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India Strategy

Overhauling the rural growth engine

INDIA | FY19 PRE-BUDGET EXPECTATIONS

29 January 2018

This is the last budget in the current BJP government’s term (ending in 2019), and it is burdened with heavy expectations. The number-one agenda for the government will continue to be job creation and rural growth. However, while the markets expect the budget to be populist, considering economic challenges, we believe the government is more likely to present a well-balanced budget. In recent media interactions, the finance minister indicated that additional rationalisation of GST tax slabs is likely – this implies that the government is becoming more confident about tax collections and that widening of the tax base takes precedence.

What we foresee:

Doubling of farm income and focus on the rural economy to continue.

‘Housing for all by 2022’ to gain further traction.

While tax cuts are expected by all sections of society, the government has limited room to effect major cuts. While some rationalisation is possible/likely, we do not expect any major change in the government’s course.

Key expectations and plays for the upcoming budget:

Rural economy and affordable housing are likely to get top priority: The doubling of farm income on a sustainable basis is an ambitious project – to say the least. Not surprisingly, the budget is likely to focus on agri productivity initiatives (such as irrigation), but we would keep a watch on a major overhaul of the MSP mechanism (this should address the income side of the equation). It will also be interesting to see the government’s initiatives in allied agriculture sectors (such as dairy), which are becoming key sources of income in rural India. The rising labour force in rural India and the need for jobs will mean that the government will be very focussed on kicking off as many infrastructure projects as possible. Affordable housing is another ambitious project by the government. While the growth numbers for the scheme look impressive, considering the size of the Indian economy, absolute numbers are not very significant. The scheme needs (1) a much bigger push and (2) some changes in the policy framework (as our channel checks across the Indian states indicate). A big boost to this scheme is quite likely, as it has the potential of generating huge employment. Executed well, its political mileage can be significant. Overall, we expect higher allocation towards NREGA, Pradhan Mantri Awas Yojna (PMAY) and crop insurance. Our picks based on this theme – Escorts, Mahindra & Mahindra, Parag Milk, cement companies, Sintex Plastic, Mahindra & Mahindra Finance & Shriram Transport Finance.

Infrastructure spending will remain in focus: We believe that higher allocation will continue in infrastructure categories such as road, railways, ports, and affordable housing, which can lead to job creation. Consistent infrastructure spending should see improvement in private capex, which is seeing some green shoots. Our preferred plays from this space – L&T, NCC, Ahluwalia Contracts, Ashoka Buildcon.

MSME and SME will receive priority lending: After bank recapitalization, the focus of banks has shifted towards MSME and SME lending. In order to encourage the sector, we would expect some incentive from the government, and also more focus towards the availability of financing for SMEs. Our key plays are - Bank of Baroda and Indian Bank Tobacco, electric vehicles, others: The increase in taxation on cigarettes should be benign, considering the sharp rise last year, which led to more erosion in the legal cigarettes markets. An extra push for electric vehicles (EVs) is likely. Incentivising replacement of old commercial vehicles, a push for rural electrification, and some increase in income-tax slabs could be other likely measures.

Naveen Kulkarni (+ 9122 6246 4122) [email protected] Anjali Verma (+ 9122 6246 4115) [email protected] Neeraj Chadawar (+ 9122 6246 4116) [email protected] India Research Team


