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Budget 2014-15 – Lays Foundation for Growth
10th July 2014
2
Budget Highlights
First budget by Modi-led NDA Government, dealing with the onerous task of balancing myriad issues while addressing growth, clearly lived upto
the pre-budget optimism. FM went for laying the economic roadmap for the country to reach a growth of 7-8% while following a path of fiscal
prudence and roadmap for consolidation with commitment to reduce the deficit to 3% of GDP by 2016-17, which is encouraging. Contrary to the
expectation, Jaitley went on to retain the challenging target of 4.1% for the Year set by the ex minister in the Vote-on-Account. Budget refrained
from populism (will help in containing inflation) and at the same time laying the path for economic growth – getting the country out of morass.
Budget refrained from disproportionate increased in consumption led social spending. It focused on giving boost to infrastructure and
manufacturing sector. With Economic survey emphasizing the need for $ 1 tn investment requirement in Infrastructure over next 5 years, impetus
to infrastructure spending is a positive. Extension of the investment allowance to SME’s and venture capital fund for new startups will help in job
creation and will go a long way in promoting investment and entrepreneurship culture in India. Opening Defense, Insurance and E-Commerce to
FDI, correcting inverted duty structures and setting up of industrial clusters would encourage manufacturing. Tax breaks on REITs and
Infrastructure Investment Trust are steps in right direction helping channelize household funds in Real Estate and infrastructure. Simultaneously,
a lower divestment target might allow for some room for the private sector in what is expected to be a active fund raising season. Support of the
government towards macro issues like Education and skill development are commendable.
Increase in the IT exemption limit - by ` 50000 - will help boost the disposable income. Increase in the 80 C limit and raising deduction for housing
interest payment limit will help boost savings and channelize private capital to contribute towards the growth. Promised to move towards
consensus creation on GST – a Game changer - during the year increases the possibility of GST seeing the light of the day by the time of the
next budget. While the budget fell short of rationalizing subsidies(in order to free up capital for more productive spending) and non clarity on the
retro taxation issue was a disappointment, intent and direction of the budget was positive. Stable and investor friendly tax regime will attract
investor money in the capital formation and help spur next wave of growth.
Introducing a unified KFC norms for the entire financial sector, a single demat account for all financial transactions and a Unified account scheme
by EPFO to ensure PF portability will make life easy for investors. Though Capital gains on debt mutual funds will impact investors with under 3
year view. Allowing banks to raise long term funds which will not attract reserve requirements like SLR, CRR to fund infrastructure projects is a
big departure from past.
In a nutshell, Budget simplifies doing business in India, increases cap on FDI which will attract long term foreign funds into the
economy. With all ingredients of growth in place, economy is set for good times in the foreseeable future.
3
Agenda
Direct Tax proposals
Budget at a glance
Sector specific measures and impact
4
Budget at a glance
5
Budget at a glance
FY13 FY14 FY14 FY15
Particulars (In ` bn) Actuals Budget Estimates Revised Estimates Budget Estimates
1. Revenue Receipts (2+3) 8,792 10,563 10,293 11,898
2. Tax Revenue (net to Centre) 7,419 8,841 8,360 9,773
3. Non-tax Revenue 1,374 1,723 1,932 2,125
4. Capital Receipts (5+6+7) 5,311 6,090 5,612 6,051
5. Recoveries of Loans 151 107 108 105
6. Other Receipts 259 558 258 634
