Jul 05, 2019
BUDGET
UNION
2019-20
Analyst Contact
Vivek Ranjan Misra
040 - 3321 6296
vivekr.misra@karvy.com
For private circulation only. For important information about Karvy’s rating system and other disclosures refer to the end of this material.
Karvy Stock Broking Research is also available on Bloomberg, KRVY<GO>, Thomson Publishers & Reuters
India Research - Stock Broking
Union Budget 2019-20
The budget is a mix of both salt and pepper. Modi government committed itself to making India
a US$ 5 Tn in next 5 years. Though initial reactions were mixed, governments’ continuous
push for investment-led growth assures the vision of new India and a strong India.
Government has taken up the much needed bank recap as immediate requirement to boost
credit growth. For this, Rs. 70000 Cr has been allocated for PSU banks which is likely to boost
credit o take in the economy. To encourage MSME to access formal credit, government has
announced 2% interest subvention for all incremental/fresh loans. This would provide further
boost to the MSME sector.
Furthermore, to increase the liquidity in the listed space and to encourage retail participation,
government has proposed to increase the minimum public shareholding limit for listed
companies from 25% to 35% which could provide additional oat of over Rs. 4.5 lakh Cr. The
government has mandated RBI and SEBI to oer inter operability of DPs to enable greater
participation of retail investors in the bond market.
To enhance corporate tri-party repo market in corporate debt securities, the government
has proposed to allow RBI/SEBI to enable stock exchanges to accept AA rated bonds as
collaterals. While this is encouraging, rating agencies have to be streamlined.
In order to stop tax avoidance on dividend distribution by resorting to buy back of shares,
government has decided to impose 20% tax on cash returned to shareholders through buyback
of shares by listed companies. Earlier this was applicable only for unlisted companies.
Other disappointments include no major announcements were made to lift consumer
spending. Requests made by companies for indirect tax concessions on a range of consumer
goods including passenger vehicles have been ignored. The aggregate impact of the budget
will be clear only after budget ne print will be dissected thoroughly.
Common man will be burdened with Special Additional Excise duty and Road & Infrastructure
Cess each by Re. 1 per litre on petrol and diesel. This apart, custom duty has been increased
on import of Gold and precious metals from 10% to 12.5%.
On the personal tax front, though tax slabs for ultra rich has been tinkered with higher
surcharges with highest slab breaching 42% range might sound negative but in reality, it
only impacts less than 1.5 lakh people. On the other hand, commoners are given additional
benets like Rs. 1.5 lakh income tax deduction each for loans such as EVs and aordable
housing.
4
ECONOMY & STRATEGY
Announcements
Boost to agro-rural industries through cluster based development under SFURTI
scheme with focus on bamboo, honey and khadi clusters.
100 new clusters to be set up to enable 50000 artisans during 2019-20. 100 Business
Incubators to be set up to enable 75,000 entrepreneurs under ‘ASPIRE’. The scheme
will address critical gaps in strengthening value chain, including infrastructure,
modernization, production, productivity and quality control.
Constitution of Jal Shakti Mantrayala: 1592 critical and over exploited blocks identied
under Jal Shakti Abhiyan. To ensure Har Ghar Jal to all rural households by 2024 under
Jal Jeevan Mission, focus on integrated demand and supply side management at local
level creation of local infrastructure for rainwater harvesting, groundwater recharge and
household waste water management will be benecial.
Dairying through cooperatives shall also be encouraged by creating infrastructure for
cattle feed manufacturing, milk procurement, processing & marketing.
Plan to form 10,000 new Farmer Producer Organizations to ensure economies of scale
for farmers over the next ve years.
Impact
The budget announcements have been either positive or neutral towards agriculture
and agriculture related commodities and ancillary industries. Therefore, aquaculture
companies, water harvesting and irrigation companies and associate businesses stand to
gain. Also dairy has come out as a major focus for this year and will boost related stocks.
Stocks to focus
Jain Irrigation, Avanti Feeds, Apex Frozen, Heritage Foods, Parag Milk Food, Hatsun Agro,
Prabhat Dairy, Finolex Pipes, Astral Poly, Shakti Pumps, Bajaj Electricals and KSB Pumps.
Agriculture
Summary of announcements for key sectors and stocks to focus
5
ECONOMY & STRATEGY
Announcements
The government envisions to make India as the global hub for EVs where Rs. 10000 Cr has
been deployed to promote Faster Adoption and Manufacture of Electric Vehicle (FAME)
Phase II for the next 3 years.
