A BE RE BE

Transcription

1 Spotlight on fiscal prudence Sometimes, no bad news can be considered as good news. With none of the feared negatives making it in the Union Budget (no increase in time frame for long term capital gains or super rich tax or hike in basic excise), it remained more of a neutral event in our view. We term it as neutral because in his second Budget presentation as FM, Jaitley had ample time to deliver a dream Budget one that would have simplified taxation, guided on GST, reduced corporate tax by 1% as promised and cut on non Plan expenditure. However, hardly any relief was given on direct tax (in fact there were some roll backs for corporates), possibly due to only 6.6% revenue growth, which was half of the budgeted growth. Plan expenditure spend rose only 2% whereas non Plan expenditure grew by 7.8% and the FM proposed doing away with the bifurcation which is actually a good indicator for the government to evaluate its spending on both fronts so one sees little gain in doing away with it. Even subsidies, as a percentage of GDP, have risen from 1.7% to 1.9%, due to higher jump in food subsidy. Perhaps, the political need of the hour prompted many socialist measures. On the face of it, there s nothing fundamentally wrong about the FM s Budget that rests on not one, not two but nine pillars viz agriculture, rural populace, social welfare including healthcare, education, skill development & employment creation, infrastructure, financial reforms, fiscal prudence, tax reforms and ease of doing business. Several measures, announced in disparate areas, promise positive yield in the medium to long term. Farmers and budding entrepreneurs have handsome takeaways, so does the bottom end of the salaried class, which are all great news. The rural and farm sector allocations including MGNREGA, irrigation, electrification, crop insurance, interest subvention and cooking gas subsidies are laudable as they would make a difference to countless BPL families across the length and breadth of the country. Commitment to no retrospective taxation and measures pertaining to FDI, voluntary disclosure of black money, national rural digital literacy mission were among the other positives. The silver lining, however, was that the fiscal deficit target of 3.9% was met and target of 3.5% has been maintained for FY17. This raises expectations of a rate cut from the RBI. The two other big positives are the Rs2 lac crore capital expenditure on roads and railways and continued flow of funds and autonomy from Centre to State (Share of states at 35% v/s 27% in ). While many saw the lack of adequate re capitalization of PSU banks as a negative, the other way of looking at it is, not wanting to throw more good money after bad. The government can always provide support whenever needed; in fact PSU consolidation or strategic sales as mentioned would be smart moves. For the year ahead, the FM s tax revenue targets largely look achievable. To meet his target of 3.5% fiscal deficit, Mr. Jaitley s banking on collecting ~Rs30,000 crore from the amnesty scheme possibly, Rs98,000 crore from communication services and 25% rise in non tax revenues. With a budgeted growth of 15% for Plan expenditure and a lower growth of 9% for non Plan expenditure, here s hoping for a dream Budget next year. Amar Ambani, Head of Research research@indiainfoline.com February 29, 2016 This report is published by IIFL India Private Clients research desk. IIFL has other business units with independent research teams separated by 'Chinese walls' catering to different sets of customers having varying objectives, risk profiles, investment horizon, etc. The views and opinions expressed in this document may at times be contrary in terms of rating, target prices, estimates and views on sectors and markets (Read the complete disclaimer at the back of this report)

2 Budget at a Glance Rs crore A BE RE BE 1. Revenue Receipts 1,101,472 1,141,575 1,206,084 1,377, Tax Revenue (net to Centre) 903, , ,508 1,054, Non tax Revenue 197, , , , Capital Receipts $ 562, , , , Recoveries of Loans 13,738 10,753 18,905 10, Other Receipts 37,737 69,500 25,312 56, Borrowings and other Liabilities* 510, , , , Total Receipts $ 1,663,673 1,777,477 1,785,391 1,978, Non plan Expenditure 1,201,029 1,312,200 1,308,194 1,428, On Revenue Account of which, 1,109,394 1,206,027 1,212,669 1,327, Interest Payments 402, , , , On Capital Account 91, ,173 95, , Plan Expenditure 462, , , , On Revenue Account 357, , , , On Capital Account 105, , , , Total Expenditure 1,663,673 1,777,477 1,785,391 1,978, Revenue Expenditure 1,466,992 1,536,047 1,547,673 1,731, Grants for creation of capital assets 130, , , , Capital Expenditure 196, , , , Revenue Deficit 365, , , ,015 % of GDP (2.9) (2.8) (2.5) (2.3) 21. Effective Revenue Deficit 234, , , ,175 % of GDP (1.9) (2.0) (1.5) (1.2) 22. Fiscal Deficit 510, , , ,904 % of GDP (4.1) (3.9) (3.9) (3.5) 23. Primary Deficit (20 11) 108,281 99,504 92,469 41,234 % of GDP (0.9) (0.7) (0.7) (0.3) * Includes draw down of Cash Balance. $ Excluding receipts under Market Stablisation Scheme Page 2 of 9

