramesh, analyst, Nirmal Bang. “The government may introduce a nutrient-based subsidy for urea to encourage farmers to reduce excessive nitrogen use and improve the soil nutrient ratio.”