Upfront incentives to encourage electric vehicle demand where the government has
proposed to reduce the GST rate to 5% from 12%. Also, additional income tax deduction
up to 1.5 L of interest paid on loans taken to purchase electric vehicles.
Setting up of solar powered charging stations in order to enable the necessary charging
infrastructure will be a stepping stone for creating a sustainable future for electric vehicles.
Overall, the motive is to create an eco-friendly environment to reduce pollution.
Furthermore, enhancing NHAI development will also help boost vehicle connectivity across
states, cities and towns.
Basic customs duty has been hiked from 10% to 15% on auto parts like glass mirrors,
whether or not framed including rear-view mirrors, locks used in motor vehicles.
Impact
As expected initiatives to promote electric vehicle demand is likely to change the
automobile industry landscape where we can expect signicant business changes in terms
of procurement and technology adoption.
Increasing road infrastructure is likely to make logistics easier and should promote more
commercial vehicle buying.
Favorable for domestic auto ancillary manufacturers as imports may become expensive.
Stocks to focus
Strong emphasis on EV promotion is expected to benet companies such as Mahindra &
Mahindra, TATA Motors, Ashok Leyland & JBM Auto Ltd.
Custom duty increase will benet auto ancillaries like Sandhar Tech, Minda Corp and
Minda Industries.
Automobiles
6
ECONOMY & STRATEGY
Announcements
Aordable Housing:
Tax holiday has been provided for developers of aordable housing.
To provide further impetus, additional deduction of Rs. 1.5 lakh (Rs. 3.5 lakhs in total) for
interest on loan borrowed up to 31st, Mar 2020 with a ticket size of Rs. 45 lakh.
Total benet of Rs. 7,00,000 on interest over loan tenure of 15 years.
NBFCs:
In order to provide greater parity in tax treatment with scheduled commercial banks,
interest on bad and doubtful debts are to be taxed in the year it is received.
Regulation of HFCs to move from NHB to RBI. Necessary provisions have been made in
the nance bill.
Rs. 100 lakh crore infra investment targeted in the next 5 years. Has set up expert committee
to recommend the structure and required ow of funds through DFIs.
Banking:
To provide Rs. 70000 Cr of capital infusion for public sector banks.
To improve ease of living – oer online personal loans, door step banking, enable one PSB
customer to access services of all PSBs.
To undertake reforms to strengthen governance in banks.
To encourage MSME nancing, government has initiated online nance within 59 min.
Govt has allotted Rs. 354 Cr with 2% interest subvention for all GST registered MSMEs on
fresh or incremental loans.
Government has proposed to rework and improve UDAY scheme and is working with state
governments to remove the bottlenecks.
Impact
Benets for aordable housing to benet HFCs, PSBs and select private sector banks with
strong presence in home loans like ICICI Bank.
Since RBI will be the sole regulator for HFCs, there will be regulatory clarity which can
avoid ambiguity.
Capital infusion of Rs. 70,000 Cr to provide PSBs with much needed capital that should
augur well to strengthen their balance sheets and credit growth. We expect this to further
aid credit o take in the economy.
Provisions related to MSME nancing should help banks increase focus on MSMEs.
Renement of UDAY scheme should help improve the nancial status of discoms. This
should help improve recoveries from discoms.
Stocks to focus
State Bank of India, Bank of Baroda, ICICI Bank, Axis Bank, Kotak Mahindra Bank, HDFC,
M&M Financial Services, Canara Bank, Union Bank, PNB Housing Finance, LIC Housing
Finance, GIC Housing Finance, Gruh Finance.
Banks & NBFCs
7
ECONOMY & STRATEGY
Announcements
Overall defence budget increased by 6% to Rs. 4.72 lakh crore.
Defence capital procurement has been hiked by 10% to Rs. 1.03 lakh crore.
Impact
Positive: Cost saving due to elimination of embedded basic custom duty.
India’s Ordnance Factories, Defence PSUs, Private companies and MSMEs
import close to ~70% of supplies. With imports being exempted from basic
custom duty, government could bring down the overall procurement cost.
Aircraft, spacecraft, and parts thereof – 3%-10%; mostly 10% (Chapter 88)
Ships, boats and oating structures – 10%-25%; mostly 10% (Chapter 89)
Arms & Ammunition; Parts & accessories thereof – 10% (Chapter 93).
Negative: Counterproductive for defence indigenization.
Stocks to focus
Neutral - for Corporates as they have to pass the benet to OFs & DPSUs.