7. Borrowings and other Liabilities 4,902 5,425 5,245 5,312
8. Total Receipts (1+4) 14,104 16,653 15,904 17,949
9. Non-plan Expenditure 9,967 11,100 11,149 12,199
10. On Revenue Account of which, 9,143 9,929 10,277 11,146
11. Interest Payments 3,132 3,707 3,801 4,270
12. On Capital Account 824 1,171 872 1,053
13. Plan Expenditure 4,136 5,553 4,755 5,750
14. On Revenue Account 3,292 4,433 3,719 4,535
15. On Capital Account 844 1,121 1,037 1,215
16. Total Expenditure (9+13) 14,104 16,653 15,904 17,949
17. Revenue Expenditure (10+14) 12,435 14,362 13,995 15,681
18. Of which, grants for creation of capital assets 1,157 1,746 1,382 1,681
19. Capital Expenditure (12+15) 1,669 2,291 1,909 2,268
20. Revenue Deficit (17-1) 3,643 3,798 3,703 3,783
% of GDP (3.60) (3.30) (3.30) (2.90)
21. Effective Revenue deficit (20-18) 2,486 2,052 2,321 2,102
% of GDP (2.50) (1.80) (2.00) (1.60)
22. Fiscal Deficit {16-(1+5+6)} 4,902 5,425 5,245 5,312
% of GDP (4.80) (4.80) (4.60) (4.10)
23. Primary Deficit (20-11) 1,770 1,718 1,445 1,042
% of GDP (1.80) (1.50) (1.30) (0.80)
Source: Indiabudget.nic.in, ABML Research
6
Budget at a glance (Cont’d)
Source: Indiabudget.nic.in, ABML Research
Revenue Receipts
64.7%
Capital Receipts
35.3%
Receipts Break-up FY14 RE
Rs 5612 bnRs 10293 bn
Revenue Receipts
66.3%
Capital Receipts
33.7%
Receipts Break-up FY15 BE
Rs 11898 bn
Rs 6051 bn
Non-Plan Expenditure
70.1%
Plan Expenditure
29.9%
Expenditure Break-up FY14 RE
Rs 11149 bn
Rs 4755 bn
Non-Plan Expenditure
68.0%
Plan Expenditure
32.0%
Expenditure Break-up FY15 BE
Rs 12199 bn
Rs 5750 bn
7
Budget at a glance (Cont’d)
Source: Indiabudget.nic.in, ABML Research
Corporation Tax34.0%
Taxes on Income
20.9%
Union Excise Duties
15.5%
Customs15.1%
Service Tax14.2%
Taxes on U.T.0.3%
Wealth Tax0.1%
Tax Revenue Break-up FY14 RE
Corporation Tax33.1%
Taxes on Income
20.8%
Union Excise Duties
15.2%
Customs14.8%
Service Tax15.8%
Taxes on U.T.0.2%
Wealth Tax0.1%
Tax Revenue Break-up FY15 BE
Interest Payments etc.
34.1%
Subsidies22.9%
Defence Services (RE+CE)
11.2%
Grants to State & UT
5.5%
Pensions6.6%
Police3.9%
Economic Services
2.3%
Others13.5%
Non-Planned Expenditure FY14 RE
Interest Payments etc.
35.0%
Subsidies21.4%
Defence Services (RE+CE)
11.0%
Grants to State & UT
5.7%
Pensions6.7%
Police3.8%
Economic Services
2.2%
Others14.2%
Non-Planned Expenditure FY15 BE
8
Changes in FY15BE over FY14RE
Particulars (` bn) FY14 RE FY15 BE
∆ FY15BE /
FY14BE
REVENUE RECEIPTS
1. Tax Revenue
Gross Tax Revenue 11,589 13,645 17.7%
Corporation Tax 3,937 4,510 14.6%
Taxes on Income 2,417 2,843 17.6%
Customs 1,795 2,071 15.4%
Union Excise Duties 1,751 2,018 15.3%
Service Tax 1,649 2,160 31.0%
Taxes on U.T. 31 34 10.9%
Wealth Tax 10 10 0.0%
2. Non-Tax Revenue 1,890 2,090 10.6%
Interest receipts 210 198 -6.0%
Dividend and Profits 882 902 2.3%
Other Non Tax Revenue 798 990 24.1%
3. Capital Receipts
Miscellaneous Capital Receipts (on a/c of Disinvestment) 5,462 5,880 7.7%
9
Agenda
Direct Tax proposals
Budget at a glance
Sector specific measures and impact
10
Direct Tax proposals
11
Direct Tax proposals
Exemption limit for the general category of individual taxpayers enhanced from `2.0 lakh to `2.5 lakh (for below 60 years);
Exemption limit increased from ` 2.5 lakh to ` 3 lakh in the case of senior citizens.
Other Key Highlights
Increase the investment limit under section 80C of the Income-tax Act from ` 1 lakh to ` 1.5 lakh
Corporate tax and surcharge retained at current levels.
Increase the deduction limit on account of interest on loan in respect of self occupied house property from ` 1.5 lakh to ` 2 lakh
In the PPF Scheme, annual ceiling will be enhanced to ` 1.5 lakh p.a. from ` 1 lakh at present
Investment allowance @ 15% to a manufacturing company that invests more than ` 250mn in any year in new plant and machinery. This
benefit will be available for three years i.e. for investments upto 31.03.2017.
