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Powering Micro Multipliers
2
Government projects fiscal deficit target of 3.2%, in line with market consensus
• Promises to remain committed to 3.0% FRBM target in FY19
FY18 Revenue deficit pegged at 1.9%, below FRBM mandated level of 2.0%
Focus of the Budget on Investment and Consumption revival
Realistic growth assumption of Gross tax revenues at 12.2%, lower than FY17 growth of 17% that was driven by additional revenue measures
FY18 nominal GDP growth pegged at 11.8%, tad lower vs. advance estimate of 11.9%
On direct taxes, key change of reduced personal income tax from 10% to 5% for income between Rs 0.25-0.50 mn. In addition, corporate tax rate for MSMEs with turnover up to Rs 500 mn reduced to 25%
No key change on indirect tax front
Tax receipts to be supplemented by Dividends & Profits (Rs 1424 bn) & disinvestment proceeds incl strategic sale (Rs 725bn) in FY18
• FY18 Non tax revenues assume no fresh spectrum auction
On the expenditure side, total spending budgeted to rise by 6.6% lower than FY17 RE growth of 13.6%
A faster growth in capital expenditure to improve ‘Quality of spending’ marginally
Gross and net market borrowing budgeted at INR 6.05 tn and INR 4.23 tn respectively
Key Highlights of Union Budget FY18
3
THEME1: MSME and Affordable Housing Focus
• Reduction in tax liability for 96% of MSMEs • Affordable Housing granted ‘Infrastructure’ status • Higher outlays to affordable housing , under Pradhan Mantri Awas Yojana • Both sectors to have positive spill over on growth and job creation
THEME2: Focus on Agriculture and Rural sectors continues to dominate
• In line with Government’s inclusive growth agenda • Allocation to rural, agri and allied sectors budgeted to increase by 24% in FY18 • Spending in related social sectors also set to increase for another year
THEME3: Incentives for Investment & Consumption Revival
• Growth in capital expenditure pegged to rise by 11% • Allocation to MGNREGA at record high of Rs 480 bn • Boost to disposable income via reduction in personal income tax for lowest tax
slab
THEME4: 3.2% fiscal deficit target in line with market expectations
• In order to balance the need to support growth with fiscal prudence
Overall, the budget displays ‘less adventurism’ and marks continuity of policy through leveraging of sectoral micro multipliers
Our take: Key Themes
4
Memo Items
FY18 fiscal deficit at 3.2% of GDP in line with expectations
Projected FY18 tax revenue growth at 12.7% achievable
FY18 Non tax rev don’t pencil in fresh spectrum auction
Robust assumptions for FY18 disinvestment proceeds
Significant upward revision in FY17 capex in RE vs. BE
FY17RE nominal GDP at 10.2% takes into account demonetization impact. FY18BE nominal GDP at 11.8%
Marginal improvement in quality of expenditure in FY18
FY16 FY17 (BE) FY17(RE) FY18(BE)
Revenue deficit % of GDP 2.5 2.3 2.1 1.9
Primary deficit % of GDP 0.7 0.3 0.3 0.1
Subsidies (% of GDP) 1.9 1.7 1.7 1.6
Gross tax as % of GDP 10.6 10.8 11.3 11.3
Expenditure as % of GDP 13.0 13.1 13.4 12.7
Capital Exp. As % of GDP 1.9 1.6 1.9 1.8
Interest cost as % of GDP 3.2 3.3 3.2 3.1
FY18 Budget at a Glance Budget at a Glance (Rs bn) Growth (%)
FY16 FY17 (BE) FY17(RE) FY18(BE)
FY 16 FY17 BE FY17 (RE)
FY18 (BE)
Total Receipts 12,580 14,442 14,801 16,002 9.1 14.8 17.7 8.1 Revenue Receipts 11,950 13,770 14,236 15,158 8.5 15.2 19.1 6.5
Net Tax Revenue 9,438 10,541 10888 12270 4.4 11.7 15.4 12.7
Non-Tax Revenue 2,513 3,229 3,348 2888 27.0 28.5 33.2 -13.7
Non-Debt Capital Receipts
630 671 566 844 22.3 6.6 -10.2 49.3
Disinvestments 421 565 455 725 11.6 34.1 8.0 59.3 Total Expenditure 17,908 19,781 20,144 21,467 7.6 10.5 12.5 6.6
of which, Subsidies 2,641 2,504 2,605 2,723 2.3 -5.2 -1.4 4.5
Food 1,394 1,348 1,352 1,453 18.5 -3.3 -3.0 7.5 Fertilizer 724 700 700 700 1.9 -3.3 -3.3 0.0 Petroleum 300 269 275 250 -50.2 -10.2 -8.2 -9.2 of which, Interest payments
4417 4,927 4830.69 5231 9.7 11.5 9.4 8.3
Revenue Expenditure 15,378 17,310 17,346 18,369 4.8 12.6 12.8 5.9
Capital Expenditure 2,530 2,470 2,798 3,098 28.6 -2.4 10.6 10.7
Fiscal Deficit 5,328 5,339 5,343 5,465
Fiscal Deficit / GDP 3.90 3.54 3.54 3.24
5
FY18 fiscal consolidation driven by lower revenue expenditure as % of GDP. Capital expenditure as % of GDP holds broadly steady.