3 Sectoral impact Automobiles Negative Key announcement Infrastructure Cess being levied on motor vehicles 1) Petrol/LPG/CNG driven motor vehicles of length not exceeding 4m and engine capacity not exceeding 1200cc 1% 2) Diesel driven motor vehicles of length not exceeding 4m and engine capacity not exceeding 1500cc 2.5% 3) Other higher engine capacity and SUVs and bigger sedans 4% Abolition of permit raj for public transport Reduced benefit of R&D deduction from 200% to 150% till 2020 and further lower to 100% from 2020 Tax at source of 1% on purchase of luxury cars exceeding value of Rs10 lakhs Increase in allocation towards MGNREGA and other rural development schemes Time limit of 31 March 2016 removed for Nil customs duty and 6% excise duty on parts of electric vehicles Demand to be hit as prices will be raised to offset the same. Negative for the sector Negative for Maruti, Tata Motors Negative for Maruti, Tata Motors Negative for M&M, Maruti, Tata Motors, Force Motors Positive for Ashok Leyland, Tata Motors, Bajaj Auto, TVS Motors, Atul Auto Negative for the sector Negative for M&M, Maruti, Tata Motors, Force Motors Positive for M&M, Escorts, Hero Motocorp and Maruti Positive for M&M BFSI/Exchanges Positive Retention of Fiscal Deficit target of 3.5% for FY17 No increase in FY17 re capitalisation committment of Rs. 25,000cr for PSU Banks Bank Board Bureau to be operationalized during FY17 and a roadmap for consolidation of PSU Banks to be spelt out Debt Recovery Tribunals will be strengthened for speedier resolution of stressed assets Government to take forward the process of transformation of IDBI Bank and would also consider the option of reducing its stake to below 50%. NBFCs to be eligible for deduction to the extent of 5% of income in respect of provision for bad and doubtful debts Multiple measures and incentives announced to spur development of affordable housing For first home buyers, additional interest deduction of Rs 50,000 per annum for loans up to Rs. 35 lakh sanctioned during the next financial year provided the value of the house does not exceed Rs 50 lakh. Credit target under Pradhan Mantri Mudra Yojana (scheme launched to benefit small/micro entrepreneurs) increased significantly to Rs. 180,000cr for FY17 Positive for the sector in general as this would keep government's market borrowings in check and encourage RBI to ease rates Negative for PSU Banks; more so for smaller banks having very weak capital position Positive for PSU Banks; especially for the smaller PSBs as they could be merged with relatively stronger large PSB Positive for the sector, especially for PSU Banks Positive signaling impact for beleaguered PSU Banks Positive for all NBFCs; would be earnings accretive Positive for Housing Finance Cos such as DHFL, LIC HF, Repco, Can Fin, etc Positive for Housing Finance Cos in general Positive for Banks, NBFCs and MFIs having exposure to Micro & Small Enterprise lending Page 3 of 9