Concessional rate of 15% on foreign dividends extended without any sunset date
Current Tax Slab
Income Tax Rates/Slabs Rate (%)
Upto 2,00,000 Nil
2,00,001 – 5,00,000 10
5,00,001 – 10,00,000 20
10,00,001 and above 30
Proposed Tax Slab
Income Tax Rates/Slabs Rate (%)
Upto 2,50,000 Nil
2,50,001 – 5,00,000 10
5,00,001 – 10,00,000 20
10,00,001 and above 30
12
Agenda
Direct Tax proposals
Budget at a glance
Sector specific measures and impact
13
Sector specific measures and impact
14
Agriculture Positive
Budgetary Measures Impact Stocks to Watch
` 10 bn provided for “Pradhan Mantri Krishi Sinchayee Yojna” for assured irrigation Positive - Will give boost to MIS/drip irrigation
in country in medium to long term Jain Irrigation, EPC Industries
Scheme to provide soil health card to every farmer will be launched
Positive - These measures are expected to give further push for demand for optimum agrochemicals and seeds.
Rallis India, Insecticides, PI Industries etc
Increased emphasis on creating grain storage capacity and warehousing facilities.
Attract investments from private player in warehousing segment. Help development of warehousing and silos and value addition in the form of less wastage and agriculture processing. Beneficial in medium to long term for logistics and consulting players.
Blue Star, LT Foods, Voltas
Top Picks: Jain Irrigation, Rallis India and Voltas
Source: Indiabudget.nic.in, ABML Research
15
Automobiles Positive
Budgetary Measures Impact Stocks to Watch
Excise duty cut has already been extended till 31st Dec14
Neutral for Automobile Manufacturers – step was taken few days back and already factored in the price
M&M, Maruti, Tata Motors, Ashok Leyland, Bajaj Auto, Hero Honda, Eicher Motors, etc.,
No extra tax on diesel vehicles, especially SUVs
Positive for OEMs and Diesel engine manufacturers
M&M
Financing 0.5 mn farmers through NABARD.
Total planned banking agri disbursement at ` 8000 bn (vs. ` 7000 bn in FY14) for FY15.
Interest subvention at 7% plus additional 4% for timely payment.
Positive for farm equipment manufacturers M&M, VST Tillers & Tractors.
Source: Indiabudget.nic.in, ABML Research
Top Picks: M&M, Maruti and Tata Motors
16
Banking & Financials Positive for Insurance
Budgetary Measures Impact Stocks to Watch
To meet Basel-3 norms banking sector
capitilisation will be done by raising capital
via sale of shares largely through retail to
common citizens of this country
Negative - for PSU banks in long run due to
likely risk of equity dilution. All PSU Banks
Likelihood of more autonomy and merger
of smaller PSU’s with larger one. Positive - more leeway and autonomy may
improve efficiency. Merger will give size and
scale to efficient PSU banks.
Bank of Baroda, SBI and PNB
Cap in the Insurance sector will be
increased up to 49% from the current level
of 26 % with full Indian management and
control, through the FIPB route
Positive - for Insurance players as it will
attract more investments from foreign
investors.
Max India, Bajaj Finserv, Edelweiss, ICICI
Bank, HDFC Ltd, Canara, PNB, BoB, IDBI,
Kotak, PNB etc
Source: Indiabudget.nic.in, ABML Research
Top Picks: HDFC Ltd, HDFC Bank, Axis Bank, Bank of Baroda
17
Construction/Infrastructure/Engg/Cement Positive
Budgetary Measures Impact Stocks to Watch
FDI in Defence manufacturing to be raised
to 49% from current 26% with full Indian
management and control through FIPB
route.
Positive – Higher investments in Defence
sector and better technology L&T, BEL, Bhel , Bharat Forge, Tata Power etc
Banks will be allowed to raise long-term
funds for lending to infra sector with no
CRR/SLR obligations.
Huge Positive -The move is likely boost
liquidity and also help both infra and infra
financing companies to raise funds at a
cheaper rates.
IDFC, L&T, ITNL, NCC,GMR, GVK etc
Road sector target of 8,500km; ~` 379 bn
investments proposed in NHAI and state
roads.
Positive - The move is likely to bring back
interest and revival in the Road BOT space. L&T, ITNL, IRB, Sadbhav, Ashoka Buildcon etc
Water Resources and cleaning of Ganga.
Linking of rivers , Development of Ghats
and beautification of Riverfront and
conservation and improvement of the
Ganga.
Positive – Will lead to virtuous cycle of growth
in the surrounding areas
Va Tech Wabag, ITD Cementation, Patel
Engg, Thermax, IVRCL,HCC, ACC, Ambuja
etc.