INDIA STRATEGY PRE BUDGET EXPECTATIONS

Economist’s view It’s time for the last budget of the BJP government. Since it’s the last one, the street expects it to be populist. However, giveaways can only come from either excessive fiscal slippage or higher revenues – we see limitations on both. Fiscal deficit is expected to slip to 3.5% in FY18 and 3.3-3.4% in FY19; FY18 government capex has stayed on course – we view this as a positive in times of fiscal stress. While space is limited for any surge in government spending, trend growth pace is expected to persist with focus on roads, metros, housing, irrigation, and defense. Also, we do not see the government going overboard in making this budget populist; but rural focus will continue. Bond yields are discounting higher government borrowings and fiscal slippage, thus incremental rise from current levels is limited. Overall, we see fewer negatives from this budget. We expect GST gains to start flowing in 2HFY19; full impact likely in FY20. Uptick in economic activity should be positive for tax revenues. Public capital expenditure growth will be muted in FY19; should pick-up in FY20. We have been of the view that public capex will be muted in FY18-19, both by centre and states (click here). That said, we are positive on green shoots in private capex by way of government orders in the last few years. Thus, we remain positive on the Indian capex cycle. Private consumption, on the other hand, is expected to stay strong; 2018 monsoon could be a concern. Job situation seems to be gradually improving – PMI data has shown pick-up in employment index of both manufacturing and services. Contribution of government spending to GDP will be muted in FY19. We expect government spend to remain strong in schemes like MNREGA (jobs), PMAY (housing), PMKSY (irrigation), SBM (clean India), NHM (health), NEM (education), and the crop insurance scheme. Tax rebates are unlikely due to revenue constraints. Fiscal deficit slippage is well discounted: Fiscal deficit for FY18 is estimated at 3.5% (vs. budgeted 3.2%) and 3.3-3.4% for FY19. Due to this, and rising inflation, the 10-year bond yield has rallied to 7.44% (up 1% since August 2017). Slippage in fiscal deficit is largely led by lower non-tax revenue collection and higher expenditure. We expect GST collections to improve in 2HFY19, once tax return filing normalizes, as against current legal suspension, and as compliance improves. Additionally, RBI dividend should normalize in FY19. Policy continuity is expected in government spending as well as revenues. Bond yields are expected to range between 7.0-7.5% until FY19; our earlier forecasted range was 6.90-7.25%. Rise in international crude oil prices and poor monsoon are the key risks to our estimates. FY19 Budget – Higher revenue receipts, muted capital expenditure: Revenue receipts are estimated to rise by 7-8% vs. 5% in FY18; improvement is expected across categories – direct tax, indirect tax, and non-tax revenue (not positive on telecom auction, RBI dividend will be higher than FY18). Disinvestment assumed at FY18 level of Rs 725bn. Government spending to rise by 6.7% vs. 7.6% in FY18. Capex spend growth will likely drop to 6% vs. 11% in FY18. Gross borrowing in FY18 (after the supplementary demand) stands at Rs 6.3tn, for FY19 it is estimated at Rs 6.4tn and net borrowing at Rs 4.8tn. Some sort of populist measures can possibly be routed through states as room for slippage in the central government’s finances has an upside. FY18 – expenditure on course, to rise in coming months; revenues falling short: FYTD (April-November) receipts stood at 53% of budgeted vs. 58% in FY17, dented by lower non-tax revenue (at 36.5% of BE) led by lower dividends by the RBI (total dividends at Rs 470bn, 33% of BE) and telecom auction (other non-tax revenue at Rs 500bn – 40% of BE). Gross tax revenue growth is higher than budgeted at 16.5% vs. 12.2% (budgeted). Shortfall is expected on income tax. It’s early days for GST. It’s tepid, but expected to improve in FY19. Government recently cleared the second

http://backoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-_Sovereign_Expenditure_analysis_-_July_2016_20160725152322.pdf



batch of supplementary grants, totaling Rs 770bn. FYTD expenditure is higher than its trend (at 69% of BE vs. 64.5% in the last two years). FYTD capex is higher at 59.5% of BE vs. 57.5% last year. Sectors where spending is strong are – agriculture, metros, roads, housing, defense, rural development, and education. Railways spending surged in November 2017 (at 58% of BE vs. 42% last month).

Gross tax revenue and its components

____________Rs bn____________ ______________YoY______________ ______________% of GDP______________

FY16 FY17 FY18BE FY18RE FY19PC FY16 FY17 FY18BE FY18RE FY19PC FY16 FY17 FY18BE FY18RE FY19PC

Gross Tax Revenue 14556 17032 19116 18774 20374 16.9% 17.0% 12.2% 10.2% 8.5% 10.6% 11.2% 11.3% 11.1% 12.0%

Direct Tax 7419 8471 9800 9343 10329 6.7% 14.2% 15.7% 10.3% 10.6% 5.4% 5.6% 5.8% 5.6% 5.5%

Personal Income Tax 2876 3532 4413 3956 4430 8.2% 22.8% 24.9% 12.0% 12.0% 2.1% 2.3% 2.6% 2.4% 2.4%

Corporation Tax 4532 4939 5387 5387 5899 5.7% 9.0% 9.1% 9.1% 9.5% 3.3% 3.3% 3.2% 3.2% 3.2%

Indirect tax 7098 8519 9269 9431 10045 30.0% 20.0% 8.8% 1.7% 6.5% 5.2% 5.6% 5.5% 5.7% 5.4%

GST

4700 6600

2.8% 3.5%

Excise Duty 2881 3874 4069 2476 2225 51.7% 34.5% 5.0% -39.1% -10.1% 2.1% 2.6% 2.4% 1.5% 1.2%

Customs Duty 2103 2170 2450 1380 1020 11.9% 3.2% 12.9% -43.7% -26.1% 1.5% 1.4% 1.5% 0.8% 0.5%

