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The domestic benchmark equity indices dropped more than 7% in the month of February as investors maintained caution ahead of the Union Budget 2016-17 and on account of weak global cues. However, post the budget, the market witnessed a strong rally as there were no adverse changes pertaining to long-term capital gains tax on sale of shares in the budget, and given the governments pronounced thrust on the infrastructure sector. The government’s decision to stick to the fiscal deficit target (3.5% of GDP) for FY2016-17 also contributed to the positive sentiments in the market. Further, with the government well on target in containing the fiscal deficit, it provides room for the RBI to implement a further rate cut in the upcoming Monetary Policy meet. Over the past few quarters, companies with a considerable rural exposure have been underperforming on the earnings front due to rural slowdown caused by two consecutive sub-normal monsoons. However, to ease rural distress, the government has announced higher allocations towards rural schemes in the budget which will provide a much required boost to the rural economy. Additionally, the implementation of the Seventh CPC would also drive rural consumption, thereby benefiting rural consumption based companies. Further, the government has also increased allocation towards roads & highways, housing, irrigation, and power etc, which will drive demand for EPC companies, asset developers and cement companies. On the global front, Europe has announced the expansion of the QE program which is expected to increase liquidity in the Indian market as it poses as an attractive investment destination compared to other emerging markets. We are positive on consumption driven stocks like Blue Star, Radico Khaitan and Siyaram Silk Mills, TVS Motors. Further, we expect rate sensitive sectors like automobile, assets developers, real estate, and housing finance to benefit from an anticipated rate cut by the RBI. In this space, our top picks include, LIC Housing Finance, Mahindra Lifespace, and IL&FS Transportation Networks, amongst others.Download Full Report