On the revenue side, reduction in non tax revenues on the back of no fresh spectrum auctions
Higher nominal GDP growth for FY18 BE at 11.8% vs. 10.2% for FY17 RE also helps lower the deficit to GDP ratio
Fiscal Policy Strategy for FY18
0.4 0.52.2 1.7
7.2 7.3
-15.0
-10.0
-5.0
0.0
5.0
10.0
FY17 RE FY18 BE
Net tax revenues
Non tax revenues
Non-debt capital receipts
Revenue expenditure
Capital expenditure
1.9 1.8
11.5 10.9
Composition of Central Government's Fiscal Balance (as a % of GDP)
6
For every 1 Re earned in FY18, income tax and excise duty collections expected to do the heavy lifting
For every 1 Re spent in FY18, greater outlay envisaged under central and centrally sponsored schemes along with devolution to States (of taxes and duties)
Rupee-In and Rupee Out: FY18 versus FY17 This indicates the breakdown of how every 1Re is budgeted to be earned or spent
12
9
19
149
13
3
21
14
9
19
16
10
10
3
19
Rupee Comes From
FY18 BE (Outer circle)FY17 RE (Inner circle)
Excise duties
Corporation tax
Service tax
Non-debt
Customs
Income tax
Non-tax revenues
Borrowing and liabilities
19
10
10
622
15
9
9
18
9
10
5
24
13
10
11
Rupee Goes To
FY17 RE
FY18 BE (Outer circle)FY17 RE (Inner circle)
Interest
Defence
Subsidies
Finance Commission & other transfers
States share of taxes &duties
Other expenditure
Centrally sponsored schemes
Central sectorschemes
7
Tax Revenue Projections: Realistic Measures to support MSMEs & private consumption
Gross tax revenue growth pegged at 12.2% achievable
Realistic assumptions made for income tax and corporate tax collections. Income tax collections supported by IDS1 and IDS2 in FY17 and FY18
Income tax rate for individuals between Rs 2.5 lakhs to Rs 5 lakhs reduced to 5% from 10%
Corporate tax rate for MSMEs with annual turnover up to INR 500 mn reduced to 25% from 30%
No preparatory moves made on the indirect tax front in anticipation of implementation of GST (expected between Jul-Sep 2017)
INR bn %YoY
FY16 FY17 BE FY17 (RE) FY18 (BE) FY16 FY17 BE FY17 (RE) FY18 (BE)
Corporate 4532 4939 4939 5387 5.7 9.0 9.0 9.1
Income 2876 3532 3532 4413 11.3 22.8 22.8 24.9
Customs 2103 2300 2170 2450 11.9 9.3 3.2 12.9
Excise 2872 3187 3874 4069 51.2 11.0 34.9 5.0
Services 2114 2310 2475 2750 25.9 9.3 17.1 11.1
Gross tax 14556 16309 17032 19116 16.9 12.0 17.0 12.2
8
Tax buoyancy to remain steady in FY18
3.5
4.5
5.5
6.5
7.5
8.5
9.5
F1
972
F1
974
F1
976
F1
978
F1
980
F1
982
F1
984
F1
986
F1
988
F1
990
F1
992
F1
994
F1
996
F1
998
F2
000
F2
002
F2
004
F2
006
F2
008
F2
010
F2
012
F2
014
F2
016
F2
018
BE
Central Govt. indirect tax as % of GDP
0.5
1.5
2.5
3.5
4.5
5.5
6.5
F1
972
F1
974
F1
976
F1
978
F1
980
F1
982
F1
984
F1
986
F1
988
F1
990
F1
992
F1
994
F1
996
F1
998
F2
000
F2
002
F2
004
F2
006
F2
008
F2
010
F2
012
F2
014
F2
016
F2
018
BE
Central Govt. direct tax as % of GDP
1997 VDIS scheme
1985 scheme
IDS1 and IDS2
Gross tax revenue as % of GDP remains unchanged in FY18 at 11.3% as rise in direct tax buoyancy due to IDS is balanced out by lower excise collections
Direct tax expected to increase to 5.8% in FY18 vs 5.6% in FY17 and 5.5% in FY16 driven by IDS 1 and IDS2
Indirect tax moderates to 5.5% of GDP in FY18 vs. 5.7% in FY17 due to slower growth in excise tax revenues
9
Non tax revenues dependent on dividend from RBI