`10 bn provided for development of rail
connectivity in the North Eastern Region Positive - The move is likely to bring boost
trade in north eastern region. Bhel, L&T, Siemens, Tata Steel, etc
Top Picks: L&T, ITNL, Vatech Wabag and IDFC
Source: Indiabudget.nic.in, ABML Research
18
IT/Telecom Neutral
Top Picks: TCS, Tech Mahindra and Mindtree
Budgetary Measures Impact Stocks to Watch
Service tax will be levied on sale of space
or time for advertisements in online and
mobile advertising. Marginally Negative for e-commerce players Infoedge
Source: Indiabudget.nic.in, ABML Research
19
Metals & Mining Neutral
Budgetary Measures Impact Stocks to Watch
Revision in royalty rate will be undertaken
to ensure greater revenue to the State
Governments.
Negative in short term for ferrous and non-
ferrous metal manufacturers JSW steel, Tata Steel etc.
Increase in basic customs duty on
imported flat-rolled products of stainless
steel from 5% to 7.5%. Positive - domestic stainless steel industry Jindal Stainless Steel etc
Increase in export duty on Bauxite from 10
to 20% Positive – for bauxite manufacturers Sesa Sterlite
Top Picks: Tata Steel and Sesa Sterlite
Source: Indiabudget.nic.in, ABML Research
20
Power Positive
Budgetary Measures Impact Stocks to Watch
10 year tax holiday to companies which
begin generation, distribution and
transmission of power by 31.03.2017
Positive - Will ensure long term stability and
long term investments.
Tata Power, Adani Power, JSW Energy,
Kalpataru, KEC International etc.
Resolving power issues in Delhi territory. Positive - `2bn has been allocated to
overcome frequent transmission related
problems in the national capital
Power Grid, Reliance Infra, Tata Power etc.
` 5 bn for Ultra Mega Solar power projects
at various locations, ` 1 bn for the
development of 1 MW Solar Parks on the
banks of canals
Positive - Investments to boost new and
renewable energy. Ujaas Energy, BHEL, Tata Power etc.
Clean Energy Cess increased doubled to
`100 per tonne. Short term Negative. JSW Energy, Adani Power, and Tata Power
etc.
` 5 bn for feeder separation to augment
power supply to the rural areas. Positive – For transmission EPC companies KEC International, Kalpataru etc
Top Picks: Tata Power, Power Grid and Reliance Infrastructure.
Source: Indiabudget.nic.in, ABML Research
21
FMCG/Consumer Durables Positive
Budgetary Measures Impact Stocks to Watch
Increase in excise duty on Cigarettes in
the range of 11-72% Short term negative - Marginal increase in
cost, which we believe will be passed on to the
consumers and street was expecting doubling
of excise duty across the range. Negative
priced in.
ITC, VST Industries and Godfrey Phillips
Exempt colour picture tubes from basic
customs duty to make cathode ray TVs
cheaper and reduction in excise duty to nil
for LCD and LED TV’s below 19 inches
Positive: It will reduce the overall costs for end
consumers and boost manufacturing
domestically
Videocon
Custom Duty on fatty acids, crude palm
stearin, RBD and other palm stearin and
specified industrial grade crude oils is
being reduced from 7.5% to 0% for
manufacture of soaps and oelochemicals
subject to actual user condition.
Positive – for soap manufacturers HUL and Godrej Consumer
To reduce the excise duty on specified
food processing and packaging machinery
from 10% to 6%.
Positive – for packaging companies and food
processing industry
Britannia, Nestle, GSK Consumers, Paper
Products, Manjushree Technopack etc.
No change in duty structure on alcohol Positive – for liquor companies. Street was
expecting steep hike in taxes. United Spirits, Tilaknagar, Radico Khaitan etc.
Source: Indiabudget.nic.in, ABML Research
Top Picks: United Spirits, ITC, Godrej Consumer and Britannia
22
Real Estate Positive
Budgetary Measures Impact Stocks to Watch
Development of 100 Smart Cities Positive - Sum of Rs 71 bn have been set
aside for smart cities.
L&T, HCC, Sobha Developers, Oberoi Realty,
Ashiana Housing, Mahindra Life space, DLF
etc
Real Estate Investment Trusts (REIT’s) &
InvITs (Infrastructure Investment Trusts)
will be introduced and tax benefits will be
given.
Big positive - Additional funds for sector and
will reduce dependency on the banking
system.
