Union Budget - content.icicidirect.comcontent.icicidirect.com/mailimages/IDirect_BudgetReview_2020-21.pdfies – h ICK Union Budget 2020-21 has carried forward the government’svision

Credible Budget to build Incredible India

Union Budget

Review

2020-21

Union Budget

Review

2020-21

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Union Budget 2020-21 has carried forward the government’s vision of developing India as a key manufacturing hub and was pragmatic in addressing the economic and socialobjective of promoting investments, generating jobs and improving ease of living for Indian citizens. Credibly, the fiscal balance was maintained with fiscal deficit for FY20E peggedat 3.8% of GDP. Requisite infrastructure push was provided through 21% YoY hike in capital expenditure at | 4.2 lakh crore while taxpayers were incentivised through increase indeposit insurance coverage (| 1 lakh to | 5 lakh) as well as the option to switch to a new simplified personal income tax regime. Abolition of dividend distribution tax is positive forthe listed space leading to increase in earnings or dividend payouts and is positive for Indian equity markets. The Budget has also addressed the issue of an inverted duty structurewith customs duty increase on sectors such as automobile parts, footwear, etc, to generate domestic employment. Greater infrastructure spend is positive for the domesticcement as well as capital goods domain. Recommitting to doubling farm income through | 2.83 lakh crore allocation towards agricultural and rural development amid an increasein agricultural credit to | 15 lakh crore will further boost consumption and is positive for domestic consumption oriented sectors like FMCG and consumer durables.

On the infra side, the government continued its higher capital expenditure despite fiscal constraint after unveiling its National Infrastructure Pipeline (NIP) worth | 102 lakh croreover the next five years. The government’s capital expenditure gross budgetary support increased 13.4% YoY to | 3.48 lakh crore vs. budgeted | 3.38 lakh crore in FY20E and isexpected to grow 18% YoY to | 4.1 lakh crore in FY21E. Out of total, 80% of capex is planned towards five core sectors viz. power, roads, housing, railways and irrigation.

With the aim of tapping the rich demographic dividend i.e. high number of working population by 2030, Union Budget 2020-21 focused on job creation through support to theIndian start-up ecosystem, correcting inverted duty structure, raising allocation to tourism sector and increasing customs duty on labour intensive sectors like footwear, toys, etc.

To reduce dependency on imports and simultaneously make India a manufacturing hub (for mobile handsets) of the world in the next few years, the government has introduced aPhased Manufacturing Programme (PMP). As extension of this programme, the government has increased the customs duty on various mobile accessories, PCBs from 0-10% to 10-20%. The government has also increased the customs duty on household appliances and accessories (including compressors). Curbing imports through higher customs duty wouldhelp increase the market share of organised players.

Other key highlights of Budget

Credible Budget to build Incredible India…

February 1, 2020 ICICI Securities Ltd. | Retail Equity Research 2

• The Budget has abolished DDT. Now, dividend shall be taxed in the hands of recipients at their applicable rate. Currently, companies are required to pay dividend distributiontax (DDT) on the dividend paid to its shareholders at the rate of 15% plus applicable surcharge and cess in addition to the tax payable by the company on its profits, totalling17.65%. For holding companies, abolition of DDT leads to increase in cash flow to the extent of 17.65% of dividend given by subsidiaries (for example: | 130 crore is anticipatedto be additional cash flow for Bajaj Holding). This translates to ~3-17% positive impact on profitability on consolidated basis. PSU players like Coal India, which receive largedividends from subsidiaries, are expected to witness substantial gain on an absolute basis.

• For the first time ever, individual taxpayers have been given the option whether to continue in the existing tax regime or shift to the new tax regime. Individuals/HUFs optingto pay tax under the new income tax regime will have to forego almost all tax breaks they are claiming in the current tax structure like Section 80C (investments in PF, NPS, lifeinsurance premium, principal repayment on home loan, etc), medical insurance premium, tax breaks on HRA, LTA and on interest paid on housing loan

• The Budget has announced lowering of subsidy estimates for FY20E from initial estimates of | 3.2 lakh crore to | 2.5 lakh crore due to rationalisation of food subsidies. ForFY21BE, subsidy is expected at | 2.6 lakh crore, a marginal increase YoY

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Fiscal sacrifice to rejuvenate infrastructure led growth cycle…

Source: ICICI Direct Research

| crore FY19 FY20RE YoY (%) FY21BE YoY (%) Comments

Direct Taxes 1136616 1170000 2.9 1319000 12.7

Indirect Taxes & Others 943851 993423 5.3 1104020 11.1

Gross Tax Revenues 2080467 2163423 4.0 2423020 12.0

Less: State Shares 763254 658836 (13.7) 787111 19.5

Net Tax revenue 1317213 1504587 14.2 1635909 8.7

Non Tax Revenues 235704 345513 46.6 385017 11.4

Total Revenue Receipts 1552917 1850100 19.1 2020926 9.2

Capital Receipts

Recovery of Loans 18052 16605 (8.0) 14967 (9.9)