Service Tax 2114 2475 2750 875 200 25.9% 17.1% 11.1% -68.2% -77.1% 1.5% 1.6% 1.6% 0.5% 0.1%

Source: CGA, Budget docs, PhillipCapital India Research Estimates

Central fiscal account

____________Rs bn____________ _____________% of GDP___________ ____yoy growth rate (%)____

FY16 FY17 FY18BE FY18PC FY19PC FY16 FY17 FY18BE FY18PC FY19PC FY17 FY18BE FY18PC FY19PC

Nominal GDP 136820 151837 168475 166276 186230 11.0 11.0 9.5 12.0

Revenue receipts 11950 14236 15158 14950 16059 8.7 9.4 9.0 9.0 8.6 19.1 6.5 5.0 7.4

Tax (net) 9438 10888 12270 12556 13359 6.9 7.2 7.3 7.6 7.2 15.4 12.7 15.3 6.4

Non - tax 2513 3348 2888 2395 2700 1.8 2.2 1.7 1.4 1.4 33.2 -13.7 -28.5 12.8

Capital receipts 5958 5908 6310 6727 7063 4.4 3.9 3.7 4.0 3.8 -0.8 6.8 13.9 5.0

Recovery of loans 208 111 119 119 119 0.2 0.1 0.1 0.1 0.1 -46.9 7.8 7.8 0.0

Other receipts 421 455 725 725 725 0.3 0.3 0.4 0.4 0.4 8.0 59.3 59.3 0.0

Borrowings and other liabilities 5328 5343 5465 5883 6218 3.9 3.5 3.2 3.5 3.3 0.3 2.3 10.1 5.7

Total receipts 17908 20144 21467 21677 23122 13.1 13.3 12.7 13.0 12.4 12.5 6.6 7.6 6.7

Scheme Expenditure 7251 8698 9451 9661 10532 5.3 5.7 5.6 5.8 5.7 20.0 8.6 11.1 9.0

Revenue A/c 5456 6315 6741 6951 7632 4.0 4.2 4.0 4.2 4.1 15.7 6.7 10.1 9.8

Capital A/c 1795 2383 2710 2710 2900 1.3 1.6 1.6 1.6 1.6 32.8 13.7 13.7 7.0

Non-Scheme Expenditure 10657 11446 12017 12017 12590 7.8 7.5 7.1 7.2 6.8 7.4 5.0 5.0 4.8

Revenue A/c 9921 11030 11629 11629 12210 7.3 7.3 6.9 7.0 6.6 11.2 5.4 5.4 5.0

Interest payments 4417 4831 5231 5231 4950 3.2 3.2 3.1 3.1 2.7 9.4 8.3 8.3 -5.4

Capital A/c 735 415 388 388 380 0.5 0.3 0.2 0.2 0.2 -43.5 -6.6 -6.6 -2.0

Total revenue expenditure 15378 17346 18369 18369 19842 11.2 11.4 10.9 11.0 10.7 12.8 5.9 5.9 8.0

Total capital expenditure 2530 2798 3098 3098 3280 1.85 1.84 1.84 1.9 1.8 10.6 10.7 10.7 5.9

Total expenditure 17908 20144 21467 21677 23122 13.1 13.3 12.7 13.0 12.4 12.5 6.6 7.6 6.7

Fiscal deficit 5328 5343 5465 5883 6218 3.9 3.5 3.2 3.5 3.3 0.3 2.3 10.1 5.7

Revenue deficit 3427 3110 3212 3419 3783 2.5 2.0 1.9 2.1 2.0 -9.3 3.3 9.9 10.6

Primary deficit 2110 1395 1258 1259 1260 1.5 0.9 0.7 0.8 0.7 -33.9 -9.8 -9.8 0.1




Central government fiscal account for April-December (Rs bn) 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

Revenue Receipts 2,746 3,150 3,071 4,767 3,928 4,458 5,027 5,417 6,381 7,961 8,049

% of BE 56.5% 52.2% 50.0% 69.9% 49.7% 47.6% 47.6% 45.5% 55.9% 57.8% 53.1%

Tax Revenue 2,204 2,536 2,329 2,966 3,205 3,696 3,962 4,133 4,649 6,212 6,994

% of BE 54.60% 50.00% 49.10% 55.50% 48.20% 47.90% 44.80% 42.30% 50.50% 58.90% 57.00%

Non-tax Revenue 543 614 743 1,801 723 762 1,065 1,283 1,732 1,750 1,055

% of BE 65.70% 64.10% 52.90% 121.60% 57.70% 46.30% 61.80% 60.40% 78.10% 54.20% 36.50%