4 Allocations materially raised to various schemes focused on farm, rural and social sectors A number of measures will be undertaken to facilitate deepening of corporate bond market Enabling the sponsor of an ARC to hold up to 100% stake in it and permit non institutional investors to invest in securitization receipts 100% FDI permitted in ARCs through automatic route. FPIs allowed to invest up to 100% of each tranche in securities receipts issued by ARCs subject to sectoral caps Foreign investment up to 49% allowed in Insurance sector via the automatic route New derivative products to be developed by SEBI in the Commodity Derivatives market Positive for NBFCs having higher exposure to rural lending such as Mahindra Finance, Magma, SCUF, etc Positive for NBFCs; could help in reducing cost of funds in the longer term Positive for the Banking sector as a whole as ARCs can play a larger role in tackling stressed assets in the system Could increase the number of ARCs in the country which can help banks in offloading stress Positive for Reliance Capital, Max India, Bajaj Finserve, ICICI Bank, Kotak Bank, HDFC Ltd., Cholamandalam Invt, etc Positive for MCX Cement Neutral Increase in rural and urban housing spending Doubling of clean energy cess on coal Increase in road and rail spending Extension of excise duty exemption for RMC unit No hike in rail freight Possibility of sharp increase in excise duty of diesel and petrol FMCG & Consumer Discretionary Positive Excise duties on various tobacco products other than beedi raised by about 10% to 15%. Excise on readymade garments with retail price of Rs1,000 or more raised to 2% without input tax credit or 12.5% with input tax credit. Rs9,000cr has been provided for Swachh Bharat Abhiyan. Cuts excise duty on rubber sheets for soles to 6% v/s 12.5%. For the first home buyers, deduction for additional interest of Rs50,000 per annum for loans up to Rs35 lakh sanctioned during the next financial year, provided the value of the house does not exceed Rs50 lakh. Excise duty of 1% on Jewellery without input credit tax or 12.5% with input tax credit. Higher Disposable Income Raise the ceiling of tax rebate under section 87A from Rs2000 to Rs5000 to lessen tax burden on individuals with income upto Rs5 laks. Benefit under section 80GG limit extended from Rs24,000 to Rs60,000pa for people not having their own house nor receiving any HRA. Increase in outlay to Rural schemes and social infrastructure (Rs15,000cr interest subvention to farmers and Rs38,500cr allocation to MNREGA). Positive for sector Negative for sector Positive for sector Positive for large RMC players like ACC Positive for sector Negative for sector Negative for ITC, VST Industries, Godfrey Philips Negative for Arvind, Madura Garments, Raymond. Slightly positive for V Mart Positive: Cera Sanitaryware, HSIL Positive: BATA, Relaxo Footwear, Liberty Shoes Marginally Positive: Greenply, Centuryply, Kajaria Negative for all Jewellery companies Positive for the overall industry Positive for the overall industry Page 4 of 9

5 Krishi Kalyan Negative for Companies Infrastructure Positive Target to award 10,000 km of National Highways in FY17. Also 50,000 km of State Highways to be upgraded as National Highways Total outlay for roads and highways increased to Rs.97,000cr Re vitalization of PPP through Public Uility Bill for dispute resolution, development of new Credit Rating System and guidelines for re negotiation of PPP Agreements Service to be levied on contracts entered on or after 1st March 2016 for construction of monorail and metro Redevelopment of unserved and under served airports; to develop 10 of 25 non functional airstrips around the country Rs.800cr allocated for modernizing ports and increasing their efficiency. The funds to also be used in developing new greenfield ports both in the eastern and western coasts Creation of a dedicated Long Term Irrigation Fund in NABARD with an initial corpus of about Rs.20,000cr. Withdrawal of 80IA benefit under IT Act for development and O&M on or after 1st April, However investment linked deduction under section 35AD of IT Act to be allowed. Imposition of countervailing duty on selected machinery used in construction of roads Custom duties exemption on direct imports of specified goods for defence withdrawn Custom duties on certain capital goods products increased from 7.5% to 10% Total outlay for Infrastructure sector pegged at Rs.221,246cr for FY17 (FY16: ~Rs.180,000cr) Positive for the entire Road sector Will lead to increased investments in road projects. Positive for all companies in the Road sector Positive for BOT Players like IRB Infra, Sadbhav Infra, Ashoka Buildcon, PNC Infra Negative for ITD, Jkumar Infra, Reliance Infra Positive for companies like GMR Infra Positive for companies like Adani Ports, ITD Cementation, Simplex Infra Positive for companies like Pratibha Industries, Jain Irrigation, ITD Cementation Negative for selected players availing 80IA benefit like KNR Constructions Negative for road development companies Inline with Government's focus of Make in India. Will benefit companies like BEL, LT, Bharat Forge Positive for domestic capital goods companies like Crompton Greaves, BHEL, LT, Thermax Positive for the entire Infra sector IT/Education Positive Sunset date extended by three years to March 2020 for Section 10AA which relates to commencement of activity by a unit located in a SEZ 1500 Multi Skill Training Institutes to be set up across the country with a budget of Rs. 1,700cr Positive for the sector could moderate tax rate for some companies for the coming years Positive for NIIT and Aptech Page 5 of 9

