BUDGET FY16 17 REVIEW
BUDGET FY16‐17 REVIEW
IndiaNivesh Securities Limited
e‐mail: research@indianivesh.in | Website: www.indianivesh.in
IndiaNivesh Research
29th February 2016
UNION BUDGET 2016‐17
“Lacking provisions to spur growth & revive economy”. In our pre budget note released on 22nd February, 2016 we mentioned various action points that markets want as well as do not
want to see in the budget. On our expectation front this budget has been a mixed bag with positive coming from sticking to fiscal
prudence & not tinkering with long term capital gains taxation regime. However the overwhelming need of the hour on measures
for reviving economic growth & rejuvenate animal spirits in economy did not really come about. While we are mindful of fiscal
constraints in current global turmoil we expected some “out of box thinking” idea on Bank recapitalization, providing impetus to
capex cycle etc. Our fear of budget being more populist than our expectations has actually played out. The entire budget speech
was dominated by agriculture, rural development & other related announcements.
Key highlights of this budget

As regards to total income, the budget assumes gross tax revenue growth of 11% over FY16BE. The main reason for lower tax
collection in FY16 has been dismal performance of corporate sector on back of substantially lower commodity prices. But for
50% increase in excise duty collection, thanks to crude, the overall collection of taxes would have fallen short of budget
estimates made at time of FY16BE. Service tax collection also increased by 25% as per FY16RE over FY15A.

For FY17 on the Non tax revenue side,
side income from disinvestment has been pegged at Rs 565 bn.
bn (There is no mention of sale
of strategic assets). On this front, the government has shown the maximum disappointment (against budget disinvestment
target of Rs 695 bn the government managed to reach disinvestment of only Rs 183 bn despite CY15 being one of the best
year in terms of capital markets). We believe the target for FY17E has been consciously kept low so as not to repeat such
disappointment in future.

Total subsidy bill for FY17 is estimated to be Rs2.5tn
Rs2 5tn (almost similar to Rs2.5tn
Rs2 5tn FY16RE,
FY16RE ~1.7%
~1 7% of GDP).
GDP) The major assumption
here is that benefit from lower crude is likely to continue in future too while subsidy on all other segments will remain at
same level. There is a mention of direct transfer of fertilizer subsidy through DBTL in some parts of the country on pilot basis.
If successful this will be expanded to rest of the country. We believe such a scheme will help in curbing leakage in subsidy.
IndiaNivesh Research
Budget FY16‐17 Review
February 29, 2016 | 2
(contd…)

Although the target on Fiscal Deficit (FD) for FY17BE has been maintained at 3.5% of GDP, there is an intention to review
FRBM act to incorporate changing macro economic picture. A committee has been made to study this issue. We will await the
outcome of these deliberations. As of now market is likely to be pleased with 3.5% for this year.

The government has set an objective of doubling farm income by 2020. This is intended to be achieved through increased
expenditure on irrigation schemes, providing unified agriculture market & increase allocation on roads in rural area. An
amount of Rs878bn has been allocated towards rural development under various schemes.

A few other programs designed for development of rural folks are a) Intention to provide electricity to all villages by 2018
instead of earlier target of 2020. b) A new crop insurance scheme for farmers has also been announced with initial layout of
Rs50bn. c)) Rs20bn has been allocated towards Intention to p
provide LPG connection to rural customers whose income falls
below poverty line. d) Rs17bn will be spent on Skill development mission.

FM has clarified that GAAR will become effective from April 01, 2017. This particular law was being opposed by many
investors especially foreigners. In our opinion this announcement is made to clear any doubts in minds of investors whether
this provision will be applicable as per earlier given time table.

Intent to garner some resources through Voluntary Disclosure Scheme (VDIS).
(VDIS) In order to bring out the unaccounted for tax
money into the mainstream the FM has proposed to come out with a new scheme wherein citizens can disclose undisclosed
assets/income by paying 45% tax without being subject to any kind of interrogation by tax authorities. Though FM has not
mentioned how much he is expecting to garner from this scheme, market sources estimate around Rs500‐600bn can be
collected through it. While this money may bring some relief to fund starved government, in our opinion, this kind of scheme
is indirect penalty on honest tax payers & leads to moral hazards for future tax compliance. We also highlight that this scheme
can face some headwind from Supreme Court as earlier government has given an affidavit that government will not come out
with such amnesty schemes. Some legal experts opine that government may circumvent Supreme Court & get through this
scheme. However, we have doubts about the success of this scheme.
IndiaNivesh Research
Budget FY16‐17 Review
February 29, 2016 | 3
(contd…)

Push to capex/infra spending continues. Roads. Railways & Ports to spearhead the infra spending. Rs550bn allocated to Roads
with additional Rs15bn to come from bonds to be issued by NHAI. Rs80bn have been earmarked for Waterways. The
government will revive non functional airstrips of AAI & states. Desire to rework PPP contracts & removing any bottlenecks in
this regard is a positive.
positive

Step towards ease of doing business by setting up of dispute redress mechanism. Though some more progress has been made
on this front, but in our view the pace has been very slow. Few more granular details are spelt out in budget. However, we
believe lot more needs to be done & more important is dispute redress has to be expedited especially stuck up tax cases in
courts eg Vodafone, Cairn etc.