DLF, Phoenix Mills, Prestige etc.
IDFC, Srei Infra, IFCI, L&T, ITNL, NCC,GMR,
GVK etc.
Requirement of the built up area and
capital conditions for FDI is being reduced
to 20,000 sqm and to $5 mn with a 3 year
post completion lock in.
Positive - Will boost investments in real estate
sector
Sobha Developers, Oberoi Realty, Ashiana
Housing, Mahindra Life space, DLF etc
Slum rehabilitation projects made part of
Corporate Social Responsibility Positive - Will boost investments in low cost
housing projects.
HDIL, Ashiana Housing, Mahindra Lifespace
etc
To cover every household with sanitation
facility by the year 2019. Positive: Will lead to huge demand generation
for sanitaryware in the country
HSIL, Kajaria, Cera Sanitary, Somany
Ceramics etc
Source: Indiabudget.nic.in, ABML Research
Top Picks: Ashiana Housing, Mahindra Life space, Oberoi Realty and Kajaria
23
Retail Marginally Positive
Budgetary Measures Impact Stocks to Watch
Reduction in excised duty on footwear to
6% from 12 % for footwear of retail price
exceeding Rs.500 but not exceeding
`1000.
Positive: It will reduce the overall costs for end
consumers and boost the sales Bata India
Implementation of GST to be fast-tracked Positive – for all retailers Shoppers Stop, Trent etc
Top Picks: Shoppers Stop
Source: Indiabudget.nic.in, ABML Research
24
Oil & Gas Positive
Top Picks: HPCL, BPCL and ONGC
Budgetary Measures Impact Stocks to Watch
Excise duty on Branded Petrol is being
reduced from `7.5 per litre to ` 2.4 per litre Positive – Likely to increase sales volume for
branded, high margin petrol for OMC’s HPCL and BPCL
To develop gas pipeline network from
existing 15000 Km to 30,000 Kms Positive – Pipes and oil and gas EPC
companies
Welspun Corp, Maharashtra Seamless,
JaiHind Project, GAIL etc.
Source: Indiabudget.nic.in, ABML Research
25
Top Picks
Sr No Company Name Sector CMP Investment Rationale
1 Bharat Forge Defense 632 FDI in Defense hiked to 49% and Bharat Forge is one of the best play on defense equipments
2 ICICI Bank Banks 1389 Best play on likely revival in combined retail, infra and insurance sector.
3 IDFC NBFC/Infra
Financing 152
One of the largest infrastructure finance in company. Key beneficiary of change in financing norms in
budget.
4 IL&FS Trans Infrastructure 217 Play on likely spend on 8000 Km road projects by the government in FY15; Will benefit from
introduction of Infrastructure Investment Trusts (INVITS)
5 L&T Infrastructure 1655 Biggest beneficiaries of the pick up in infra investments. Will benefit from introduction of Infrastructure
Investment Trusts (INVITS).
6 LIC Housing
Finance
NBFC/Housing
Finance 325
Play on likely revival in demand for housing finance on the back of likely push to mass housing and
increased tax exemption on housing loans.
7 Maruti Automobiles 2532 New product launch coupled with entry into diesel engine in 800 CC category will help improve
margins; One of best play in auto sector
8 Phoenix Mills Real Estate 346 Has portfolio of good rental yielding assets; To benefit from new REIT structure.
9 Tata Power Power 106
Will be big beneficiary of improvement in coal supplies and linkages assured by govt. Also will benefit
from its presence in non-renewable segment and defense. Moreover, solution to Delhi power crisis will
give additional benefit to the company in long run.
10 Va Tech Wabag Water 1400 Should benefit from the focus of the new government on recycling of waste water and cleaning of
various rivers. Has strong good execution capabilities and strong balance sheet.
26
Research Team
Vivek Mahajan Hemant Thukral
Head of Research Head – Derivatives Desk
022-61802820 022-61802870
[email protected] [email protected]
Fundamental Team
Sunny Agrawal FMCG/Cement/Mid Caps 022-61802831 [email protected]
Shreyans Mehta Construction/Real Estate 022-61802829 [email protected]
Pradeep Parkar Database Analyst 022-61802839 [email protected]
Quantitative Team
Sudeep Shah Technical Analyst 022-61802837 [email protected]
Advisory Support
Suresh Gardas Advisory Desk 022-61802835 [email protected]
Mohan Jaiswal Executive – Research Support 022-61802838 [email protected]
ABML research is also accessible in Bloomberg at ABMR
27
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