Disinvestments 94727 65000 (31.4) 210000 223.1

Total 112779 81605 (27.6) 224967 175.7

Total Receipts 1665696 1931705 16.0 2245893 16.3

Total Expenditure 2315114 2698553 16.6 3042230 12.7

On Revenue Account 2140612 2349645 9.8 2630146 11.9

On Capital Account 316624 348908 10.2 412084 18.1

Fiscal deficit 649418 766848 18.1 796337 3.8

Primary Deficit 61848 141743 129.2 88134 (37.8)

GDP estimates 19010643 20442233 7.5 22489420 10.0

Fiscal deficit as % of GDP 3.4% 3.8% 3.5%

* ICICI Direct Research estimates

Government Revenue & Expenditure

Fiscal expansion of 50 bps (from 3.0% as per FRBM to 3.5%) to provide

additional buffer of over | 1.12 lakh crore in FY21BE

Focus on revving up growth has been key takeaway as government has

pegged 18.1% growth in caex for FY21BE (21.7% on FY20 BE). This

allocation is significantly higher compared to last five year's average

allocation of | 291478 crore vs.| 412084 crore for FY21BE

With recovery in GDP in FY21 and a low base of current year, the target

pegged for gross tax collections seems achievable at 12%. On the GST

front, the estimates indicate a monthly average collection of | 115000

crore, which seems reasonable

Disinvestment target pegged at | 210000 crore. Out of this, the

government expects to receive | 90000 crore from strategic

disinvestment in IDBI Bank and insurance major LIC

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Government in better position to drive capex through fiscal expansion…

Source: Budget documents, ICICI Direct Research

Positive Impact on Fiscal FY20RE FY21BE DiffAs % of GDP

(In bps)

Direct taxes 1,170,000 1,319,000 149000 66

Indirect taxes 993,423 1,104,020 110597 49

Non-tax revenue 345,513 385,017 39504 18

Disinvestments 65000 210000 145000 64

Total [A] 197

Negative Impact on Fiscal FY20RE FY21BE DiffAs % of GDP

(In bps)

Higher allocation to Exp 2698553 3042230 343677 -153

Allocation to states 658836 787111 128275 -57

Others -17

Total [B] -227

Net Impact on Fiscal deficit for FY21BE over FY20RE [A+B] -29

Despite slipping from the fiscal prudence path in FY20RE and FY21BE, the incremental slippage hasbeen allocated to higher infrastructure spend. This, in turn, will revive growth and has not gonetowards any unwarranted populist measures.

50

3

51

1

53

5

39

8

39

8 64

9

76

7

79

6

4.5 4.1 3.9

3.5 3.5 3.4

3.8 3.5

-

1.0

2.0

3.0

4.0

5.0

0

200

400

600

800

1000

FY14

FY15

FY16

FY17

FY18

FY19

FY20

RE

FY21

BE

%

| '0

00 crore

Fiscal deficit trend (%)

Fiscal deficit (Rs. '000 cr) - LS

10.6

11.3

11.4

10.9

10.6

10.8

5.4

5.6

6.0

6.0

5.7

5.9

5.2

5.7

5.5

5.0

4.9

4.9

0

5

10

15

FY16

FY17

FY18

FY19

FY20R

E

FY21B

E

Tax as % of GDP to to rise to 10.8% in FY21BE

Gross Tax Receipts Direct Taxes Indirect Taxes

51.4 51.649.9 49.5

48.4 48.0

45

50

55

FY15 FY16 FY17 FY18 FY19RE FY20BE

Fiscal consolodation over last five years has brought down debt/GDP to 48%

Central govt debt to GDP (%)

FY19 FY19 FY20REFood 0.5% 0.5% 0.5%

Ferti l i ser 0.4% 0.4% 0.3%

Petroleum 0.1% 0.2% 0.2%

Total 1.0% 1.1% 1.0%

Major subsidy burden to be contained at 1.0% of

GDP for FY21BE

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24.5

102

19.6

16.3

13.77.7 7.7

3.1 2.4

7.4

0.0

20.0

40.0

60.0

80.0

100.0

120.0

Energy &Power

Roads Urban &Housing

Railways Irrigation RuralInfra

IndustrialCorridors

Airports& Ports

Others Total

(|la

kh c

rore

)

Sector-wise breakup of NIP

Kick-starting measures to fund National Infrastructure Pipeline…

Source:: Ministry of Finance, ICICI Direct Research; *IDE = I-direct Estimates

The government continued with higher capital expenditure despite fiscal constraint after unveiling its National Infrastructure Pipeline (NIP) worth |102 lakh crore over the nextfive years. The government’s capital expenditure gross budgetary support increased 13.4% YoY to | 3.48 lakh crore vs. budgeted | 3.38 lakh crore in FY20E and is expected togrow 18% YoY to | 4.1 lakh crore in FY21E. Besides this, it announced key announcement for funding its NIP. For instance, it has provided | 22,000 crore as equity support toinfrastructure finance companies such as IIFCL and NIIF. In turn, they can fund | 1 lakh crore infrastructure investment pipeline through leverages. Also, it has proposed 100% taxexemption on investment made by foreign Sovereign Wealth Funds in infrastructure sector before March 31, 2024 (minimum lock-in period of three years).

