Published on 22/01/2018 4:53:33 PM | Source: GEPLCapital Ltd

Union Budget Expectation 2018-19 - GEPL

Posted in Budget Reports| #GEPLCapital Ltd #Special Report #Union Budget

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The Union Budget this time will be very significant as it would be the first budget post GST and the last budget before the general election 2019. The government has announced that it is reducing additional borrowing to ` 200.00 billion from ` 500.00 billion earlier, in the current financial year (FY18), signaling to markets and experts about the Centre’s commitment to fiscal consolidation. But even then, the fiscal deficit may reach up to 3.4% of gross domestic product (GDP), higher than the 3.2% pegged in the Budget for 2017-18. The country’s economic growth is expected to improve to 7.1% next fiscal from 6.5 per cent this year buoyed by robust consumption demand, structural reforms like GST and Insolvency and Bankruptcy Code (IBC).

Expectations From The Finance Minister

Rising oil prices and managing fiscal deficit are factors that would weigh in the mind of the Finance Minister Arun Jaitley this budget. Bringing down the maximum Income Tax slab to 20%, convergence to three-four GST slabs and bringing all items under it were among the demands made to Union Finance Minister by industry and trade representatives. The Minister has taken various steps, including setting up of the National Investment and Infrastructure Fund (NIIF), to boost investment in the infrastructure sector. According to the Finance Minister private investment, along with public and foreign investment, is the key to boost growth and create more job opportunities in India, following which there were talks in PM’s administration to raise the foreign investment limit in private sector banks to 100 per cent from 74% and in state-run banks to 49% from 20%.

Agriculture Sector

With PMFBY (Pradhan Mantri Fasal Bima Yojana), Government of India has taken a big step towards insurance of crops. Under PMFBY, the state governments are also expected to invest in a series of automatic weather stations (AWS) or rain gauges (ARG) to identify the weather conditions at local level. The budget is expected to have an amended New Investment Policy (NIP) involving investment benefits for Urea fertilizer’s manufacturers, as the domestic urea capacity is falling short, and as a result, the government has to rely on imported urea for meeting the urea demand. Also it is aiming at increasing minimum support price (MSP) on food grains and pulses based upon the market scenario, passing on the subsidy benefit for fertilizers to the farmers through implementation of Direct Benefit Transfer (DBT). Stock to Watch: RCF, Chambal, GNFC, Coromandel International, FACT, NFL etc.

Banking and NBFC Sector

Finance Minister Arun Jaitley in October had announced an unprecedented ` 2.11 lakh crore two-year road map to strengthen PSBs, reeling under high non-performing assets (NPAs) or bad loans. The plan includes floating re-capitalization bonds of ` 1.35 lakh crore and raising ` 58,000 crore from the market by diluting government s stake. The finance ministry has approved proposal for infusion of ` 7,577 crore in 6 weak public sector banks (PSBs) as part of the recapitalisation plan to bolster capital adequacy ratio. Lenders, which will receive capital through preferential issue of shares, include Bank of India, IDBI Bank and UCO Bank. At the same time, the government has decided to infuse ` 2,257 crore in the Bank of India, ` 2,729 crore in IDBI Bank, ` 650 crore in Bank of Maharashtra, and ` 243 crore in Dena Bank. Under the Indradhanush road map announced in 2015, the government had announced infusion of ` 70,000 crore in state- owned banks over four years.

The government has already pumped ` 51,858 crore capitals in the PSBs; the remaining ` 18,142 crore will be injected into the banks over the next two years. Also to boost investment in Private Banks the government is holding talks to raise the foreign investment limit in private sector banks to 100 per cent from 74% and as well in state-run banks to 49% from 20%. Focus on improving credit inflow to MSME (Micro, Small & Medium Enterprises) and affordable housing is also expected in the Union Budget. The government is expected to increase the allocation for Pradhan Mantri Mudra Yojana. This will help financial inclusion into the country aiding the MSMEs to finance their business needs and banks and NBFC’s to improve their credit offtake. The budget is expected to increase the fund limits on affordable housing or increase subsidy provided on interest rates for borrowers from the current levels. Hence, the credit offtake for affordable housing will be increased, in-line with the government’s agenda of ‘Housing for All’. Stock to watch: SBIN, PNB, BOB, HDFC Ltd, HDFC Bank, ICICI Bank etc.

Logistics sector

The FY19 budget will also hold higher relevance for the logistics sector as it was accorded infrastructure status in November last year. Eway bill is set to reduce transit time for goods transportation by using electronic transit pass, which can be used across multiple states will be rolled out nationwide by Feb 1, 2018. The e-way bill will do away with the present system of transit pass which is needed for transporting goods from one state to the other. With the emphasis on the data penetration boom, e-commerce is a major opportunity for the entire logistics industry. The upcoming budget will see reforms, rules and taxes being framed for the entire e-commerce industry, which, if done properly, can boost the entire sector. The government has been bullish on reforming the logistics and infrastructure sector, which was evident from the 10 percent increase in transport infrastructure budget allocation in 2017-18. In addition, funds were allocated for the Sagarmala project, to build multimodal logistics parks, and to develop coastal roadways. Stock to watch: Mahindra Logistics, Snowman, TCI Express, Gati, VRL Logistics, Allcargo Logistics etc.