Non-debt capital Receipts 405 26 83 274 145 89 89 74 207 326 618

% of BE 93.8% 18.0% 155.8% 60.8% 26.4% 21.4% 13.5% 10.0% 78.1% 48.5% 73.3%

Recovery of loans 28 26 40 63 118 67 74 72 79 90 95

% of BE 184.5% 57.7% 95.2% 122.2% 78.4% 57.6% 69.1% 68.1% 73.2% 84.9% 79.4%

Other Receipts 377 0 43 212 27 22 16 2 129 235 524

% of BE 90.5% 0.4% 384.4% 53.0% 6.8% 7.3% 2.8% 0.4% 18.5% 41.6% 72.2%

Total Receipts 3,151 3,176 3,155 5,042 4,073 4,547 5,116 5,490 6,588 8,287 8,667

% of BE 59.5% 51.4% 50.9% 69.3% 48.2% 46.5% 45.6% 43.4% 53.9% 57.4% 54.2%

On Revenue Account 3,446 4,563 5,650 6,169 6,733 7,653 8,957 9,527 9,834 11,443 12,947

% of BE 59.4% 65.7% 60.3% 62.5% 59.0% 56.4% 59.7% 57.9% 62.8% 67.2% 70.5%

of which interest payments 1,036 1,117 1,195 1,345 1,659 1,829 2,144 2,327 2,526 2,667 3,098

% of BE 65.2% 58.5% 53.0% 54.1% 61.9% 57.2% 57.8% 54.5% 55.4% 54.1% 59.2%

On Capital Account 668 378 566 738 874 1,023 1,255 1,215 1,589 1,423 1,841

% of BE 58.6% 44.4% 47.5% 50.4% 54.1% 49.9% 54.7% 53.8% 65.0% 57.5% 59.5%

of which loans disbursed 60 67 76 139 249 196 222 252 269 256 220

% of BE 79.4% 68.3% 66.8% 158.5% 1964.8% 591.9% 1536.9% 718.7% 535.5% 76.6% 55.1%

Total Expenditure 4,114 4,941 6,217 6,907 7,607 8,676 10,212 10,742 11,423 12,867 14,788

% of BE 60.5% 65.8% 60.9% 62.3% 60.5% 58.2% 61.3% 59.8% 64.3% 65.0% 68.9%

Fiscal Deficit 963 1,765 3,062 1,865 3,534 4,129 5,096 5,251 4,835 4,580 6,121

% of BE 63.8% 132.4% 76.4% 48.9% 85.6% 80.4% 93.9% 98.9% 87.0% 85.8% 112.0%

Revenue Deficit 700 1,414 2,579 1,402 2,805 3,195 3,930 4,111 3,453 3,482 4,898

% of BE 97.9% 256.2% 91.2% 50.7% 91.3% 91.2% 103.5% 108.6% 87.5% 98.4% 152.2%

Primary Deficit -74 648 1,867 520 1,875 2,301 2,951 2,925 2,309 1,913 3,023

% of BE 91.6% -112.7% 106.4% 39.2% 129.4% 118.7% 171.8% 280.8% 232.1% 464.0% 1288.9%




What the budget can unveil for various sectors

Sector Expectation from the budget Impact (Positive/Negative/Neutral) Likelihood Maximum impact

Automobile

Incentivise replacement of old vehicles (+15)

Positive for CV players, as government-backed incentives would encourage fleet owners to replace old vehicles and boost replacement-led demand

Low Ashok Leyland, Tata Motors

Concessions for hybrid/electric vehicles Positive. Given government’s push on EVs, expect additional concessions to be given for hybrid/electric vehicles, E2W, and 3Ws.

High Maruti, M&M, TATA Motors

Increase in agricultural support/credit Positive, as higher allocation under the scheme would help spur rural demand

High Hero Motocorp, M&M, Bajaj Auto, Escorts

Banking

Increased incentives and budgetary allocation to encourage the flow of credit to MSMEs.

Positive Medium All PSU banks

The inclusion of a wider income range under affordable housing schemes and further incentives to developers.

Positive Medium All housing finance companies

Announce steps to make land acquisition easier for affordable housing developers.

Positive Medium All housing finance companies

Increased allocation under PMAY Positive Medium All housing finance companies

Incentives for long-term project financing by banks with a focus on roads and railways.

Positive Medium Corporate banks

Digitization initiatives including a special focus on promoting UPI-based payments across a broader platform.