February 1, 2020 ICICI Securities Ltd. | Retail Equity Research

80% of the capex planned towards five core sectors

Capial Expenditure Gross

Budgetory Support (| crore)FY18 FY19 FY20BE FY20RE FY21BE Growth

MoRTH 50752 67646 72059 72162 81975 14%

Railway 43418 52838 65837 67837 70000 3%

Defence 95431 99801 108249 115371 118555 3%

Housing & Urban Affairs 15346 17010 19544 19544 19197 -2%

Power, Renewable Energy & Coal 1942 2061 2445 1893 1134 -40%

Petroleum & Natural Gas 1131 1908 1667 619 907 47%

Others 55120 66450 68768 71480 120317 68%

Total 263140 307714 338569 348907 412085 18%

YoY Growth -7.5% 16.9% 10.0% 13.4% 18.1%

2.8 2.6 3.1 3.4 3.5 4.1

3.4

6.16.1 5.4

7.16.7

6.2

8.79.2

8.8

10.6 10.8

1.0

3.0

5.0

7.0

9.0

11.0

FY17 FY18 FY19 FY20BE FY20RE FY21BE

Breakup of Capital Expenditure

Gross Budgetory Support IEBR

Sr.

No.

Major announcement for Infrastructure

1 In order to incentivise the investment by the Sovereign Wealth Fund of foreign governments

in priority sectors, government has proposed to grant 100% tax exemption to their interest,

dividend & capital gains income with respect to investment in infrastructure & other

notified sectors before March 31, 2024 and with a minimum lock-in period of three years

2 Total ~| 22,000 crore already provided as support towards | 103 lakh crore National

Infrastructure Pipeline, which would cater to equity support to infrastructure finance

companies like IIFCL and a subsidiary of NIIF. They would leverage it, as permissible, to

create financing pipeline of more than | 1 lakh crore, which would create a major source of

long term debt for infrastructure projects

3 Twelve lots of highway bundle projects (total 6,000 km) are proposed to be monetised

before 2024

4 The interest expenses deduction up to | 1.5 lakh per annum has been retained even in

personal tax regime (lower tax rates) for affordable housing (ticket size: | 45 lakh)

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Budget delivers on job creation...

With the aim of tapping the rich demographic dividend i.e. high number of working population by 2030, Union Budget 2020-21 focused on job creation through support to theIndian start-up ecosystem, correcting inverted duty structure, raising allocation to tourism sector and increasing customs duty on labour intensive sectors like footwear, toys, etc.

• For promoting new age technologies, the government has allocated | 8,000crore over five years for the National Mission on Quantum Technologies

Boost to Indian start-up ecosystem

• Union Budget proposes to increase turnover threshold of start ups from | 25 croreto | 100 crore for 100% deduction of its profit for three consecutive assessmentyears. Time frame for such deduction has also been raised from seven to 10 years

• Union Budget also proposes to bridge the cash flow gap for start-up’s Esop holders,with deferral of tax liability by five years or till the date the employee leaves thecompany or till the time they sell their shares, whichever is earliest

Government's increasing budgetary allocation for start ups to drive job creation

Start-up can generate ~3x indirect employment vs. direct jobs

80310

710

240

1160

2500

0

500

1000

1500

2000

2500

3000

2009-14 2014-19 2019-25

('0

00

no

.)

Direct jobs ('000) Indirect jobs ('000)

• For providing funding support to start-ups, the government has created a fund offunds (FFS) with a corpus of | 10,000 crore

Increase in budgetary allocation for new economy digital areas

Source: Nasscom, Zinnov, Government of India Budget Documents, ICICI Direct Research

102 103

150

0

20

40

60

80

100

120

140

160

2019 2020 RE 2021 BE

|cr

ore

3328 3212

3958

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2019 2020 RE 2021 BE

| C

rore

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• Government, recognising indirect employment generation potential of tourismsector has raised budgeted allocation for Ministry of Tourism, Ministry of Culture

• Moreover, | 3150 crore has been provided for Ministry of Culture to develop fivearchaeological sites as iconic sites with on-site museum, re-curation and also settingup new museums. Ministry of Tourism has got an increased allocation of | 2,500crore (76% higher than FY20 revised estimated expenditure) for tourism promotion

Boost to Indian tourism sector

Labour intensive sectors receive big push…

2090

1416

2500

0

500

1000

1500

2000

2500

3000

FY19 - Actual FY20 - Revised Est FY21 - Budgeted

| cro

re

Allocation towards Tourism promotion

2593 2547

3150

0

500

1000

1500

2000

2500

3000

3500

FY19 - Actual FY20 - Revised Est FY21 - Budgeted

| cro

re

Allocation towards Ministry of Culture

Source: Government of India, Budget Documents, ICICI Direct Research

• The government has increased customs duty on labour intensive sectors likefootwear and furniture. Rate of duty for footwear has been raised from 25% to 35%;and for “parts of footwear” from 15% to 20%

• Rate of customs duty for specified furniture goods is being raised from 20% to 25%

• Rate of customs duty on toys has been raised from 20% to 60% (| 2000 crore)

Others..

