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An All-Round Budget Delivering On All Aspirations

Our honourable Finance Minister Nirmala Sitaraman presented the Union Budget 2023-34 today. Being the last full-year budget before the Union Election in 2024, the expectations from the Budget were naturally high and hence it was expected to be a growth-oriented budget. Against this backdrop, the Union Budget 2023-24 indeed lived up to its expectations, which was driven primarily by capital expenditure while simultaneously providing an adequate thrust to rural welfare and agriculture.

The Capex for FY24 is targeted at Rs 10 Lc Cr, implying a massive increase of 33% over FY23 levels of Rs 7.5 Lc Cr. Furthermore, the government announced the muchanticipated relaxation in income tax slabs, which in turn, would boost the overall consumption by the Indian economy’s middle-class segment. Overall, with its focus on growth and development, the Budget has ensured to provide something for every section through several broad-based measures that are expected to reach the hinterlands of the country. Moreover, it is important to note that the budget expenditure stands at elevated levels vis-à-vis the government spending in FY22 and FY23, which should help in delivering broad-based growth moving forward.

The Union Budget’s broad contours include the budgeted expenditure for FY24 which is estimated at 45 Lc Cr with the central government collections (after state transfer) standing at 23.8 Lc Cr. Gross tax revenue was up 12% in FY23, thanks to the buoyancy in Direct Tax collection. The collection is expected to grow further by 10% in FY24 and we believe these expectations are likely to be met. Additionally, tax buoyancy in indirect taxes is likely to continue in FY24 as well. GST collection for FY24 is likely to grow by 12%. Assuming 6% real GDP growth, 4% Inflation, and 2% set for compliance, these numbers seem to be achievable. Nominal GDP growth for FY24 is pegged at Rs 301 Lc Cr, implying a healthy growth of 10.5% over the FY23 revised number of Rs 273 Lc Cr. The government has successfully achieved the Fiscal Deficit target for FY23. Furthermore, it has pegged a fiscal deficit target of 5.9% for FY24. The market borrowing will be ~12.3 Lc Cr for FY24 and the bond market reacted positively to the budgeted number. At last, the Finance Minister has presented a budget that has successfully set India on a fiscal consolidation path while simultaneously maintaining the right balance between growth and macro stability.

A few key sector takeaways from the Union Budget 2023-24:

Positive for consumption: The government provided an adequate push to the agriculture and social welfare schemes as it increased the agriculture credit target to Rs 20 Lc Cr with a greater focus on animal husbandry, dairy, and fisheries. The outlay for PM Awas Yojana, too, has been increased by 66% to Rs 79,000 Cr. Moreover, further relief to the middle class on the income tax front by restructuring the tax slabs in the new regime has been the cherry on the cake. For high-income individuals, it provided benefits in the form of a reduction in the highest surcharge rate in personal income tax from 37% to 25% (under the new tax regime). With the consequent increase in disposable income, these initiatives are expected to spur consumption and drive employment in rural areas. This, in turn, would be positive for FMCG, Discretionary, and Consumer Durable companies. Additionally, the Budget is positive for Cigarette manufacturing companies as the overall hike in tax is not significant

Positive for Banks and Housing Finance: Capex outlay of Rs 10 Lc Cr in FY24 will aid in achieving double-digit credit growth. Furthermore, the Credit Guarantee Scheme for MSMEs is to be revamped by adding an additional 9,000 Cr in the corpus to support a collateral-free credit guarantee for MSMEs. Additionally, affordable housing lending is expected to rise. These positive attributes are primarily driven by the double-digit nominal growth rate in FY23. Today, the bond market reacted positively based on the fiscal consolidation roadmap and is likely to remain in the range zone for FY24. This is manageable for banks and may even prove to be helpful as the margins can expand

Renewable & Bio Energy: The government allocated Rs 35,000 Cr for priority capital investments such as energy transition, net-zero objectives, and energy security by the Ministry of Petroleum & Natural Gas. 500 new ‘waste to wealth’ plants under GOBARdhan (Galvanizing Organic Bio-Agro Resources Dhan) scheme will be established for promoting a circular economy. These will include 200 compressed biogas (CBG) plants, including 75 plants in urban areas and 300 community or cluster-based plants, with a total investment of Rs 10,000 Cr. This is a positive attribute for Biogas producing entities as well as for Capital Good providers for the Biogas sector. This, in turn, will indeed have quite a positive impact on rural incomes, which will support the rural growth and spending theme moving forward.

Negative for life Insurance companies: As per the Budget, income from traditional insurance policies (except for ULIPs) where the premium is over Rs 5 Lc will no more be exempt from taxes. Additionally, No special tax incentives for tax-payers for insurance premiums under 80C have been given. This move is Negative for life insurance companies that are focused on gaining a higher proportion of savings, high value, and high margin products. As a result, the industry’s focus shall shift towards more term and pure-risk products.

In conclusion, barring these initiatives, the Union Budget 2023-24 was largely neutral for most other sectors. Based on the above themes the budget picks are as follows:

Our Positive Budget Plays: ITC, HUL, Tata Steel, SBI, DCB Bank, ACC, PNC Infra, RITES, Aptus Value Housing, Praj Industries

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