Non tax revenue estimated to decline by 14% in FY18 despite rising by 33% in FY17. Decline to be attributed to absence of spectrum auction revenue in FY18
Dividend from RBI/PSB/FI higher than anticipated as -
• RBI dividend appears to be incorporating windfall balance sheet gains from demonetization
• PSB dividend also likely to be modest given the low credit growth and high stressed loans
Communication receipts driven by installment payments of previous auctions
285134
259 317 306
771 675221
405
645 581815
761749
506 538
904 898
1121
15321424
0
500
1,000
1,500
2,000
FY12 FY13 FY14 FY15 FY16 FY17 RE FY18 BE
Dividend Receipts (Rs bn)
RBI+PSB+FI
PSU
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
FY15 FY16 FY17 RE FY18 BE
Non tax revenues (Rs bn)
Other services
Other economic services
Communication
Dividends+Interest
10
Robust assumptions on Disinvestment target
Government plans to raise INR 725 bn in FY18 through disinvestment
• INR 110 bn is budgeted for proceeds from listing of 5 general insurance companies whose cabinet approval has already been granted
• Sale of stake in Public Sector Enterprises has been fixed at INR 465 bn
• Strategic disinvestment (stakes in non PSEs) has been kept at INR 150 bn
• Listing of insurance companies a positive. However, Government must look to realize stake sales of non-PSEs to get closer to the targeted figure
400
300
558
634
695
565
725
181
259294
377421
455
0
100
200
300
400
500
600
700
800
FY12 FY13 FY14 FY15 FY16 FY17 FY18
Rs bn
Budgeted Actual
11
FY18 budget not only adhered to fiscal prudence, it also fared better-than-expected on quality metrics
While there is greater reliance on tax revenues to fund the deficit, capital expenditure (as a% of GDP) slowed compared to FY17
Capital to revenue expenditure ratio is projected to improve marginally in FY18
Positive signs on quality metrics
FY16 FY17(RE) FY18(BE)
Revenue/GDP (%) 9.1 9.8 9.5
Gross tax/GDP (%) 10.6 11.3 11.3
Net tax revenue/GDP (%) 6.9 7.2 7.3
Non-tax revenue/GDP (%) 1.8 2.2 1.7
Gap b/w tax and non-tax revenues 5.1 5.0 5.6
Expenditure/GDP (%) 13.0 13.4 12.7
Subsidies/GDP (%) 1.9 1.7 1.6
Interest payable/GDP (%) 3.2 3.2 3.1
Non-interest non-subsidy expenditure/GDP (%) 7.8 8.4 8.0
Capital expenditure/GDP (%) 1.9 1.9 1.8
Revenue expenditure/GDP (%) 11.2 11.5 10.9
Capital/revenue expenditure (%) 16.5 16.1 16.9
Fiscal Deficit/GDP (%) 3.9 3.5 3.2
Revenue deficit/GDP (%) 2.5 2.1 1.9
Primary deficit/GDP (%) 0.7 0.3 0.1
Effective revenue deficit/GDP (%) 1.6 0.9 0.7
Fiscal Quality Metrics
12
Major Subsidies (INR bn) Growth (%)
FY16 FY17 FY18 FY17 RE / FY16
FY18 BE/ FY17 RE (Actual) (RE) BE
Total Subsidies 2,641 2,605 2,723 9.4 4.5
(as % of GDP) 1.9 1.7 1.6 - -
Food 1,394 1,352 1,453 -3.0 7.5
Fertilizer 724 700 700 -3.3 0.0
Petroleum 300 275 250 -8.2 -9.2
Others 223 278 319 24.5 15.0
Expenditure on subsidies expected to rise by a modest 4.5% in FY18 driven by increase in food subsidy
Steady improvement in subsidy to GDP ratio from 1.9% in FY16 to 1.7% in FY17 and further to 1.6% (the lowest since GFC)
Petroleum subsidy adequately accounted for FY18. Provides cushion for higher than current crude prices
Rise in other subsidies on account of additional interest subvention schemes announced for affordable housing on Dec 31 by the PM
Subsidy burden to continue to decline
13