1,9

85

1,8

09

1,8

15

2,1

27

1,4

75

3,1

02

3,5

93

3,9

84

4,6

53

3,5

66

-

1,000

2,000

3,000

4,000

5,000

FY16 FY17 FY18 FY19 FY20TD

| c

rore

Imports into India

Toys Footwear

• In order to promote agro-processing, the government intends to double milkprocessing capacity to 108 million tonne (MT) from 53.5 MT by 2025

• For import substitution and to promote domestic manufacturing of technicaltextiles, the government has proposed National Technical Textiles Mission with anoutlay of | 1480 crore over a period of four years

Therefore, the government. has ticked all the right boxes while framing Union Budget2020-21 and is aimed at healthy job creation. Furthermore, impetus is also being laidon development of requisite skill set with an allocation of | 3000 crore. Moreover,setting up of a single window investment clearance cell is also a progressive step,which will go a long way in setting up new age manufacturing in India.

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Streamlining of duty structure to boost local manufacturing

Source:: Commerce Ministry, Budget. Documents, ICICIDirect Research

• Budget 2020-21 witnessed another hike of custom duties on electronic items to push localmanufacturing. Sharp growth in demand for electronic goods resulted in total merchandiseimport share reaching ~11% in FY19 (making it the second largest imported item). Of the totalelectronic imports of US$55 billion, mobile & mobile components constitute ~32% mainly dueto lack of domestic manufacturing and overseas patent on the design and development ofsoftware and technologies (necessary part of any smartphones)

• To reduce dependency on imports and simultaneously make India a manufacturing hub (formobile handsets) of the world in the next few years, the government has introduced PhasedManufacturing Programme (PMP). In extension of this programme, the government hasincreased custom duty on various mobile accessories, printed circuit boards (PCBs) from 0-10% to 10-20%. The government has also increased the customs duty on householdappliances and accessories (including compressors) as well. Curbing imports though highercustom duty would help increase market share of organised players

• With focus on supporting labour intensive Indian footwear industry, the government hasproposed to raise customs duty on footwear from 25% to 35%. Cheap, low quality importsfrom Asean nations had been hurting the Indian footwear manufacturing sector. The highercustoms duty would create a level playing field and provide a boost for the Indian footwearmanufacturing sector. Imports of footwear in India grew at a CAGR of 13% in the last five years

0

10000

20000

30000

40000

50000

Mobileaccessories*

PCB (MobilePhone)

Copper &articles

HouseholdAppliances

Compressor Head Phone|

cro

re

Import value in FY19

15

61

6

16

17

3

29

55

3

41

96

5

43

22

3

46

22

0

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

FY14 FY15 FY16 FY17 FY18 FY19

|cr

ore

Sharp increase in mobile imports

0.0%

10.0%

20.0%

30.0%

40.0%

HouseholdAppliances

Compressor PCB (MobilePhone)

FigerprintReader/Scanner

HeadPhone& Earphones

Footwear

Change in customs duty

Existing Custom Duty New Custom Duty

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Source:: Budget documents, ICICI Direct Research

Strong non-tax receipts – Key measure to fuel economic growth

• The Budget lowered the FY20 disinvestment target from | 105000 crore to| 65000 crore due to rollover of key strategic disinvestment deals to FY21E.Total disinvestment momentum is seen reviving in FY21BE, with the envisagedtarget set at a fresh record high of | 210000 crore. Out of this, the governmentexpects to receive | 90000 crore from strategic disinvestment in IDBI Bank andinsurance major LIC.

80000105000

210000

94727

65000

0

50000

100000

150000

200000

250000

FY19 FY20E FY21E

cro

re

Trend in disinvestment proceeds

Initial Estimates Actual

80,000 , 38%

90,000 , 43%

40,000 , 19%

FY21IE Disinvestment proceed estimates

Non-Financial StrategicDisinvestment

Financial StrategicDisinvestment

Others (IPO/CPSE/FPO)

• For FY20, the government’s revised estimates for receipts from communicationservices, which included annual payments from operators in terms of license fees,spectrum usage charges, deferred spectrum payments was at | 58990 crore (vs.earlier budgeted estimates of | 50520 crore. For FY21, the government haspegged | 1.33 lakh crore for receipts from communication services. We believethe FY21 estimates also include expectations of 5G auctions, spectrum renewalsand possibly some AGR case receipts apart from upsides in license fees and SUCdue to tariff hike

• Our back of the envelope calculation shows that if 5G spectrum auction happens inFY21, as indicated by the government, and considering two operators participatesin the auction, net proceeds for the government from 5G auction could be in theballpark range of | 39360 crore assuming i) spectrum allocation on the base priceacross 22 circles, ii) 50% of the net proceeds of the amount to be paid upfront, iii)operators pick up 80 MHz spectrum each in 3.6 GHz band. Apart from spectrumreceipts, all three telcos will have certain spectrum renewals, which we expectthem to partially renew, cumulating to | 10000 crore receipts (~50% of spectrumcost) in FY21. However, we note that two-year moratorium on spectrum paymentsto telecom companies (FY21 & FY22) will result in annual loss of revenue of~| 20000 crore. Thus, 5G auction in FY21 will be the key measure to meet theoverall receipt target

5G auction key variable for FY21 receipts

| Crore FY20 BE FY20 RE FY21 BE

Net receipts from communication services 50520 58990 133027

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• Currently, companies are required to pay dividend distribution tax (DDT) on the dividend paid to its shareholders at the rate of 15% plus applicable surcharge and cess inaddition to the tax payable by the company on its profits, totalling 17.65%. The Budget abolishes DDT. Now, dividend shall be taxed in the hands of recipients at their applicablerate. Similar treatment has been done for dividend received from mutual fund schemes.