6 Metals & Mining Neutral Customs duty for aluminium raised by 2.5% Customs duty for zinc alloys raised by 2.5% Export duty on iron ore lumps & fines below 58% Fe content to NIL Clean energy cess on coal increased from Rs. 200/ton to Rs. 400/ton Export duty on bauxite reduced from 20% to 15% Export duty on chromium ores and concentrates reduced from 30% to NIL Increased outlay in infrastructure spending Oil & Gas Negative Key announcement Rate of Oil Industries Development Cess, on domestically produced crude oil changed from Rs4,500/ton to 20% ad valorem No deduction shall be available to an undertaking engaged in production of mineral oil or natural gas if the production commences on or after 1st April, 2017 A proposal is under consideration for new discoveries and areas which are yet to commence production, first, to provide calibrated marketing freedom; and second, to do so at a pre determined ceiling price to be discovered on the principle of landed price of alternative fuels Against expecations the government did not levy any customs duty on crude oil Goods required for exploration & production of hydrocarbon activities undertaken under Petroleum Exploration Licenses (PEL) or Mining Leases (ML) issued or renewed before 1st April 1999 Pharmaceuticals Neutral Key announcement Reduce weighted R&D deduction to 150% from April 2017 and 100% from April % tax rate for global income accrued from patent developed and filed in India Customs duty on import of Molybdenum 99 has been removed An amount of Rs. 850cr allocated over next few years for several animal wellness programs Health cover of Rs.1lakh for BPL families with additional Rs.30,000 cover for senior citizens Positive for aluminium producers like Hindalco, NALCO and Vedanta Positive for zinc producers like HZL and Vedanta Positive for low grade iron ore mines in Goa. Marginally positive for Vedanta Negative for companies consuming domestic coal like NALCO, Vedanta, Hindalco, JSPL, JSW Steel No impact Marginal positive for MOIL Would lead to higher metal demand. Positive for all metal producing companies Lower than expected benefit, negative for ONGC, Oil India and Cairn India Negative for ONGC, Oil India, Reliance Industries, Cairn India No impact till the regulations are finalized Negative for ONGC but positive for HPCL, BPCL and IOC Positive for ONGC, Oil India Negative for all pharma companies To benefit players like Dr Reddys' which can commercialize patents on global basis Positive for radio pharma players like Jubilant and Poly Medicure Positive for animal health players like SeQuent Scientific and Omkar Speciality Positive for healthcare providers like Apollo as it expands coverage market Page 6 of 9

7 Telecom Negative Key announcement FY17 Budgeted receipts of ~Rs. 99,000cr is ~77% higher than net FY16RE of ~Rs. 56,000cr We expect recurring and 2015 auction installment amounts at ~Rs. 30,000cr which leaves the shortfall to be financed from 2016 auctions especially 700MHz and one time spectrum charges; at TRAI recommended 700MHz price, it would hugely negative for Bharti and Idea Utilities Neutral Target to electrify 100% villages by May 01, Rs.8,500 cr provided for Deendayal Upadhayaya Gram Jyoti Yojna and Integrated Power Development Schemes. Withdrawal of 80IA benefit under IT Act for development and O&M on or after 1st April, However investment linked deduction under section 35AD of IT Act to be allowed. Custom duties on certain capital goods products increased from 7.5% to 10% Clean energy cess on coal increased from Rs. 200/ton to Rs. 400/ton Would lead to higher power demand. Positive for all power generation companies Negative for companies availing 80IA benefit Negative for power generation companies as this may lead to increase in costs Negative for power generation companies Page 7 of 9