Positive Medium All PSU banks

Creating a separate tax exemption for term life insurance

Positive High Life insurance companies

Higher allocation for agri-credit Positive Medium Rural-focused NBFCs

Building materials

Increased allocation in schemes such as affordable housing, Housing for All, Smart Cities, Swachh Bharat Abhiyan, and other infrastructure development schemes

Positive High Kajaria, Somany Ceramics, AGL, Orient Bell, Century Ply, Greenply, Greenlam, Uniply

Cement

Rationalisation of GST on cement to the lower bracket

Positive Unlikely Entire sector

Push for infrastructure and putting in place better monitoring systems to judge progress

Positive Likely Players exposed more to the non- trade segment

Revisiting the increased duty rates on imported fuel

Positive Unlikely Players with larger dependency on imported fuel - UltraTech, Ambuja, Shree, JK, JK Lakshmi

Improved thrust on affordable housing projects and better mechanism for execution

Positive Likely All stocks

Reduction in corporate tax rate Positive Likely All stocks




Capital Goods

Increase in railway expenditure Positive High L&T, KEC International, ABB, Siemens, CG Power, BHEL, Cummins

Increase in capital expenditure in defence from Rs 865bn in FY18BE

Positive High Bharat Electronics, L&T

Focus on rural electrification under the Saubhagya scheme

Positive High Voltas, KEC, L&T

Higher allocation to Namami Ganga vs. Rs 23bn in FY18BE

Positive High Va Tech Wabag, Voltas, L&T

Increase in support to irrigation Positive High Kirloskar Brothers, KSB Pumps

Electrical Rural electrification – increased allocation / accelerated spending on Deendayal Upadhyaya Gram Jyoti Yojana & Saubhagya.

Positive High Havells, V-Guard, Bajaj Electrical, CG Consumer, KEI, Orient Electric

FMCG

Higher allocation towards creation of rural infrastructure

Positive: For rural-oriented FMCG companies. Higher allocation towards MNREGA, focus on the dairy sector, and increasing use of DBT for transferring subsidies to beneficiaries to aid consumption.

High HUL, Dabur, Emami, and Colgate

Increase in personal tax slabs and introduction of standard deduction for salaried class

Positive - Higher disposable income in the hands of consumers to boost discretionary spending.

Medium to High

Nestle, Jubilant Foodworks

Reduction in custom duty on gold, provided there is no commensurate increase in GST rate (currently at 3%)

Positive for jewellery companies as reduction in smuggling makes organized players competitive

Low Titan, PC Jewellers, TBZ

Increase in cess rate on cigarettes Neutral/ negative: We believe cigarette companies shall be in a position to manage moderate increase (5-6% hike) in cess rates.

Low to medium

ITC

IT

Provide a boost to Engineering Research & Development (ERD) activities with incentives such as weighted deduction for R&D expenses and additional depreciation on investments - especially with a focus on 'Make in India'.

Positive Medium HCL TECH, Cyient, LTTS

Infra

Increased allocation – with focus on roads, especially the recently announced Bharatmala Paryojna

Positive High All EPC players - NCC, PNC, J Kumar, KNR, ITDC, IRB, Ashoka, Sadbhav, Dilip, Simplex, HCC

Higher allocation for urban infra (metro projects) and visibility on flagship programs like 'Smart Cities'

Positive High EPC players in metro/urban-infra segment - JKumar, NCC, Simplex, ITD Cementation, HCC

Increased allocation for housing - specifically schemes like PMAY

Positive High EPC players in the building segment - NCC, Ahluwalia, Simplex




Increased allocation for irrigation - specifically any plans related to the National River Linking Programme (NRLP)

Positive Medium EPC players in irrigation segment - NCC, Sadbhav, Dilip, KNR, HCC

Any impetus to the ports sector Positive Medium Adani Ports

Metals

Reduction in import duty on coking coal to zero from 2.5% currently

Positive for steel producers, as it reduces production costs

High Tata Steel, SAIL, JSW Steel

Scrapping of export duty on iron ore up to 62% Fe

Positive for iron ore miners in Goa Medium Vedanta

Increase in import duty on aluminium to 10% from current 7.5%

Positive for aluminium producers Medium Nalco, Hindalco, Vedanta

Midcap

Higher focus on solar power to promote renewable energy. Tax benefit to water and waste-water treatment projects

Positive for EPC and equipment players Medium Praj, Pennar, PEBS

Higher allocation and benefit for rural housing and low-cost housing, clean India, and rural education

Positive for prefabricated players High Sintex

NBFC

Measures directed towards reinstating gold loans under priority-sector lending

Positive Low Muthoot, Manappuram

Strengthening the role of NBFCs in the economy, especially well-run NBFCs with a net-worth of more than Rs50bn