• The removal of DDT will lead to estimated annual revenue foregone of | 25,000 crore

• Taxation of dividend exceeding | 10 lakh in the hands of resident in India at the rate of 10% has now been removed.

Source: Capital Line, Budget documents, ICICI Direct Research

Abolition of DDT to benefit holdco structure…

Company (FY19)

Dividend

Income (|

crore)

Dividend pre

tax (| crore)

Benefit (|

crore)

Impact on

PBT

Impact on

PAT*

H D F C 1131 1373 242 1.1% 1.1%

St Bk of India 348 423 75 1.4% 1.8%

Kotak Mah. Bank 128 155 27 0.3% 0.3%

HDFC Bank 204 248 44 0.1% 0.2%

• For holding companies, abolition of DDT leads to increase in cash flow to theextent of 17.65% of dividend given by subsidiaries (for example: | 130 crore isanticipated to be additional cash flow for Bajaj Holding)

• This translates to ~3-17% positive impact on profitability on consolidated basis

• PSU players like Coal India, which receive large dividends from subsidiaries, areexpected to witness substantial gain on an absolute basis

• In case of large financial entities (exhibit above), the impact of DDT abolition isseen to be minimal as operating profitability of parent is significant

• This will enable companies to utilise retained earnings for further businesspurpose

….and large financial entitiesZero DDT benefit flowing to holding companies….

Com pan y (FY1 9 )

D iv idend

I nc om e (|

c rore)

D iv idend pre

t ax (| c rore)

Benefit (|

c rore)

I m pac t on

P BT

I m pac t on

P AT*

Max Financial 281 341 60 13% 17%

CESC Ventures 56 68 12 5% 14%

Tata Inv.Corpn. 105 127 22 15% 13%

JSW Holdings 57 69 12 12% 9%

Coal India 8933 10847 1915 7% 8%

Sundaram Fin.Hol 65 79 14 33% 8%

Kirloskar Indus. 38 46 8 4% 7%

Bajaj Holdings 609 739 130 4% 3%

JM Financial 114 138 24 2% 3%

Aditya Birla Cap 162 197 35 3% 3%

Bengal & Assam 55 67 12 3% 3%

L&T Fin.Holdings 344 417 74 2% 2%

Rain Industries 85 103 18 2% 2%

I D F C 121 147 26 3% 2%

Bajaj Finserv 287 348 61 1% 1%

Chola Financial 58 71 12 1% 1%

* Corporate tax assumed at 25%

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• The Union Budget has introduced a new personal income tax regime with lower tax slabs. However, in the new tax regime most of the deductions will be unavailable

• However, perhaps for the first time ever, individual tax payers are given the option whether to continue in the existing tax regime or shift to the new tax regime

• Individuals/HUFs opting to pay tax under the new income tax regime will have to forego almost all tax breaks they are claiming in the current tax structure like Section 80C

(investments in PF, NPS, life insurance premium, principal repayment on home loan, etc), medical insurance premium, tax breaks on HRA, LTA and on interest paid on housing

loan

• The tax difference for the taxpayer with income of | 15 lakh in the current and proposed tax regime, without any deduction comes to around | 78000 without cess. Therefore, if

the total amount of deduction currently claimed by the assesse is more than | 260000 (30% tax bracket) and 390000 (20% tax bracket), tax payers are better off staying in the

current regime. If otherwise, they are better off shifting to the new tax structure

Source: DoT, TRAI, Budget documents, ICICI Direct Research

Tax savings in new proposed income tax regime is | 78000 (273000-195000) assuming no deductions being claimed

Tax liability in current regime for income of | 1500000 Tax liability in new proposed regime for income of | 1500000

Personal Income Tax: Current regime seems better

For 30% tax bracket assesses, if the total amount of deductions (Chapter VI-A + Housing Loan Interest+ HRA + LTA + Self NPS + Mediclaim + standard deduction) exceeds | 260000 (its 30% is | 78000), it is better to continue in the current tax regime