8 Best Broker of the Year by Zee Business for contribution to broking Nirmal Jain, Chairman, IIFL, received the award for The Best Broker of the Year (for contribution to broking in India) at India's Best Market Analyst Awards 2014 organised by the Zee Business in Mumbai. The award was presented by the guest of Honour Amit Shah, president of the Bharatiya Janata Party and Piyush Goel, Minister of state with independent charge for power, coal new and renewable energy. Recommendation parameters for fundamental reports: Buy Absolute return of over +15% Accumulate Absolute return between 0% to +15% Reduce Absolute return between 0% to 10% Sell Absolute return below 10% Call Failure In case of a Buy report, if the stock falls 20% below the recommended price on a closing basis, unless otherwise specified by the analyst; or, in case of a Sell report, if the stock rises 20% above the recommended price on a closing basis, unless otherwise specified by the analyst India Infoline Group (hereinafter referred as IIFL) is engaged in diversified financial services business including equity broking, DP services, merchant banking, portfolio management services, distribution of Mutual Fund, insurance products and other investment products and also loans and finance business. India Infoline Ltd ( hereinafter referred as IIL ) is a part of the IIFL and is a member of the National Stock Exchange of India Limited ( NSE ) and the BSE Limited ( BSE ). IIL is also a Depository Participant registered with NSDL & CDSL, a SEBI registered merchant banker and a SEBI registered portfolio manager. IIL is a large broking house catering to retail, HNI and institutional clients. It operates through its branches and authorised persons and sub brokers spread across the country and the clients are provided online trading through internet and offline trading through branches and Customer Care. Terms & Conditions and Other Disclosures: a) This research report ( Report ) is for the personal information of the authorised recipient(s) and is not for public distribution and should not be reproduced or redistributed to any other person or in any form without IIL s prior permission. The information provided in the Report is from publicly available data, which we believe, are reliable. While reasonable endeavors have been made to present reliable data in the Report so far as it relates to current and historical information, but IIL does not guarantee the accuracy or completeness of the data in the Report. Accordingly, IIL or any of its connected persons including its directors or subsidiaries or associates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained, views and opinions expressed in this publication. b) Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment of its original date of publication by IIFL and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. c) The Report also includes analysis and views of our research team. The Report is purely for information purposes and does not construe to be investment recommendation/advice or an offer or solicitation of an offer to buy/sell any securities. The opinions expressed in the Report are our current opinions as of the date of the Report and may be subject to change from time to time without notice. IIL or any persons connected with it do not accept any liability arising from the use of this document. d) Investors should not solely rely on the information contained in this Report and must make investment decisions based on their own investment objectives, judgment, risk profile and financial position. The recipients of this Report may take professional advice before acting on this information. e) IIL has other business segments / divisions with independent research teams separated by 'chinese walls' catering to different sets of customers having varying objectives, risk profiles, investment horizon, etc and therefore, may at times have, different and contrary views on stocks, sectors and markets. f) This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to local law, regulation or which would subject IIL and its affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this Report may come are required to inform themselves of and to observe such restrictions. g) As IIL along with its associates, are engaged in various financial services business and so might have financial, business or other interests in other entities including the subject company/ies mentioned in this Report. However, IIL encourages independence in preparation of research report and strives to minimize conflict in preparation of research report. IIL and its associates did not receive any compensation or other benefits from the subject company/ies mentioned in the Report or from a third party in connection with preparation of the Report. Accordingly, IIL and its associates do not have any material conflict of interest at the time of publication of this Report.

9 h) As IIL and its associates are engaged in various financial services business, it might have: (a) received any compensation (except in connection with the preparation of this Report) from the subject company in the past twelve months; (b) managed or co managed public offering of securities for the subject company in the past twelve months; (c) received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (e) engaged in market making activity for the subject company. i) IIL and its associates collectively do not own (in their proprietary position) 1% or more of the equity securities of the subject company/ies mentioned in the report as of the last day of the month preceding the publication of the research report. j) The Research Analyst/s engaged in preparation of this Report or his/her relative (a) does not have any financial interests in the subject company/ies mentioned in this report; (b) does not own 1% or more of the equity securities of the subject company mentioned in the report as of the last day of the month preceding the publication of the research report; (c) does not have any other material conflict of interest at the time of publication of the research report. k) The Research Analyst/s engaged in preparation of this Report: (a) has not received any compensation from the subject company in the past twelve months; (b) has not managed or co managed public offering of securities for the subject company in the past twelve months; (c) has not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) has not received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (e) has not received any compensation or other benefits from the subject company or third party in connection with the research report; (f) has not served as an officer, director or employee of the subject company; (g) is not engaged in market making activity for the subject company. We submit that no material disciplinary action has been taken on IIL by any regulatory authority impacting Equity Research Analysis. A graph of daily closing prices of securities is available at and quotes. (Choose a company from the list on the browser and select the three years period in the price chart). Published in India Infoline Ltd 2016 India Infoline Limited (Formerly India Infoline Distribution Company Limited ), CIN No.: U99999MH1996PLC132983, Corporate Office IIFL Centre, Kamala City, Senapati Bapat Marg, Lower Parel, Mumbai Tel: (91 22) Fax: (91 22) , Regd. Office IIFL House, Sun Infotech Park, Road No. 16V, Plot No. B 23, MIDC, Thane Industrial Area, Wagle Estate, Thane Tel: (91 22) Fax: (91 22) E mail: mail@indiainfoline.com Website: Refer for detail of Associates. National Stock Exchange of India Ltd. SEBI Regn. No. : INB / INF / INE , Bombay Stock Exchange Ltd. SEBI Regn. No.:INB / INF / BSE Currency, MCX Stock Exchange Ltd. SEBI Regn. No.: INB / INF / INE , United Stock Exchange Ltd. SEBI Regn. No.: INE , PMS SEBI Regn. No. INP , IA SEBI Regn. No. INA , SEBI RA Regn.: INH For Research related queries, write to: Amar Ambani, Head of Research at research@indiainfoline.com For Sales and Account related information, write to customer care: cs@indiainfoline.com or call on