Positive Medium All NBFCs

The long-pending demand of ending ‘step-motherly treatment’ to NBFCs in comparison with banks and creation of a level playing field, special focus on finance to small business where NBFC can play a better role than the banks

Positive Medium Shriram City Union, Cholamandalam, Bajaj Finance

Infrastructure bonds may be reintroduced for increasing the allocation towards infra spending

Positive Medium All NBFCs

Pharma

Extending weighted deduction under Section 35(2AB) for Clinical Trials outsourced either from India or outside

Positive for CRAMS players as well as companies with specialty pipeline

Medium Divis Lab, Syngene, Biocon, Sun Pharma, Dr Reddy’s

Exemption from GST for samples sent for testing Restoration of 150% Weighted Deduction under Section 35AD for Hospitals, which is reduced to 100% last budget

Positive for most of the hospitals and diagnostic players

Medium Thyrocare, Dr Lal Pathlabs, Fortis

Include CT scanner in the preferred list of lifesaving machines; hence, should be eligible for depreciation @ 40% under the block of life-saving medical equipment.

Reduce GST rate on dialysis consumables, as rate of (blood tubing, fitsula needle, disinfectants, bibag) jumped to 12-18% from 0-5% in the pre-GST era




Specialty Chemicals

Reduction of customs duty on feedstock - ethanol, methanol and acetic acid

Positive across the chemicals industry Medium Leading specialty chemicals players

Increase basic customs duty on imports of caustic soda and soda ash from 7.5% to 10% Provide full exemption from customs duty on import of power equipment for captive power plants

To help in improving capacity utilisation and de-risk from dumping

Medium Meghmani, Gujarat Alkali

Technology up-gradation fund for chemicals industry

To help the industry in improving the quality of output and in becoming more competitive

Low Aarti Industries, Vinati Organics

Development of chemical clusters Will lower investment on infrastructure, improve cost competitiveness, and resolve ETP issues

Medium Leading specialty chemicals players

Transportation

Financial incentive for costal shipping; removal of 5% IGST for ship buying for foreign companies.

Positive for shipping and coastal shipping players

Medium SCI, Shreyas Shipping, Mercator lines, Dredgign Corporation, Concor, Gateway Distriparks, ABG Shipyard,

Tax parity to Indian shipping in import cargo

Pays 5% GST compared with no tax for foreign flag players. Positive for Indian shipping companies.

Medium

Tonnage tax benefit on the profit from the sale of a ship

Positive for shipping companies that buy and sell ships as their primary business. Tonnage tax benefit will help build domestic shipping capacity

Low

Input credit for services availed in other states

Development of coastal trade Medium

New dredging policy for ports and inland waterways; higher allocation to Sagarmala and Inland waterways

Positive High Ports and dredging players

Increased allocation to DMICDC and Sagarmala projects

Positive for logistics and shipping players. To support Make in India and reduce logistics’ cost of trade

High

Increase in visa on arrival to more countries, reduction on duties on ATF for domestic travel

Positive for aviation and hospitality, as the government is promoting tourism and aviation

High Indigo, Spicejet, Jet Airways

Telecom

Cut in service tax to 12% from 18%. Significant positive as it will provide much needed relief for telecom companies, which are reeling under an intense price war.

Low Idea Cellular, Bharti Airtel

Textile Increase in duty draw back rates to promote export

Positive for exporters Medium Indocount, Welspun, Trident

Benefit on input credit and capital subsidy to promote employment

Positive High

Source: PhillipCapital India Research Estimates



Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year.

Rating Criteria Definition

BUY >= +15% Target price is equal to or more than 15% of current market price

NEUTRAL -15% > to < +15% Target price is less than +15% but more than -15%

SELL <= -15% Target price is less than or equal to -15%.