HAL, BEL, BDL, Mazagon Dock, Goa Shipyard, BEML, Garden Reach Shipbuilders,
Hindustan Shipyard, Mishra Dhatu, Astra Microwave Products and Premier Explosives -
could be the key beneciaries for these initiatives.
Defence
Announcements
To encourage MSME nancing, government has initiated online nance within 59 min.
Govt has allotted Rs. 354 Cr with 2% interest subvention for all GST registered MSMEs on
fresh or incremental loans.
Purchase of Rs.1lakh crore of loans from sound NBFCs to increase liquidity.
Annual turnover limit of 25% corporate tax from Rs. 2.5 Bn to Rs. 4 Bn to raise money in
the hands of MSME.
Pension benets will be oered to 3 crore shop owners having an annual turnover of less
than Rs.1.5 Cr under the new scheme called Pradhan Mantri Mandhan Scheme –this
should help in improving consumption.
Higher focus on agricultural infrastructure.
Increased customs duty on tobacco and tobacco products.
To improve technology and promote innovation, Rural Industry and Entrepreneurship’
(ASPIRE) has been consolidated for setting up of Livelihood Business Incubators (LBIs)
and Technology Business Incubators (TBIs). It includes setting up of 80 Livelihood
Business Incubators (LBIs) and 20 Technology Business Incubators (TBIs) in 2019-20 to
develop 75,000 skilled entrepreneurs in agro-rural industry sectors.
FMCG
8
ECONOMY & STRATEGY
Impact
Increased funds in the hands of the consumer to boost consumption.
Post a prolonged period of no tax hikes, increased price of cigarettes can have a marginal
impact on the volumes (towards illegal cigarettes) but not expected to be a signicant
negative.
Positive for MSMEs which can lead to more rural growth.
Stocks to focus
Negative for ITC Ltd ,VST industries Ltd.
Positive for HUL, Bata India Ltd, Relaxo Footwears Ltd, Jyothy Laboratories Ltd,
Emami Ltd, Tata Global Beverages Ltd.
FMCG
Announcements
Revival of rental laws to boost rental housing.
Pradhan Mantri Awas Yojana – Gramin (PMAY-G) aims to achieve the objective of “Housing
for All” by 2022. A total of 1.54 crore rural homes have been completed in the last ve
years. In the second phase of PMAY-G, during 2019-20 to 2021-22, 1.95 crore houses are
proposed to be provided to the eligible beneciaries.
Under Pradhan Mantri Awas Yojana – Urban (PMAY-Urban), over 81 lakh houses with
an investment of about Rs. 4.83 lakh crore have been sanctioned of which construction
has started in about 47 lakh houses. Over 26 lakh houses have been completed of which
nearly 24 lakh houses have been delivered to the beneciaries.
Currently, interest paid on housing loans is allowed as a deduction to the extent of
Rs. 2 lakh in respect of self occupied property. In order to provide a further impetus,
government proposes to allow an additional deduction of up to Rs. 1,50,000/- for interest
paid on loans borrowed up to 31st March, 2020 for purchase of an aordable house valued
up to 45 lakh.
Therefore, a person purchasing an aordable house will now get an enhanced interest
deduction up to Rs. 3.5 lakh.
Impact
These measures will boost the demand for aordable housing and it will help the
government in achieving its mission laid out under “Housing for All”.
Focus will be on developers launching aordable housing projects.
These measures will also help in reviving the real estate sectors which has slowed down
due to dierent structural reforms.
With more focus on aordable housing, we believe that, going forward, this segment will
drive the pre-sales volume.
Stocks to focus
Sunteck Realty, Sobha, Prestige Estates, Godrej Properties, Brigade Enterprise, Kolte
Patil Developers.
Housing/Real Estate
9
ECONOMY & STRATEGY
Announcements
Angel tax
The ambiguity surrounding Angel Tax has been cleared that should promote start up culture
in India. From now on, start ups and their investors who provide requisite declaration and
information in their returns will not be subject to any scrutiny in respect of calcuation of
share premium.
To address the issues related to identity of investors and source of funds, government will
put an e-verication mechanism in place.
To expedite resolution of pending assessments of and redressal of their grievances, no
inquiry or verication can be carried out by any Assessing Ocer without approval of his
supervisory ocer.
In order to stop tax avoidance on dividend distribution by resorting to buyback of shares,
government has decided to impose 20% tax on cash returned to shareholders through
buyback of shares by listed companies. Earlier this was applicable only for unlisted
companies.
Other announcements
Under Pradhan Mantri Digital Saksharta Abhiyan, over 2 crore rural Indians have been
digitally literate. To bridge the rural-urban digital divide, Bharat-Net is targeting internet
connectivity across regions.