While market borrowings continue to be the primary source of funding, the share has moderated to ~64% from ~65% in FY16 (after adjusting for buybacks)
Net T-Bill issuance is expected to reduce to INR 20 bn from INR 186 bn in FY16
The government expects INR 128 bn net drawdown in cash balances for FY18
Financing of Fiscal Deficit (INR bn) FY16 FY17 FY17 FY18 (Actual) (BE) (RE) (BE) Fiscal Deficit 5,328 5,339 5,343 5,465 Financed By: External 127 191 149 158 Domestic 5,201 5,148 5,194 5,307 Market Borrowings 4,040 4,252 3,472 3,482 Short-Term Borrowings 507 166 186 20 Small Savings 525 221 904 1002 State Provident Fund 119 120 130 140 Draw-Down of Cash Balances 132 132 402 128 Others -3 377 230 675
Funding of FY18 Fiscal Deficit
14
Gross and net market borrowing has been budgeted at INR 6.05 tn (-2.8%) and INR 4.23 tn (+4.1%) respectively
The government has budgeted INR 750 bn for debt buyback in FY18 along with INR 250 bn provision for debt switch
• With provision for higher buybacks, the magnitude of net supply of g-secs will remain unchanged in FY18 over FY17
Where do actual borrowings stand?
0
1000
2000
3000
4000
5000
6000
7000
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Net Gross
G-Sec Issuance (INR bn)
Net Issuance (INR bn)
Buybacks (INR bn)
Net Supply
(INR bn)
FY16 4406 375 4031
FY17 (BE) 4252 0 4252
FY17 (RE) 4067 595 3472
FY18 (BE) 4232 750 3482
15
Market Impact Bonds
• Net g-sec supply of INR 3.48 tn is lower than market expectation of INR 4.1-4.4 tn
• Prima facie, we don’t expect any slippage in government’s estimate of market borrowing as:
o The government is expected to remain committed to the fiscal deficit target
o Significant room exists for increasing T-Bill financing
• With CPI inflation likely to undershoot 5% target by more than 50 bps, we expect the RBI to reciprocate with government delivering on fiscal consolidation
o We continue to expect 25 bps rate cut in the Feb-17 policy review with 10Y g-sec yield likely to move towards 6.25% by end FY17
o In FY18, we expect 10Y g-sec yield to trade in the range of 6.10-6.60% on higher global rates & limited scope for aggressive domestic monetary easing
o Substantial provision for buybacks is likely to result in curve steepening
Rupee
• Emphasis on fiscal consolidation is likely to boost sovereign credibility
o While this would be supportive of rupee, global factors (higher interest rates and a stronger dollar) could weigh somewhat
o We continue to expect USDINR in 68-70 range through CY17
16
Economic Themes: A well-rounded Budget
17
Bulk of revenue expenditure in FY18 once again is directed towards social sectors such as rural development, health and family welfare, urban poverty alleviation, drinking water and sanitation
Social thrust of Government’s spending continues
Ministry (%YoY) FY17RE/ FY16 AE
FY18BE/ FY17RE
Drinking water and sanitation 49.0 21.2
MSME 93.2 18.7 Rural development 26.4 10.2
Skill development and entrepreneurship 115.8 38.8
Health & Family welfare 16.4 23.1
Housing and Urban Poverty alleviation 200.3 21.2
Skill development and entrepreneurship 115.8 38.8
18
Continued Focus on Farm and Rural Sectors FY18 Announcements FY17 Announcements/Current Status
Soil Health Cards: Setting up new mini labs in Krishi Vigyan Kendras (KVKs), ensuring 100% coverage of 648 KVKs