Income Tax Rate Tax Amount

0.0-2.5 lakh NIL 0

2.5 - 5.0 lakh 5% 12500

5.0 - 10.0 lakh 20% 100000

>10.0 lakh 30% 150000

262500

10500

273000

Tax

Education Cess

Total tax including cess

Income Tax Rate Tax Amount

0.0-2.5 lakh NIL 0

2.5 - 5.0 lakh 5% 12500

5.0 - 7.5 lakh 10% 25000

7.5 - 10.0 lakh 15% 37500

10.0 - 12.5 lakh 20% 50000

12.5 - 15.0 lakh 25% 62500

> 15.0 lakh 30% 0

187500

7500

195000

Tax

Cess

Total tax including cess

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Other key highlights

Source: Budget Documents, ICICI Direct Research

• The Budget has announced lowering of subsidy estimates for FY20E from initial estimates of | 3.2 lakh crore to | 2.5 lakh crore due to rationalisation of food subsidies. For

FY21BE, subsidy is expected at | 2.6 lakh crore, a marginal increase YoY. The food subsidy is expected to increase from | 1.1 lakh crore in FY20RE to | 1.2 lakh crore in FY21E

while fertiliser subsidy is expected to decline by ~ | 8700 crore to ~ | 71300 crore. Oil subsidy is expected to increase from ~ | 38500 crore in FY20RE to ~ | 40900 crore due to

increase in LPG subsidy

• Deposit Insurance Coverage to increase from | 1 lakh to | 5 lakh per depositor

• Key allocations for FY21 - agriculture, irrigation & allied activities – | 1.6 lakh crore; rural development – | 1.23 lakh crore; education allocation at | 99,300 crore; healthcare

allocation at | 69,000 crore; transport infrastructure allocation at | 1.7 lakh crore; power and renewable sector allocation at | 22000 crore

• Allocation of | 30,757 crore for 2020-21 for Jammu & Kashmir and | 5,958 crore for Ladakh

• G-Sec ETF to be floated to promote retail participation in debt markets

• FPI limit in the corporate bond market has been increased from 9% to 15% of total outstanding

• Proposal to sell balance holding of the government in IDBI Bank

• Eligibility limit for NBFCs for debt recovery under SARFAESI Act proposed to be reduced to asset size of | 100 crore or loan size of | 50 lakh

• Viability gap funding for creation of efficient warehouses on PPP mode

• Viability gap funding (VGF) for setting up hospitals in 112 districts (not having Ayushman scheme empanelled hospitals) by using proceeds from tax on medical devices

• Proposal to set up medical colleges in existing district hospitals with the help of private hospitals under PPP mode with viability gap funding (VGF)

• Pradhan Mantri Kisan Urja Suraksha evam Utthan Mahabhiyan (PM KUSUM) to cover 20 lakh farmers for standalone solar pumps and further 15 lakh for grid connected pumps

• Kisan Rail and Krishi Udaan to be launched by Indian Railway and Ministry of Civil Aviation, respectively, for a seamless national cold supply chain for perishables

• Elimination of diseases such as FMD and Brucellosis in cattle and PPR in sheep and goat by 2025

• Agriculture credit target increased 25% YoY from | 12 lakh crore to | 15 lakh crore

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Other key highlights


• Total 100 new airports to be developed by 2024 to provide further support to UDAN scheme. Also, 12 lots of highway bundle projects (total 6,000 km) proposed to be monetised

before 2024. Total 2,500 km expressways, 9,000 km economic corridors, 2,000 km coastal roads and 2,000 km strategic highways proposed to be constructed

• National Logistics Policy to be launched soon that would provide single window e-clearance for transporters. Would provide for scaling up of existing logistics operations

• Four station development projects and proposal for 150 private trains is under way, 148 km Bengaluru suburban transport projects worth | 18000 crore

• Investment Clearance Cell proposed for end to end support, pre-investment advisory, information related to land banks and facilitate clearances at centre & state level

• Setting up of large solar power capacity alongside the rail track on land owned by railways. Aim to achieve electrification of 2700 km of track

• Total | 2500 crore set up for promoting tourism at the state level. Also, | 3150 crore set aside for Ministry of Culture to develop five new archaeological sites with on-site

museum, renovation of other museum among others

• Total | 1480 crore to be allocated towards setting up a National Textiles Technical Mission for technical textiles.

• Anti-dumping duty on PTA is being abolished to unlock potential in textile sector as it is a critical input for textile fibres and yarns

• Budget proposes to expand National Gas Grid from 16200 km currently to 27000 km

• Allocation of | 3.6 lakh crore and | 12300 crore for Jal Jeevan mission and Swachh Bharat Mission, respectively

• Deduction of | 1,50,000 on loan sanction and tax holiday on profits of developers involved in affordable housing projects to be extended by a year to FY21

• Customs duty on wall fans increased from 7.5% to 20% while the same on tableware/kitchenware made of porcelain or China ceramic, clay iron, steel and copper has been

doubled to 20%

• Raised excise duty by way of national calamity contingent duty on cigarettes, tobacco products from | 0.40 to | 0.50 per stick

• Customs duty to be increased on imported footwear and furniture to 35% from 25%

• Customs duty for platinum and palladium cut by 7.5%

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Key sectors/ stocks to be in focus


