The big day is here. Traders and investors from India as well as across the world will watch Narendra Modi's maiden budget closely. Finance Minister Arun Jaitley will present the Union Budget 2014 in Lok Sabha today.
Overall the budget is very positive. The structure of the government focus points has been made clear. REIT was very positive for real estate. Infrastructure focus of the government has also become very clear especially for the roads space. The government also stressed on Agriculture & North East development for all inclusive growth. They have been rational on the fiscal deficit number of 4.5%, which is achievable.
Fiscal deficit at 5.31 lk cr in FY15, which is 4.5% of GDP, in line with our expectations.
Total subsidy is at 2.51 lk cr, marginal increase in fertilizer subsidy backed by lower subsidy allocation to petroleum. Reduction in diesel under recovery is aiding the reduction in petroleum subsidy.
Divestment target at 43000 cr, much lower than our expectations of 60000 cr.
Excise duty hike on cigarettes increased from 11% to 22%. Negative for ITC
Reduced in Excise duty for footwear for retail from 12% to 6%. Positive for Bata, Liberty & Relaxo
Export duty on bauxite increased from 10% to 20%
Imported flat rolled steel products from 5% to 7.5% custom duty
Simplification of coal duty structure is proposed.
Custom duty on below 19 inch LCD & LED panel reduced.
Non- plan expenditure proposed is 12.2L cr and apparently no liberalization proposed in subsidy front.
Total expenditure budgeted is 17.95L cr.. 13% higher than the previous year.
Increase rate of tax on long term capital gains on sale of mutual fund units to 20% from 10%
Budget assumes tax revenue growth of 19.7% which is too aggressive in our view, but lower than the interim estimate.
Proposing to extend 10 year tax holiday to power sector.
Exemption for interest in housing loan increased 1.5lk to 2lk. This will give boost demand in the real estate sector which is suffering from low demand for the last 4-5 months
Exemption for interest in housing loan increased 1.5lk to 2lk. This will give boost demand in the real estate sector which is suffering from low demand for the last 4-5 months
No change in tax rate ,education cess will also continue
In order to increase savings, investment limit under section 80 c has been increased from 1lk to 1.5lk .
Personal exemption on income tax exemption limit increased to 2.5 lK from 2 lk
Fiscal deficit to be at 4.5% in FY15
Non Plan Expenditure to be at 12.2 Lk cr for FY15
Additional 1000 cr proposed for rail connectivity to North East. beneficial for tapping the natural resources that lie in that area.
Additional 1000 cr proposed for rail connectivity to North East. beneficial for tapping the natural resources that lie in that area.
Government is giving the required focus to the North East region both in terms of Infrastructure development & Human resource development as promised in the manifesto.
Defence expenditure allocation increased by 15%
Currently the Budget is more about creating structures with small allocations. we should begin to see lot of allocations fro next yr
Allocating 2.29 Lk cr for defence, higher than the amt provided in interim budget.
to enhance PPF controbution, tax exemption will be increased to 1.5Lk cr from 1 Lk cr
New accounting standards prosed for Indian companies from FY17. Increasing the disclosure of Indian companies taking Indian standards closer to to Global Standards
Long term Infra funds that will not be subject to regulatory needs of SLR & CRR. Positive for IDFC
Long term Infra funds that will not be subject to regulatory needs of SLR & CRR. Positive for IDFC
INR 37850 cr for road sector Positive for Sadbhav, ITNL, KNR
16 new port project to be awarded in FY 15 positive for adani port
NHAI to target 8000km of roads in FY15. We believe most of this will come through the EPC model.
FM focusing on improving liquidity in the corporate bond markets & currency markets.
FM focusing on improving liquidity in the corporate bond markets & currency markets.
Adequate coals to be guaranteed to existing power plants which will help stalled projects to restart.
In order to complete gas grid of 15000 km of pipelines PPP mode is recommended.
37800 cr allocated for road development. Also focusing on single window clearances. Decent amount has been allocated with an intention to speed up the process. Positive for road development companies.