- 4.25 cr soil health cards distributed until Dec-16
Long Term Irrigation Fund with NABARD: Enhanced total corpus INR 400 bn Micro Irrigation: Initial Corpus INR 50 bn
- Long Term Irrigation Fund under NABARD initiated with an initial corpus INR 200 bn
Agriculture Credit: INR 10 lakh cr, highest ever FY17 target of INR 9 lakh cr
Coverage of e-NAM: To be extended to 585 APMCs - 250 Mandis (in 10 states) integrated with e-NAM - Registrations on e-NAM : 9.49 lakh farmers,
59742 traders and 31317 commission agents
PM Fasal Bima Yojana: Allocated Rs 90 bn - Allocation – Rs 55 bn - Implemented by 21 states - 366 lakh farmers covered in Kharif season
PM Gram Sadak Yojana: Rs 270 bn - Allocation: - INR 270 bn - Pace of construction rose to 133 kms roads/day
MNREGA: Rs 480 bn - Actual utlitsation of Rs 475 bn vs BE of Rs 385 bn
Deendayal Upadhayaya Gram Jyoti Yojana: Rs 48 bn - Actual utlisation of Rs 34 bn vs BE of Rs 30 bn
Dairy Processing and Infrastructure Development Fund - Initial corpus of INR 20 bn
- N/A
19
ROADS, HIGHWAYS, RAILWAYS
Total allocation for highways at Rs 649 bn (Rs 560 in FY17) 2000 kms of coastal connectivity roads identified for construction and development 3500 km railway lines to be put up 500 railway stations to be revamped for differently abled
AIRPORTS, SOLAR, ENERGY
Airports in Tier 2 cities to be taken up for operation and maintenance in the PPP mode
Amendment of Airport Authority Act to monetize land assets
Setting up Strategic Crude Oil reserves for strengthening Energy Sector
Second phase of solar park development for additional 20,000 MW capacity to be taken up
ELECTRONICS MANUFACTURING
Allocation for M-SIPS and EDF: INR 7.4 mn Trade and Infrastructure for Export Scheme (TIES) to be launched; with a focus on export infrastructure
Infra and Manufacturing Push
Budgeted spending on transportation sector pegged at INR 2.41 tn, likely to spur economic activity across country and create job opportunities
Total allocation for infrastructure development: INR 3.96 trn
Affordable Housing Sector granted Infrastructure sector
20
Regulatory Framework
Phasing out of FIPB (Foreign Investment Promotion Board)
Committee to study and promote creation of an operational and legal framework to integrate spot market and derivatives market for commodity trading
Bill to curtail menace of illicit deposit schemes
Code on resolution of financial firms: To promote stability and resilience of the financial system, protect consumers of financial institutions
Computer Emergency Response team for financial sector: To safeguard the integrity and stability
Financial Management
In line with Indradhanush roadmap, Rs 100 bn to be allocated for Recapitalization of PSU Banks PM Mudra Yojana: Lending target doubled to INR 2.44 trn To enhance capital flows into the securitization industry, listing and trading of Security receipts under SARFAESI Act will be permitted (in SEBI registered stocks) Launch a new ETF with diversified CPSE stocks and other Government holdings Revised procedure to ensure time bound listing of identified CPSEs on stock exchanges to facilitate public accountability
Financial Sector Reforms
21
Merchant version of Aadhar Enabled Payment System ‘Aadhar Pay’ to be launched
Steps to be taken to promote digital transactions at Oil Pumps, universities, hospitals, etc.