Measures for FY20-21E Sector Impact Key stocks

PM Kisan Budget outlay remained at | 75000 crore against revised Budget outlay of | 54370

croreAgri inputs

Neutral to

Positive

Agri input companies such as

agrochemicals, seeds, fertil iser In the recent Budget, the government has proposed to reduce the basic custom duty on

calcined petroleum coke from 10% to 7.5%. Calcined petroleum coke in one of the key raw

materials, contributing ~6-8% of total cost in making aluminum. Reduction in custom duty of

CPC would aid in reducing the cost of production (CoP), auguring well for domestic aluminum

manufacturers

Aluminium Positive Hindalco, Vedanta

Healthy allocation of | 1.6 lakh crore to agriculture, irrigation and allied activities Auto OEMs Positive M&M, Hero MotoCorp

Raising of customs duty on SKD/CKD electric vehicles Auto OEMs Positive M&M, Hero MotoCorp

Raising of customs duty on ICE, electric CVs from 30% to 40% and 25% to 40%, respectively Auto OEMs Positive Tata Motors, Ashok Leyland

Overall capital outlay for railways sector has been earmarked at | 160792 crore, marginally

up 3% YoY, out of which allocation for track renewals has been increased by 25% to | 10600

crore. Allocation for metro projects remains flat at | 17482 crore

Bearings, Railway

manufacturing

companies

Neutral to

Negative

Timken India, SKF India, Hind

Rectifiers

Revitalising its commitment toward | 102 lakh crore National Infrastructure Plan (NIP), the

government has increased capital expenditure allocation by 18% to | 4.12 lakh crore for FY21Capital goods Positive L&T, KEC, Kalpataru, Ador Welding

Capital outlay to Urban Rejuvenation Mission: AMRUT and Smart Cities Mission has been

increased significantly by 40% to | 13750 croreCapital goods Positive L&T, KEC, Bharat Electronics

Accelerated development of highways combined with 10% increase in allocation to MoRTH

will augur well for demand. Improving connectivity will also improve connectivity and spur

additional growth in adjoining areas

Cement & Road

ConstructionPositive

UltraTech, ACC, Ambuja Cement, Shree

Cement, Ramco Cement, L&T, KNR

Constructions, PNC Infratech, Ashoka

Buildcon

Custom duty on butyl acrylate increased from 5% to 7.5% Chemical Neutral BASF

In Budget 2020-2021, NCCD (National Calamity contingency duty) on cigarettes have

increased from | 0.40 to | 0.50 per stick. We believe increase in tax would warrant a price

hike to the tune of 4-8%. We believe the company would get the opportunity to take a price

hike, which was absent from the revenue growth of last two years

Cigarettes Negative ITC, VST Industries

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The government has approved | 3.6 lakh crore for Jal Jeevan Mission to provide piped water

to all households. During FY21E, the scheme would be provided a Budget of | 11,500 crore,

which would provide a good set of opportunities for EPC companies

Construction Positive KNR Constructions, NCC, JMC Projects

The government has hiked basic custom duty on compressors (used for refrigerators and AC)

from 10% to 12.5% and in fans & PCBs from 10% to 20%Consumer Durable Positive Havells, V-Guard, Voltas, Amber

Defence capital outlay increased 3% YoY to | 113734 crore (up from | 110394 crore) DefenceNeutral to

Negative

Bharat Electronics, L&T, Cochin

Shipyard

Viability gap funding (VGF) for setting up hospitals in 112 districts (not having Ayushman

Scheme empanelled hospitals) by using proceeds from tax on medical devices. Also, proposal

for setting up medical colleges in existing district hospitals with the help of private hospitals

under PPP mode with viability gap funding (VGF)

Healthcare Positive All private hospitals

Additional | 1.5 lakh deduction on interest paid for affordable housing loans extended til l

March 2021

Housing finance

companies and

banks

PositiveHDFC Ltd, Repco Home Finance, Gruh

Finance, SBI

Government in its new personal tax regime has decided to abolish all exemption including

80C & 80D for individual opting for new tax regimeInsurance, AMC Negative

SBI Life, Bajaj Finserv, HDFC Life, Max

Financial Services, HDFC AMC,

Reliance Nippon Asset Management,

Kotak Mahindra BankGovernment to allow viability gap funding to set up advanced warehouses. Positive for

players providing warehousingLogistics Positive Warehousing companies

National Logistics Policy to be launched soon that would provide single window e-clearance

for transporters. This would provide for scaling up of existing logistics operations. Positive

for surface and air logistics players

Logistics Positive All major logistic companies

To set up Kisan Rail through PPP mode, for farm goods to be quickly transported across the

country (milk, fish and meat) and build seamless national cold chain supply chain. Will

bring in greater util isation for companies

Logistics PositiveCold chain players and container rail

operators

PMKSY per drop more crop outlay increased to | 4000 crore from | 2032 crore Micro Irrigation Positive Micro irrigation companies

Government proposes necessary ammendment in Factory Regulation Act 2011 enabling

NBFCs to extend invoice financing to MSMEs through TReDsNBFCs Positive

Bajaj Finance, M&M Finance, L&T

Finance

Eradication of Brucella and PPR diseases among cattle by 2025. Pharma Positive Hester Biosciences