Increased focus on skill sets such as AI, IoT, Big Data, Virtual Reality, Robotics and
3D-printing is expected to prepare the youth for overseas jobs.
Impact
Clarity on Angel Tax should encourage setting up of more start ups and expedite the
investment of bigger IT companies and start ups to beef up their digital capabilities as
issues surrounding valuation of premium on shares has been cleared.
Focus on skill sets of new technologies like Robotics, AI and VR should to some extent
lower the cost of skilled resources in the long run.
Stocks to focus
Infy, TCS, Wipro, Tech Mahindra, Tata Elxsi, Zensar Technologies and Info Edge.
Information Technology
10
ECONOMY & STRATEGY
Announcements
Allocation of Rs. 100 Tn towards infrastructure development over next ve years is proposed.
Expert committee to recommend structure and required ow of funds for infrastructure
investment.
Focus on agship programs like Bharatmala, Sagarmala, DFC and UDAN to continue.
Bharatmala Phase 2 to include state governments to develop state roads.
Acknowledging the Railways infra need of Rs. 50 Tn during 2018-2030, use of Public
Private Partnership model is proposed.
More investments to Metros and Sub-urban railway networks is proposed.
Pradhan Mantri Gram Sadak Yojana: Phase 3 envisaged to upgrade 125000 Km of road in
next 5 years with a cost of Rs. 80250 Cr.
Improvement of Inland waterways is proposed.
Impact
Rs. 100 Tn over next 5 years is much higher than anticipated. A big push towards improving
the infrastructural set up is a big positive for all the players across the spectrum. Focus
on improving the railways and metro connectivity along with station modernization is a
positive for railway players.
Stocks to focus
Larsen & Toubro, Adani Ports & SEZ, KNR Construction and HG Infra.
Infrastructure & Railways
Announcements
100% FDI for insurance intermediaries.
Pension benets for retail traders and shopkeepers with annual turnover of less than
Rs. 1.5 Cr for 3 Cr small traders under Pradhan Mantri Karma Yogi Maan Dhan Scheme.
Opening of branch requirement is decreased from Rs. 5000 Cr to Rs.1000 Cr for reinsurance
rms for onshore transactions.
Impact
Agent, Broker, and TPA network for distribution of insurance schemes from Indian primary
insurers will experience level playing eld for foreign participants alike which will reduce
channel acquisition cost and commission fees for the primary insurers which will reduce
the commission ratio and so overall combined ratio.
Push to pension scheme for small traders and shopkeepers will help primary insurer to
register premium growth from fathomed pension policies which are losing sheen against
the govt. pension schemes under the scheme participation of 15% for private insurers.
As predicted, increasing the push to distribute risk proles and businesses among multi
player re-insurance will help reduce losses for both primary insurer and GIC Re as the
premium ceded for reinsurance under participatory and non participatory contracts will
increase net premium for primary insurers.
Insurance
11
ECONOMY & STRATEGY
Announcements
The government will examine suggestions of further opening up of FDI in Media (animation,
AVGC) sector in consultation with all stakeholders.
The government is committed to expand Khelo India Scheme and to provide all necessary
nancial support. A National Sports Education Board for Development of Sportspersons
would be set up under Khelo India Scheme.
The government proposes to start a television programme within the DD bouquet of
channels exclusively for start-ups.
GST rate reduced from 28% to 18% for services by way of admission to entertainment
events/amusement parks and cinema tickets above Rs. 100.
With the objective of preserving rich tribal cultural heritage, a digital repository is developed
where documents, folk songs, photos & videos regarding their evolution, place of origin,
lifestyle, architecture, education level, traditional art, folk dances and other anthropological
details of the tribes in India are stored.
Impact
More FDI ensures development in the sector and this is going to be a big positive for media
and entertainment sector as a whole.
Expand Khelo India Scheme will popularize sports at all levels.
Stable and investment-friendly policies may increase condence among domestic and
global investors.
Stocks to focus
Zee Entertainment Enterprises Ltd, Sun TV Network Ltd, Network 18 Media & Investments
Ltd, TV Today Network Ltd, INOX LEISURE, PVR Ltd, UFO Moviez India Ltd, and Balaji
Telelms Ltd.
Media and Entertainment
Stocks to focus
ICICI Prudential Life Insurance Ltd, ICICI Lombard General Insurance Ltd, Bajaj Finserv,
HDFC Life, GIC Re, SBI Life will benet from reduced policy distribution cost and
competitive re-insurance space.