Amendments in Finance Bill, 2017: Replacement of existing Board for Regulation and Supervision of Payment and Settlement Systems by Payments Regulatory Board in RBI 6% of Income will be counted as presumptive (received by non-cash means) for small and medium taxpayers with turnover up to Rs 20 mn
Promoting Digital Economy Restricting Cash Transactions
Proposed Amendment to the Income-tax Act to restrict transaction above INR 3 lakh in cash Propose to limit cash expenditure allowable as deduction – for revenue and capital, to Rs 10000 Propose to limit cash donation to a charitable trust to Rs 2000 Maximum cash donation to a political party Rs 2000; no restriction if donation is made via cheque/digital mode
Digital Economy
Target of 25 bn of digital transactions for FY18 via UPI, USSD, etc
Measures announced to promote accountability, transparency and curb black money
22
Health and Minorities
Education
Innovation fund for Secondary Education to be created SWAYAM platform with 350 online courses to be launched Propose to establish a National Testing Agency to conduct entrance examinations
Skilling and Employment
PM Kauhsal Kendras to extend to over 600 districts 100 India International Skill Centers offering advanced training in foreign language courses to be established across country Propose to launch SANKLAP* to provide market relevant training to 3.5 cr youth To launch next phase of STRIVE to improve quality and relevance of training Special scheme for employment intensive sectors of leather & footwear
Public Services
Head Post Offices as front offices for passport services Propose to introduce system of single registration and 2-tier examination system: to ease the process of Government recruitment for poor and underprivileged people Considering introduction of legislative changes or introduction of new law to confiscate the assets of economic offenders
Social sector
Action plan to be prepared to eliminate various chronic diseases Amendment of Drugs &Cosmetic Rules: Ensure availability of drugs at lower price Mahila Shakti Kendra to be set up: Rs 5 bn Allocation for welfare of SC: Rs 524 bn
Housing Affordable Housing given to Infrastructure Sector National Housing Bank will refinance individual housing loans of about INR 200 bn
23
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Note: Data in this report has been sourced from CEIC, Bloomberg, GoI Budget Documents & Economic Survey, CGA, Ministry of Petroleum & Natural Gas, IMD, RBI, IMF, and YES BANK Limited
Contacts
24
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25
Sectoral Themes: Equity Markets give a thumbs up to the Union
Budget
26
There were no changes made to the capital gains tax structure both for domestic as well as for foreign investors. This came as a big relief for the equity markets.
Sovereign Gold Bonds: Redemption of Bonds issued by RBI under the Sovereign Gold Bond Scheme, 2015 shall not be charged to capital gains tax.
Existing limit of 24% for investment by FPIs in listed Central Public Sector Enterprises, other than banks, to increase to 49%.
New policy for management of Government investment in Public Sector Enterprises (PSEs) including divestment and strategic sale. This includes divestment by CPSEs of individual assets like land, etc; and NITI Aayog identifying CPSEs for strategic sale
Amendment of the SEBI Act 1992 to provide for more members and benches of the Securities Appellate Tribunal which would help to further strengthen the regulation governing the financial markets.
Key takeaways for the Indian Equity Markets
27
Agriculture
(Positive)
See Slide 18 for details
- Positive for irrigation, fertiliser, agri input, farm mechanisation
companies
Energy (Positive)
Propose to take up the Second Phase of Solar Park development for
additional 20,000 MW capacity
Proposed to set up strategic crude oil reserves at 2 more locations
(Chandikhole in Odisha & Bikaner in Rajasthan), which would take
the strategic reserve capacity to 15.33 MMT
Propose to create an integrated public sector ‘oil major’ which
would be able to match the performance of international and
domestic private sector oil and gas companies
Basic customs duty on LNG reduced from 5% to 2.5%
28
Key Takeaways
• Bullet points
Autos (Positive)
Budget allocation for highways increased from INR 580 bn in BE FY17
to INR 649 bn in FY18. Allocation for PMGSY, including the State's
Share stands at INR 270 bn in FY18. Pace of construction of PMGSY
roads accelerated to 133 km roads/day in FY17, against an avg. of 73
km/day during FY11-14.
- Positive driver for auto volumes particularly for commercial
vehicles.
Focus on amendment in the Motor Vehicles Act and opening up the
road transport sector in the passenger segment continues from
previous Budget
Enabling entrepreneurs to operate buses on various routes, subject to
efficiency and safety norms. This initiative would help improve
efficiency of public transport facilities, provide greater public
convenience and other multiplier effects
- Positive for commercial vehicle manufacturers.
Measures related to increasing rural income as well as individual
disposable income to lead to higher demand for auto companies.
29
Key Takeaways
• Bullet points BFSI
(Positive)
Code on Resolution of Financial Firms to be introduced as a Bill in
the Parliament. This Code will be in addition to the Insolvency and
Bankruptcy Code.