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With the aim of providing piped water supply to all households , Jal Jeevan Mission recently

was announced. In the recent Budget, allocation for this mission has been increased by 15%

for FY21 to | 11500 crore. This augurs well for domestic ductile pipe manufacturers

Pipes Positive Tata Metaliks

Allocation of | 22000 crore for power and renewable sector. The intent of the government is

to improve health of Discoms and promote renewable energyPower Neutral NTPC

In the previous Budget presented in July 2019, basic customs duty of 10% was levied on

import of newsprint. Current Budget proposed to reduce this duty on imports of newsprint to

5% from 10%. As raw material costs decline, we expect expansion of EBITDA margins by ~50

bps for print media companies, which will ultimately result in ~3% uptick in profits

Print media Positive DB Corp

For FY21E, fiscal deficit target of 3.5% & gross market borrowing of ~| 7.5 lakh crore are

better than market expectation & bodes well for G-sec yieldPSU & private banks Neutral

SBI, BoB , Indian Bank, Canara, Axis

Bank

The government has significantly increased agriculture credit target for FY21E to | 15 lakh

crore from | 12 lakh crore, implying 25% growth from outstanding valuePSU banks Negative SBI, BoB, Indian Bank, Canara Bank

Custom duty on footwear increased from 25% to 35%. Hike in custom duty to result in level

playing field for domestic manufacturers against cheap imports from Asian countriesRetail Positive Bata, Relaxo

Customs duty on household appliances such as food grinders, cookers, toasters increased

from 10% to 20%Retail Positive

TTK Prestige, Hawkins Cooker,

Butterfly Gandhimathi, Bajaj

Electricals

The government has proposed a new personal income tax regime, which could be availed by

individuals who forego certain deductions and exemptions on income tax. However, the

exemptions on principal repayments and interest payments for housing loans up to | 3.5 lakh

have been retained for affordable housing (ticket size up to | 45 lakh)

Real Estate Neutral

Negatively impacted: Oberoi, Sunteck

Least impacted: Brigade Enterprises,

Mahindra Lifespaces

Tax holiday on profits earned by developers of affordable housing project was earlier

available for projects approved by March 31, 2020. The government has proposed to extend

this by another year til l March 31, 2021. Furthermore, an additional deduction of up to | 1.5

lakh for interest paid on loans taken for purchase of an affordable house was allowed on

housing loans sanctioned on or before March 31, 2020. This is proposed to be extended by

another year til l March 31, 2021

Real Estate PositiveBrigade Enterprises, Mahindra

Lifespaces, Sunteck Realty

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With regard to the | 103 lakh crore National Infrastructure Pipeline, ~| 22,000 crore has

already been provided as support, which would cater to equity support to infrastructure

finance companies such as IIFCL and a subsidiary of NIIF. They would leverage it, as

permissible, to create financing pipeline of more than | 1 lakh crore, which would create a

major source of long term debt for infrastructure projects and fulfi l a long awaited

requirement

Roads/Construction PositiveL&T, KNR Constructions, PNC

Infratech, Ashoka Buildcon

The government has proposed to undertake accelerated development of highways, which will

include development of 2,500 km access control highways, 9,000 km economic corridors,

2,000 km coastal & land port roads and 2,000 km strategic highways. In this regard, it has

proposed to provide ~| 1.7 lakh crore for transport infrastructure (inclusive of other

segments apart from roads) in FY21E, which would bring a huge set of opportunities for

construction companies

Roads/Construction PositiveL&T, KNR Constructions, PNC

Infratech, Ashoka Buildcon

PM Kusum scheme expanded for 20 lakh farmers for solar pumps Solar Pumps Positive KSB Ltd, Shakti Pumps

Proposed National Technical Textiles Mission with a four-year implementation period from

2020-21 to 2023-24 with an estimated outlay of | 1,480 crore. According to industry sources,

India imports technical textiles worth US$16 bill ion every year. The new policy would

position India as a global leader in technical textile sector

Textile Positive Arvind Ltd

Abolition of anti-dumping duty on purified terephthalic acid (PTA), a key raw material for

synthetic textiles. The removal of anti-dumping duty on PTA would make import of

PTA cheaper for the man-made fabric industry

Textile PositiveTextile companies manufacturing

synthetic fibre and yarn

The Union Budget has proposed to provide | 6000 crore to BharatNet programme in FY21 vs.

revised estimate of | 2000 crore (earlier Budget estimates - | 6000 crore) in FY20. The

execution in BharatNet has been slow given BSNL's woes. Also, higher allocation and

expenditure is l ikely to be positive for players telecom infra players

Telecom Positive Sterlite Technologies

Total | 3150 crore has been provided for Ministry of Culture to develop five archaeological

sites as iconic sites with on-site museums. They are: Rakhigarhi (Haryana), Hastinapur (Uttar

Pradesh), Shivsagar (Assam), Dholavira (Gujarat) and Adichanallur (Tamil Nadu).

Furthermore, | 2500 crore has also been allocated towards tourism promotion

Tourism Positive Thomas Cook

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Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC

Andheri (East)

Mumbai – 400 093

[email protected]

7

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1919

Disclaimer

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2020

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