Scheme for development of new airports in tier I& tier II cities through PPPs
Restructuring food corporation of India to be a priority. Continuous focus on supply side constraints. If implemented properly, will bring run away food inflation in check.
To sell shares in PSU banks to retail investors for recap of PSU Banks is Negative for PSU Banks
5000 cr allocation to increase warehouse capacity & also better connectivity is proposed. This will help check food prices & prevent wastage of food items
To reduce supply pressure on food grains, open market sales of the produce is recommended when required.
3% additional interest subsidy for farmers has been proposed
8lk cr set aside for agricultural credit. See FY15 agriculture growth at 4%
500cr for price stabilization fund for agriculture produce. This is in line with thrust of the government to reduce hoarding & provide stable food prices
Targeting a 4.1% deficit may seem to be an encouraging step but might not provide the quality of fiscal consolidation that is the need of the hour.
GST solution by the end of this year is recommended but implementation within such a short period could be a challenge.
subsidy rationalization of food & fuel is mentioned but no clear road map given so far
4000cr for NHB for reasonable housing to rural & Urban India and FDI is proposed.
2 million + cities should start metro rail planning. positive for L&T
Infra investment trust to be set up to securitize infra projects. PPP is the recommended route to mobilize funds.
Budget is focusing on health & education. Focusing on Plan expenditure, but what about the source ?
Unclaimed PPF funds to be reorganized to senior citizens.
Allocation to PMGSY 14300 cr. Positive for NBCC as it is govt`s implementation agency.
Maintained allocation for NREGA & committed to better allocation of the funds for asset creation. This is in the right direction to remove inefficiencies from the system. This can also address the labour shortage & spiralling inflation that has been created by the scheme
FM is focusing on rural development through initiatives for rural housing, roads, education & self employment for youth
FDI increase in Defence positive for l&T and Astra
Incentive to REITs through tax pass through. Positive for oberoi, prestige estate, brigade.
IS this government focusing on populism by contributing large amounts of money to popular projects rather than infrastructure spending. Spending of 1000 cr on irrigation seems too low.
for uninterrupted power supply to all, feeder separation will be done to augment power supply to rural areas. 500 cr will be set aside for this. Positive for Power distribution companies
Initiating Scheme for irrigation and setting aside 1000cr. Positive for Finolex Industries
PPP recommended for for funding infrastructure projects. Tax pass through status for REITS
7060 cr may not be sufficient for overall development but can be taken as a good start
7060 Cr provided for 100 new smart cities as promised in the manifesto
Infuse 240000 cr equity in banks by 2018. Greater autonomy to banks is to be given.
Favourable regulation for low cost housing, positive for Repco, Can Fin homes & Gruh
FDI in insurance increased to 49% from 26%
FDI in defence manufacturing increased to 49% from 26%
government understands unfavourable tax environment created by the tax authorities and focuses on changing it
New urea policy to be introduced, positive for Chambal & FACT
no retrospective tax amendment is recommended, which will be positive & investor friendly
FY16 fiscal deficit target of 3.6% & FY17 target of 3% is postive for the economy
Government hitting the right button by targeting tax to GDP ratio as India has one of the lowest level of Tax/GDP ratio & only 3-4% of population pays tax
Government recognizes the challenge of higher growth in presence of tough financial conditions
targeting sustainable growth of 7-8% in the next 2-3 years
Inflation is a focus to target all inclusive growth
FM is focusing on aspirational India
Based on our pre budget analysis several reform based announcements are expected to come with regards to the Infrastructure, Oil & Gas, Housing, Agriculture, irrigation & Fertilizer sectors. Investors are requested to keep an eye on the fundamentally strong stocks in those sectors.
The economic survey has indicated that there are several structural problems that are leading to slow growth. These include difficulties in taking quick decisions on project proposals, ill-targeted subsidies, low manufacturing base, presence of a large informal sector and inadequate labour absorption, low agricultural productivity & high inflation due to supply constraints. We will be looking for indications on how the budget will be addressing these concerns.
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