Management Vineet Bhatnagar (Managing Director) (91 22) 2483 1919

Kinshuk Bharti Tiwari (Head – Institutional Equity) (91 22) 6246 4101

Jignesh Shah (Head – Equity Derivatives) (91 22) 6667 9735

Research

Automobiles

Engineering, Capital Goods

Pharma & Specialty Chem

Dhawal Doshi (9122) 6246 4128

Jonas Bhutta (9122) 6246 4119

Surya Patra (9122) 6246 4121

Nitesh Sharma, CFA (9122) 6246 4126

Vikram Rawat (9122) 6246 4120

Mehul Sheth (9122) 6246 4123

Banking, NBFCs

IT Services & Infrastructure

Raag Haria (9122) 6667 9943

Manish Agarwalla (9122) 6246 4125

Vibhor Singhal (9122) 6246 4109

Strategy

Pradeep Agrawal (9122) 6246 4113

Shyamal Dhruve (9122) 6246 4110

Naveen Kulkarni, CFA, FRM (9122) 6246 4122

Paresh Jain (9122) 6246 4114

Logistics, Transportation & Midcap

Neeraj Chadawar (9122) 6246 4116

Consumer & Retail

Vikram Suryavanshi (9122) 6246 4111

Telecom


Media


Preeyam Tolia (9122) 6246 4129


Technicals

Vishal Gutka (9122) 6246 4118

Vishal Gutka (9122) 6246 4118

Subodh Gupta, CMT (9122) 6246 4136

Akshay Mokashe (9122) 6246 4130

Metals

Production Manager

Cement

Dhawal Doshi (9122) 6246 4128

Ganesh Deorukhkar (9122) 6667 9966

Vaibhav Agarwal (9122) 6246 4124

Vipul Agrawal (9122) 6246 4127

Editor

Economics

Mid-Caps

Roshan Sony 98199 72726

Anjali Verma (9122) 6246 4115

Deepak Agarwal (9122) 6246 4112

Sr. Manager – Equities Support

Rosie Ferns (9122) 6667 9971

Sales & Distribution

Corporate Communications

Ashvin Patil (9122) 6246 4105

Asia Sales

Zarine Damania (9122) 6667 9976

Kishor Binwal (9122) 6246 4106

Dhawal Shah 8522 277 6747

Bhavin Shah (9122) 6246 4102

Sales Trader

Ashka Mehta Gulati (9122) 6246 4108

Dilesh Doshi (9122) 6667 9747

Execution

Archan Vyas (9122) 6246 4107

Suniil Pandit (9122) 6667 9745

Mayur Shah (9122) 6667 9945

Contact Information (Regional Member Companies)

SINGAPORE: Phillip Securities Pte Ltd

250 North Bridge Road, #06-00 RafflesCityTower,

Singapore 179101

Tel : (65) 6533 6001 Fax: (65) 6535 3834

www.phillip.com.sg

MALAYSIA: Phillip Capital Management Sdn Bhd

B-3-6 Block B Level 3, Megan Avenue II,

No. 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur

Tel (60) 3 2162 8841 Fax (60) 3 2166 5099

www.poems.com.my

HONG KONG: Phillip Securities (HK) Ltd

11/F United Centre 95 Queensway Hong Kong

Tel (852) 2277 6600 Fax: (852) 2868 5307

www.phillip.com.hk

JAPAN: Phillip Securities Japan, Ltd

4-2 Nihonbashi Kabutocho, Chuo-ku

Tokyo 103-0026

Tel: (81) 3 3666 2101 Fax: (81) 3 3664 0141

www.phillip.co.jp

INDONESIA: PT Phillip Securities Indonesia

ANZTower Level 23B, Jl Jend Sudirman Kav 33A,

Jakarta 10220, Indonesia

Tel (62) 21 5790 0800 Fax: (62) 21 5790 0809

www.phillip.co.id

CHINA: Phillip Financial Advisory (Shanghai) Co. Ltd.

No 550 Yan An East Road, OceanTower Unit 2318

Shanghai 200 001

Tel (86) 21 5169 9200 Fax: (86) 21 6351 2940

www.phillip.com.cn

THAILAND: Phillip Securities (Thailand) Public Co. Ltd.

15th Floor, VorawatBuilding, 849 Silom Road,

Silom, Bangrak, Bangkok 10500 Thailand

Tel (66) 2 2268 0999 Fax: (66) 2 2268 0921

www.phillip.co.th

FRANCE: King & Shaxson Capital Ltd.

3rd Floor, 35 Rue de la Bienfaisance

75008 Paris France

Tel (33) 1 4563 3100 Fax : (33) 1 4563 6017

www.kingandshaxson.com

UNITED KINGDOM: King & Shaxson Ltd.

6th Floor, Candlewick House, 120 Cannon Street

London, EC4N 6AS

Tel (44) 20 7929 5300 Fax: (44) 20 7283 6835

www.kingandshaxson.com

UNITED STATES: Phillip Futures Inc.