- Positive for banks and NBFCs
Necessary amendments in the SARFAESI Act to enable the sponsor
of an ARC to hold up to 100% stake in the ARC and permit non-
institutional investors to invest in the securitization receipts.
Allocation of INR 100 bn towards recapitalization of PSU banks,
additional funding in case banks require more capital.
– While the allocation may not address the total capitalization
needs of PSU banks, however it is positive that the Government will
look at additional funding if required
30
Key Takeaways
• Bullet points Capital Goods (Positive)
Budget allocation for highways increased from INR 580 bn in BE 2016-17 to
INR 649 bn in FY18. Allocation for PMGSY, including the State's Share
stands at INR 270 bn in FY18. Pace of construction of PMGSY roads
accelerated to 133 km roads/day in FY17, against an avg. of 73 km/day
during FY11-14.
- Positive for Equipment makers and engine makers.
FY18 capital and development expenditure of Railways has been pegged at
INR 1,310 bn.
FY18 railway lines commissioning pegged at 3500 kms (vs. 2800 kms FY17)
- Large capex by railways to benefit companies
On track to achieve 100% village electrification by 1st May 2018.
- Positive for power sector and transmission companies.
Carry-forward of MAT to 15 years from 10 years.
- Positive for consumer durable companies which have set up plants in
states such as HP and Uttarakhand which offered tax holidays.
Second phase of Solar Park development to be taken up for 20 GW.
- Positive for solar inverter companies .
FIPB to be abolished. A positive for ease of FDI investments in the country.
- Infrastructure companies should benefit leading to cascading impact on
demand for capital goods.
31
Key Takeaways
• Bullet points Consumption
(Positive)
Focus on farmers and rural side to help boost rural income. Steps like
fixing the target for agricultural credit at a record level of INR 10 lakh
crores; benefit of 60 days interest waiver on farm loans, proposed
increase in MGNREGA allocation at INR 48,000 crores, etc to support
Increase in additional duty of excise rates on filter cigarettes is a
negative for cigarette companies
At the same time, there is an increase in additional duty on
unmanufactured tobacco from 4.2% to 8.3%; increase in additional
duty on chewing tobacco (including filter khaini) and jarda scented
tobacco from 6% to 12% and increase in additional duty on Pan Masala
containing tobacco (Guthka) from 6% to 12%.
Reduce existing tax rate for income of INR 2.5-5 lakhs to 5% from 10%.
A saving of INR 12,500
- More money in the hands of individuals. Positive for consumer
durable companies.
- Overall consumption related stocks should benefit from higher
disposable income but for cigarette and tobacco companies, the
increase in duties would lead to a short term dip in volumes.
32
Key Takeaways
• Bullet points
Housing
(Positive)
INR 230 billion (INR 150 billion earlier) allocated towards Pradhan Mantri
Awas Yojana – Gramin, with an aim to complete construction of 10
million houses by 2019.
Affordable housing to be given ‘infrastructure’ status, thus allowing
easier access to funds at lower rates. Further, promoters of affordable
housing projects can now take as much as 5 years (instead of 3 years
earlier) to take benefit of tax deductions for such projects. These
developments will only encourage more builders to enter this segment.
A one year breathing space has been provided to builders for liquidating
their inventory (that has received completion certificate) before being
taxed (on notion rental income).
Holding period for computing long term capital gains from transfer of
immovable property has been reduced to 2 years from 3 years earlier. This
short term tool may lead to more investments towards real estate as an
asset class.
NHB to refinance loans worth INR 200 billion; thereby lowering EMIs for
buyers.
The base year for indexation is proposed to be shifted from 1st April 1981
to 1st April 2001 for all assets including immovable property.
- Positive for real estate, cement, building product, housing finance companies
33
Key Takeaways
• Bullet points Infra
(Positive)
Provision of INR 2.41 trn made for transportation sector, including
rail, roads, shipping.
Roads: (a) Budget allocation for highways increased by 12% from
INR 580 bn in FY17BE to INR 649 bn in FY18BE; (b) Allocation under
Pradhan Mantri Gram Sadak Yojana (PMGSY) kept unchanged at
INR 190 bn. Together with the contribution from states, an amount of
INR 270 bn is expected to be spent on PMGSY.
Railways: Total capital outlay increased by 8% to INR 1.31 trn.