Insurance
12
ECONOMY & STRATEGY
Announcements
A cess of Re 1 would be applicable on Petrol and Diesel, also increase in the eective rate
of Basic Customs Duty on petroleum crude. In the budget, the government has a vision to
provide clean cooking fuel to all rural homes by 2022. A lot of jobs will be created from the
transportation of oil & gas across India.
Impact
The announcements of the budget would negatively impact the Oil Marketing companies
and the general public as petrol and diesel will become expensive. If we see Natural Gas
marketing companies, they would gain as their alternative fuel is becoming expensive.
Also, demand growth of volumes of Liquied Petroleum Gas and Liquied Natural Gas
may increase as infrastructure for oil and gas is ourishing mostly in rural areas of India, it
would also create more jobs for the public.
Stocks to focus
The key beneciary companies - Gujarat Gas Ltd, Indraprastha Gas Ltd and Mahanagar
Gas Ltd as cess is applied on petrol and diesel. It would make petroleum products
expensive, rather alternate natural gas companies would gain.
Announcements
Government estimates a expenditure of Rs. 50 lakh crore in railways infrastructure between
2018-30 envisaging the capital outlay of Rs.1.5L-1.7L crore per annum.
Government is focused to provide a strong connectivity via “One Nation One Grid” which
ensures the power availability to states at aordable rates.
Government is focused to turnaround the Discoms but is currently analyzing the UDAY
scheme and will act on it accordingly and ensures that nancial status of Discoms to
further improve.
The Power Ministry will work with state governments to remove cross subsidy charges
undesirable duties on open access and captive power.
Considerable tari reforms will be amended in National Tari Policy.
Government hikes custom duty on indoor and outdoor unit of split air conditioner from 10%
to 20%.
Impact
The huge capex spending on railways will ensure new orders for electrication in the
market.
One Nation One Grid ensures a good amount of orders for transmission players in the
market.
Removal of charges and undesirable duties to benet the large power consumers and
large power producers.
The hike in customs duty upon import of air conditioner will impact the air conditioner
prices to go up by 8-9% as companies would be passing on the increase in customs duty.
Stocks to focus
KEC International, Kalpataru Power, Skipper, Adani Power, NTPC, etc.
Negative : Havells India, Voltas, Blue Star, etc.
Oil & GasUtilities & Power
13
ECONOMY & STRATEGY
Exhibit: Budget at a Glance (Rs. Cr.)
2017-2018
Actual
2018-2019
RE
2019-2020
BE
1. Revenue Receipts 1435233 1729682 1962761
2. Tax Revenue (Net to Centre) 1242488 1484406 1649582
3. Non Tax Revenue 192745 245276 313179
4. Capital Receipts ¹ 706740 727553 823588
5. Recovery of Loans 15633 13155 14828
6. Other Receipts 100045 80000 105000
7. Borrowings and Other Liabilities² 591062 634398 703760
8. Total Receipts (1+4) 2141973 2457235 2786349
9. Total Expenditure (10+13) 2141973 2457235 2786349
10. On Revenue Account of which 1878833 2140612 2447780
11. Interest Payments 528952 587570 660471
12. Grants in Aid for creation of capital assets 191034 200300 207333
13. On Capital Account 263140 316623 338569
14. Revenue Decit
(10-1)
443600
(2.6)
410930
(2.2)
485019
(2.3)
15. Eective Revenue Decit
(14-12)
252566
(1.5)
210630
(1.1)
277686
(1.3)
16. Fiscal Decit
[9-(1+5+6)]
591062
(3.5)
634398
(3.4)
703760
(3.3)
17. Primary Decit (16-11) 62110
(0.4)
46828
(0.2)
43289
(0.2)
Source: Budget Documents, Karvy Research; RE: Revised Estimates, BE: Budget Estimates
¹ Excluding receipts under Market Stabilization Scheme
² Includes drawdown of Cash Balance
Notes:
(i) GDP for BE 2019-2020 has been projected at Rs. 21100607 crore assuming 12.0% growth over the estimated GDP
of Rs. 18840731 crore for 2018-2019(RE).
(ii) Individual items in this document may not sum up to the totals due to rounding o
(iii) Figures in parenthesis are as a percentage of GDP
14
ECONOMY & STRATEGY
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SEBI Reg. No’s NSE: INB/INF/INE 230770138,
BSE: INB/INF 010770130/010770131,
MSEI: INE 260770138, DP: IN-DP-175-2015,
PMS Regd No. INP000001512
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