budget 2014-15 lays foundation for growth€¦ · next budget. while the budget fell short of...

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.

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Agenda

Direct Tax proposals

Budget at a glance

Sector specific measures and impact

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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

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Budget at a glance (Cont’d)


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

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Budget at a glance (Cont’d)


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

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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%

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Agenda


Budget at a glance


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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

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Agenda


Budget at a glance


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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


15

Automobiles Positive


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.


Top Picks: M&M, Maruti and Tata Motors

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Banking & Financials Positive for Insurance


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


Top Picks: HDFC Ltd, HDFC Bank, Axis Bank, Bank of Baroda

17

Construction/Infrastructure/Engg/Cement Positive


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


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IT/Telecom Neutral

Top Picks: TCS, Tech Mahindra and Mindtree


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


19

Metals & Mining Neutral


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


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Power Positive


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.


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FMCG/Consumer Durables Positive


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.


Top Picks: United Spirits, ITC, Godrej Consumer and Britannia

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Real Estate Positive


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


Top Picks: Ashiana Housing, Mahindra Life space, Oberoi Realty and Kajaria

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Retail Marginally Positive


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


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Oil & Gas Positive

Top Picks: HPCL, BPCL and ONGC


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.


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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.

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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

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budget 2014-15 lays foundation for growth€¦ · next budget. while the budget fell short of...

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