141 W Jackson Blvd Ste 3050

The Chicago Board of TradeBuilding

Chicago, IL 60604 USA

Tel (1) 312 356 9000 Fax: (1) 312 356 9005

AUSTRALIA: PhillipCapital Australia

Level 10, 330 Collins Street

Melbourne, VIC 3000, Australia

Tel: (61) 3 8633 9800 Fax: (61) 3 8633 9899

www.phillipcapital.com.au

SRI LANKA: Asha Phillip Securities Limited

Level 4, Millennium House, 46/58 Navam Mawatha,

Colombo 2, Sri Lanka

Tel: (94) 11 2429 100 Fax: (94) 11 2429 199

www.ashaphillip.net/home.htm

INDIA

PhillipCapital (India) Private Limited

No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013

Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 www.phillipcapital.in

http://www.phillip.com.sg/

http://www.poems.com.my/

http://www.phillip.com.hk/

http://www.phillip.co.jp/

http://www.phillip.co.id/

http://www.phillip.com.cn/

http://www.phillip.co.th/

http://www.kingandshaxson.com/

http://www.kingandshaxson.com/

http://www.phillipcapital.com.au/

http://www.ashaphillip.net/home.htm

http://www.phillipcapital.in/



Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd.

This report is issued by PhillipCapital (India) Pvt. Ltd., which is regulated by the SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only, and neither the information contained herein, nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment, or derivatives. The information and opinions contained in the report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication of future performance.

This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which PCIL believe is reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice.

Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request.

Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst’s personal views about all of the subject issuers and/or securities, that the analyst(s) have no known conflict of interest and no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific views or recommendations contained in this research report.

Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in

this report. 2. The Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the

company (ies)covered in this report as of the end of the month immediately preceding the distribution of the research report. 3. The Research Analyst, his/her associate, his/her relative, and PCIL, do not have any other material conflict of interest at the time of publication of this

research report. 4. The Research Analyst, PCIL, and its associates have not received compensation for investment banking or merchant banking or brokerage services or for

any other products or services from the company(ies) covered in this report, in the past twelve months. 5. The Research Analyst, PCIL or its associates have not managed or co-managed in the previous twelve months, a private or public offering of securities for

the company (ies) covered in this report. 6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in

connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report:

Sr. no. Particulars Yes/No

1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by PCIL

No

2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of the company(ies) covered in the Research report

No

3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No

4 PCIL or its affiliates have managed or co-managed in the previous twelve months a private or public offering of securities for the company(ies) covered in the Research report

No

5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months

No

Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it, or its affiliates/employees, may have positions in, purchase or sell, or be materially interested in any of the securities covered in the report.

Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or political factors. Past performance is not necessarily indicative of future performance or results.



Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material, and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Without limiting any of the foregoing, in no event shall PCIL, any of its affiliates/employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind including but not limited to any direct or consequential loss or damage, however arising, from the use of this document.

Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorised use or disclosure is prohibited. No reprinting or reproduction, in whole or in part, is permitted without the PCIPL’s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety.

Caution: Risk of loss in trading/investment can be substantial and even more than the amount / margin given by you. Investment in securities market are subject to market risks, you are requested to read all the related documents carefully before investing. You should carefully consider whether trading/investment is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances. PhillipCapital and any of its employees, directors, associates, group entities, or affiliates shall not be liable for losses, if any, incurred by you. You are further cautioned that trading/investments in financial markets are subject to market risks and are advised to seek independent third party trading/investment advice outside PhillipCapital/group/associates/affiliates/directors/employees before and during your trading/investment. There is no guarantee/assurance as to returns or profits or capital protection or appreciation. PhillipCapital and any of its employees, directors, associates, and/or employees, directors, associates of PhillipCapital’s group entities or affiliates is not inducing you for trading/investing in the financial market(s). Trading/Investment decision is your sole responsibility. You must also read the Risk Disclosure Document and Do’s and Don’ts before investing.

Kindly note that past performance is not necessarily a guide to future performance.

For Detailed Disclaimer: Please visit our website www.phillipcapital.in

For U.S. persons only: This research report is a product of PhillipCapital (India) Pvt Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S.-regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances, and trading securities held by a research analyst account.

This report is intended for distribution by PhillipCapital (India) Pvt Ltd. only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by the U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated, and/or transmitted onward to any U.S. person, which is not a Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain

business with Major Institutional Investors, PhillipCapital (India) Pvt Ltd. has entered into an agreement with a U.S. registered broker-dealer, Decker & Co, LLC. Transactions in securities discussed in this research report should be effected through Decker & Co, LLC or another U.S. registered broker dealer.

If Distribution is to Australian Investors This report is produced by PhillipCapital (India) Pvt Ltd and is being distributed in Australia by Phillip Capital Limited (Australian Financial Services Licence No. 246827).

This report contains general securities advice and does not take into account your personal objectives, situation and needs. Please read the Disclosures and Disclaimers set out above. By receiving or reading this report, you agree to be bound by the terms and limitations set out above. Any failure to comply with

these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately.

PhillipCapital (India) Pvt. Ltd. Registered office: No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013

http://www.phillipcapital.in/

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