Consumer Staples, FMCG & Discretionary sector

Retailers across the country have asked the government to grant industry status to the sector for easier access to finance and attract more investments .Union Cabinet recently approved a proposal to allow 100 per cent FDI or foreign direct investment through automatic route in single brand retail from the present 49 per cent. The retail and consumer industry have insisted that the budget should widen the tax slabs for individuals, which would in-turn lead to increased disposable income. Consumer appliances are expected to be made more affordable to the consumers and therefore be put in a lower tax bracket - from 28% to 18%. A further tax reduction on energy efficient products - 12% for 5 star and 4 star products, to increase the adoption of sustainable appliances by Indian consumers is expected from the government. Further any announcement by the government that leads to an improvement in rural income will trigger FMCG demand growth, also if Priority sector status is given to the dairy sector it will encourage dairy farming. Stock to Watch: HUL, Britannia, Shoppers Stop, Avenue Supermarts, Whirlpool, Voltas, Bluestar etc.

Automobile sector

The government is expected to provide financial incentive to replace vehicles older than 10/15 years. The long-term measures for agriculture sector to push farmer productivity/ income levels up would prove to be beneficial for the tractor and other farm equipment manufacturers. Higher JNNURM orders for bus manufacturers and incentives for EVs under the STU (bus procurement program), Increased allocation under the scheme for STU procurement of buses, and incentives for electric buses would boost the industry growth. The Society of Indian Automobile Manufacturers has also sought inclusion of certain imported electric vehicle parts in preferential tariff list to help promote the eco-friendly technology. SIAM has asked the government to restore incentives given on research and development in the form of weighted tax deduction to 200% from 150% if corporate tax is not reduced. Stocks to watch: Maruti Suzuki, M&M, Ashok Leyland, Tata Motors, Eicher Motors etc

Infrastructure/ capital goods and Engineering Sector

Roads — including highways and rural roads — and railways are one of the most capital intensive expenditures of the Union Budget, after the defence sector. Rural roads, under Pradhan Mantri Gram Sadak Yojana (PMGSY), with an infusion of ` 190 billion, has been included. Dedicated allocations for specified large infrastructure projects announced such as Bullet trains, Bharat Mala, Sagar Mala, Smart Cities, inland waterways development, etc can also be made to expedite these projects in the budget. Further, budgetary allocation towards NHAI can be increased keeping in view the increased capital outlay on national highway development. Stock to Watch: L&T, IRB Infra, Ultratech Cement etc.

Defense Sector

Defense sector is one of the most important sectors where government allots substantial funds. The need for higher budget allocation in the upcoming Finance Budget for 2018-19 has become a crying need, as India’s defense forces focus on enhancing its combat capabilities while facing adversaries both on its western as well as eastern side of international borders. Defense allocation continues to remain at about 1.6 per cent of the gross domestic product (GDP). The three services – Army, Air Force and Navy – need at least $4-5 billion for the next six to seven years in order to address the funding gap of $50 billion that is there at present. When the BJP power came to power in May 2014, there were expectations that defense acquisition process would get a shot in the arm with an increased focus on indigenization in defense production in order to achieve self-reliance under its flagship ‘Make in India’ program. Stock to Watch: Reliance defense, BHEL etc.

Energy & power Sector

A roadmap was announced by the government to procure about 110Gw renewable energy, over coming months up to 2020. India, which imports over 80 per cent of its oil needs, wants to cut its reliance on foreign oil by 10 per cent by 2022 for which India will offer foreign investors USD 300 billion worth of investment opportunities in energy projects over the next decade as declared by the Oil Minister. This pipeline of tenders offers a big growth opportunity for manufacturers, investors, and developers. The government is focusing on the growth of energy infrastructure, through new pipelines, LNG terminals, and offshore gas development projects. Also, the government has set the target to electrify 4 crore un-electrified households in the next 15 months for which if allocated further would boost the power manufacturing companies. Stock to Watch: NTPC, Tata Power, Inox Wind , suzlon etc

Cement Sector

Levy of basic customs duty on cement imports into India or alternatively exemption of import duties on key inputs like coal, pet coke, gypsum, etc. for cement would cap the increasing input cost for the cement industry. Levy of Clean Energy Cess on Pet Coke is a risk for the industry which if reinitiated by the supreme court might impact the industry. Government’s focus on higher allocation of funds towards construction of infrastructure, irrigation, housing etc. will continue to boost the demand for the cement in India. Stock to watch: Ultatech cement, Sanghi Industries, Shree cement etc.

Housing and Real Estate Sector

Severely impacted by various reforms like RERA, GST and demonetization, the realty sector is pinning its hopes on Budget 2018-19 for relief measures like lower taxes and infrastructure status. Industry players are expecting rationalization of the GST rates from the current 12 per cent to 6 per cent and bringing stamp duty under the ambit of GST. Also, industry status to the full real estate sector will help in creating surplus housing demand along with financing at lower rate for long-term projects. Government is expected to maintain its emphasis on ‘Housing For All’ through robust allocation to Pradhan Mantri Awas Yojana for both Urban and Gramin. Stock to watch: Ashoka Buildcon, Godrej Properties, DLF etc

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