Top 10 ways the budget may impact your portfolio

In my opinion, the Federal Budget may have a far-reaching impact on some sectors and stocks.

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It is often said that an ounce of prevention is worth a pound of cure. Shareholders in vehicle fleet management company McMillan Shakespeare Limited (ASX: MMS) would attest to the impact of proposed legislation on Fringe Benefit Tax changes. Last year the stock plummeted from a high of $18 to below $7.

The recently released National Commission of Audit's report outlined potential reforms to cut the government debt to GDP ratio. It's felt that the government may be guided by this report. As such it is safer than usual to make pre Federal Budget predictions.

Here are 10 ways that the Federal Budget may impact on sectors and associated stocks:

  1. A slowdown in consumer spending

An increase in taxes, healthcare costs and the abolition of some family benefits will potentially subdue spending. Sentiment can be easily affected as revealed by the latest ANZ-Roy Morgan indicator revealing that consumer confidence had slumped to its lowest level since the 2008 global financial crisis. In general terms this may impact discretionary retailers including Super Retail Group (ASX: SUL),  Premier Investments (ASX: PMV) and Myer Holdings Ltd (ASX: MYR)

  1. A slowdown in Government spending

It seems that higher-income earners will be excluded from Medicare and the health insurance rebate. Additional hits will come from co-payments for visits to the GP and increases in prescription costs. This may result in a slowdown in visits to doctors, pathology and drug sales. Stocks negatively impacted due to a heavy reliance on bulk billing include Sonic Healthcare Limited (ASX: SHL) and Primary Health Care Limited (ASX: PRY).  Pharmacy wholesalers, Australian Pharmaceuticals Industries Ltd (ASX: API) and Sigma Pharmaceutical Limited (ASX: SIP) could also be impacted by the increased costs of drugs.

  1. An increased chance of further interest rate cuts

The slowdown in both consumer and government spending may lead to both interest rate cuts and a falling Aussie dollar. Those companies benefiting from lower interest rates include Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd. (ASX: NAB), Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA) and Telstra Corporation Ltd (ASX: TLS). In all cases the sustainable fully franked dividend yields will look relatively more attractive compared to bank deposits.

  1. An increased chance of a lower Australian dollar

Chief beneficiaries would be those companies who receive revenue in U.S. dollars. These include blue-chip heavy-weights CSL Limited (ASX: CSL), ResMed Inc (ASX: RMD) and Amcor Limited (ASX: AMC). The major miners including Santos Limited (ASX: STO), Woodside Petroleum Limited (ASX: WPL), Rio Tinto Limited (ASX: RIO), BHP Billiton Limited (ASX: BHP) and Fortescue Metals Group Limited (ASX: FMG) would also be winners.

    5.     Impact on guidance made by companies during the last reporting season

 

Some companies placed heightened emphasis on second half sales to meet full-year guidance. Should the consumer become more conservative, companies that may be at risk of an earnings downgrade include Treasury Wine Estates Ltd (TWE) and Southern Cross Media Group Ltd (SXL).

  1. Impact of deficit levy

A temporary 1-2 % increase in the marginal tax rate of high-income earners may take some of the heat out of the real estate market. Ratings agency Moodys highlighted possible risks to the housing market if the current price rises were revealed to be "speculative sentiment". This may impact upon digital advertising business REA Group Limited (ASX: REA) that operates realestate.com.au and property developer and investor Mirvac Group (ASX: MGR).

  1. Increase in privatisations

As the government is encouraging asset sales by the states, increased privatisation seems very likely at the Federal level. This would benefit investment banks such as Macquarie Group Ltd (ASX: MQG) and potential acquirers such as Origin Energy Limited (ASX: ORG).

  1. Increased infrastructure spend

To offset the pain of increased taxes and user-pays healthcare, the government is looking to spend up to $10 billion on infrastructure projects. There would be many beneficiaries of this largesse including infrastructure and property developer Lend Lease Group (ASX: LLC) and diversified engineering and property services firm UGL Limited (ASX: UGL).

  1. An increased IT spend to benefit technology companies

My colleague Andrew Mudie wrote an incisive article on potential upgrades to a host of ageing government IT platforms. Winners from this may include SMS Management & Technology Ltd (ASX: SMX), Oakton Limited (ASX: OKN) and UXC Limited (ASX: UXC).

  1. An expanded role for healthcare

Private health insurer NIB Holdings Limited (ASX: NIB) would welcome proposed changes by the Commission of Audit last week. This would potentially expand the health insurance system beyond the 47 % of Australians that are privately insured. NIB currently has approximately 8% of the market.

Motley Fool contributor Mark Woodruff does not own shares in any of the companies mentioned in this article.

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