Textiles, cigarette makers and other stocks that have rallied since the budget

• Sensex has gained 1.25% this week but certain pockets of the market have seen sharper rise, anywhere between 2% and 30%
• Some of the top gainers in these pockets include stocks like Ambika Cotton Mills, Eastern Silk Industries and Raghunath International.
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The budget has not moved the market in a big way, except for a brief moment after Finance Minister Nirmala Sitharaman’s speech on February 1. However, there have been some pockets that have seen some sharp rise, anywhere between 2% and 30%.

These include textile stocks like Ambika Cotton Mills and Bombay Dyeing, cigarette makers like ITC, companies like Tata Power that make batteries for electric vehicles (EV), and mining giant Vedanta. The reason behind each rally is different. Let’s take a deeper dive.

Textile and cotton producers have got a huge shot in the arm

Finance minister allocated ₹12,382 crore for the textile sector in the budget, which is 8% higher than revised budget allocation of ₹11,449 crore last year.

Not just that, the budget also increased the allocation for cotton procurement by the Cotton Corporation of India (CCI) to ₹12,382 crore for the next financial year. For the current fiscal year ending March 2022, the government had budgeted a modest ₹3,632 crore but then, it ended up spending nearly four times more, ₹11,449 crore. The next year’s allocation is a lot more.

This money will be largely spent on supporting cotton prices, which had seen a severe crash since the start of the pandemic as the demand for new clothing fell substantially.

Aside from it, the economic survey has estimated that the production-linked incentives for textiles will lead to investment of over ₹19,000 crore in the next five years. This will attract a cumulative turnover of over ₹3 lakh crore with over 7.5 lakh employment opportunities in this sector.

No news is good news for cigarette makers
The fact that there was no talk related to taxation on tobacco or cigarettes was a relief for such manufacturers given there is always a fear of tax hike on cigarettes. The lack of any action would boost volume growth for cigarette companies.

ITC also gained from encouraging earnings. Overall profit grew 15%, thanks to 13.6% growth in cigarette sales, which make for nearly ₹4 out of every ₹10 that the company earns .

Electric times for battery makers
Indian government wants more electric vehicles on the road and therefore wants to make it as appealing as possible. The Finance Minister said that the government will come up with a new policy to allow standardisation in EV batteries, allowing the swapping of batteries across models.

Think of it like a mobile charger. If all phones had similar charging ports, it’s easier to find alternatives. Users can opt for the better or cheaper model, as they wish. That’s what the swapping policy is expected to enable in EVs too, given that batteries are the most expensive part of owning and operating an EV.

It will also solve issues like space constraints while setting up charging stations. This could open up huge opportunities for battery manufacturers in India.

Metal companies
Metal company stocks have been rallying ever since the FM said that the government is going to spend ₹7.5 lakh crore in the next financial year on capital investments. She also revealed more details about the government’s Gati Shakti programme, which promises to modernise India’s infrastructure by the hundredth year of independence.

This could mean a lot more construction of roads, bridges, tunnels, metro rails and other such projects, and which in turn will mean more orders for the metal companies.

Aside from this, the extension of customs duty exemption on steel scrap by one year aided momentum in steel stocks.


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