Budgetary support has been increased by 22% to INR 550 bn in
FY18BE from INR 450 bn in FY17BE. For passenger safety, a
Rashtriya Rail Sanraksha Kosh will be created with a corpus of INR
1.0 trn over a period of 5 years. Railway lines of 3,500 kms will be
commissioned in FY18, as against 2,800 kms in FY17.
34
Key Takeaways
• Bullet points Tech, Media, Telecom (Neutral)
Focus continues on promoting digital literacy through 2 schemes – National
Digital Literacy Mission and Digital Saksharta Abhiyan for rural India to
cover ~ 60 mn additional households within the next 3 years. There has been
a total allocation of INR 20.59 bn towards Digital India Programme, E –
learning, E-panchayat and Land Records Modernization programes.
Continued focus on education and improvement of skills through steps like
setting up 100 India-International skill centers, reforms in UGC to improve
higher education, higher allocation for women skills development, etc.
Applicable customs duties on parts and components for manufacturing
routers, models, set top boxes ,etc brought down to zero. In addition to this,
excise duty on routers, models, set top boxes ,etc has been reduced to 4%
(without ITC and 12.5% with ITC) from the current level of 12.5%; while
excise duty on parts, components, sub parts used in these has been brought
down to nil from 12.5%.
-Positive for MSOs, broadband providers.
Increase in focus on “Make in India” increasing import duties on specified
telecom equipment, silica used in optical fiber, computers, mobile phones,
tablets, etc.
-Short term negative for mobile operators.
35
YES SECURITIES (INDIA) LIMITED Registered Office: Unit No. 602 A, 6th Floor, Tower 1 & 2, Indiabulls Finance Centre, Senapati Bapat Marg, Elphinstone Road, Mumbai-400013
Tel: +91-22-33479688. Email: [email protected]. Website: www.yesinvest.in
CIN: U74992MH2013PLC240971, SEBI Registration No: NSE - INB/F/E 231491433, BSE - INB/F 011491439,
Merchant Banker - INM000012227, Research Analyst - INH000002376, Member Code: NSE – 14914, BSE – 6538, AMFI ARN- 94338
YES SECURITIES RESEARCH TEAM
Contacts
Name Designation Email Phone
Nitasha Shankar Research Analyst [email protected] (+91) 22 3347 7426
Sujit Jain Research Analyst [email protected] (+91) 22 3347 7746
Nilesh Bhaiya Research Analyst [email protected] (+91) 22 3347 7476
Devanshu Sampat Research Analyst [email protected] (+91) 22 7100 9762
Aditya Agarwala Technical Analyst [email protected] (+91) 22 3347 7380
36
Thank You!
37
ABOUT YES SECURITIES (INDIA) LIMITED YES SECURITIES (INDIA) LIMITED (‘‘YSL’’) was incorporated on 14th March 2013 as a wholly owned subsidiary of YES BANK LIMITED. YSL does not have any other associates. YSL is a SEBI registered stock broker holding membership of NSE and BSE. YSL is also a SEBI registered Category I Merchant Banker and a Research Analyst. YSL offers, inter alia, trading/investment in equity and other financial products along with various value added services. We hereby declare that there are no disciplinary actions taken against YSL by SEBI/Stock Exchanges.
DISCLAIMER The information and opinions in this report have been prepared by YSL and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or redistributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of YSL.
The information and opinions contained in the report have been compiled or arrived at from sources believed reliable but no representation, warranty, express or implied, is made as to their accuracy, completeness or validity. Neither any information nor any opinions expressed constitute an offer, or an invitation to make an offer, to buy or sell any securities or any derivative instruments related to such securities. Investments in securities are subject to market risk. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and the like and take independent professional and/or tax advice before investing. Opinions expressed are our current opinions as of the date appearing on this report. Investor should understand that statements regarding future prospects may not materialize and are of general nature which may not be specifically suitable to any particular investor.
YSL, its research analyst, directors, officers, employees and associates accept no liabilities for any loss or damage of any kind arising out of the use of this report. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject YSL and associates to any registration or licensing requirement within such jurisdiction.
The analysts hereby certifies that opinion expressed in this report accurately reflect his or her personal opinion about the subject and no part of his or her compensation was, is or will be directly or indirectly related to the opinion expressed in this research report.
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