Financial
Fi
i l sector reforms
f
continue
i
via
i Bureau
B
off banks
b k setup & RBI Act
A amendment
d
i offing
in
ffi regarding
di MPC.
MPC The
Th government
has announced setting up of Bureau that will search and select heads of public sector banks and also help them in developing
differentiated strategies of capital raising plans with innovative financial methods and instruments. In our view, creation of
bureau would over time enable the government to reduce ownership to 51% and also help banks to generate capital for the
future growth.
The RBI Act
Th
A t will
ill be
b amended
d d soon to
t allow
ll
f
formation
ti off Monetary
M
t
P li Committee
Policy
C
itt (MPC),
(MPC) in
i accordance
d
with
ith FSLRC
suggestion. MPC will take decisions regarding future monetary policy instead of present system of RBI Governor taking final
decision on monetary policy. MPC will consist of members from within the central bank and experts in the country. In our
view, it will make a radical shift in the way monetary policy is decided in the country.

Retirement benefits reforms. In order to incentivize creation of new jobs in the formal sector, GoI will pay the Employee
P i Scheme
Pension
S h
contribution
t ib ti off 8.33%
8 33% for
f allll new employees
l
enrolling
lli in
i EPFO for
f the
th first
fi t three
th
years off their
th i employment.
l
t
The Scheme will be applicable to those with salary up to Rs15,000 per month.
The Annuity services provided by the National Pension System (NPS) and Services provided by EPFO to employees will be
exempted from service tax, 40% of the total corpus accumulated in NPS to be tax free & one‐time portability from a
recognised provident fund or superannuation fund to National Pension System will be allowed. Exemption limit in
Superannuation Fund is proposed to be increased from Rs 1 lakh to Rs 1.5 lakh for annual contribution by an employer to a
superannuation fund.
IndiaNivesh Research
Budget FY16‐17 Review
February 29, 2016 | 4
(contd…)

Tax reforms initiated. Several tax reforms have been initiated like revoking of 13 Cess act where income is just Rs5bn. However
there were couple of disappointments like introduction of many complicated notes/sub‐notes being added in various taxes, a
levy of 50bps as surcharge in service tax (Krishi Kalyan Cess to promote agriculture), 10% Dividend on income of Rs1mn or
above besides DDT, increase in STT on options & infra Cess between 1% to 4% on automobiles.
Plan to reduce Corporate tax by 5% in next 4 years on track with few exemptions taken away in FY17E while minor benefit of
tax reduction will come from FY18 for corporates with turnover of less than Rs0.5bn. We believe lot more work has to be done
on this count.

Meager capital allocation towards banks recapitalization was a big disappointment. Post the large scale cleaning up of books
of banks mostly upon insistence of RBI, the banks need a large amount for capital. The government had announced program
of bank recapitalization over 4 years. According to this program, Rs 250 bn is to be provided to banks in FY17 for this purpose.
However in light of huge amount of NPAs reported by Banks, this amount is far lower than market expectations. Although FM
announced his full commitment to provide additional capital as and when required; but he did not give any definite plan or
road map on provision of this amount.
IndiaNivesh Research
Budget FY16‐17 Review
February 29, 2016 | 5
(contd…)
What should investors do now?
After many years the markets approached budget with very little expectations & a few fears like imposition of long term capital
gain & slippage on fiscal deficit targets. Fortunately the 2 negatives expected did not come in the budget hence a relief for the
markets in near term. However the moot p
point is what happens
pp
in the longg term? We were lookingg at this budget
g with
perspective to provide some impetus for economic revival & growth back on trail. Unfortunately the budget print does not inspire
anything on that count. In fact the budget is more focused on rural economy & has negative surprises for capital markets.
Many tax reforms have been initiated. Detailed impact of these provisions on sectors is discussed in later part of this report but
overall there are more negatives than positive in tax changes for middle & upper class tax payers.
In the past many months our markets have been reeling under heavy selling pressure from FIIs.
FIIs We do not believe this budget
does anything to change that trajectory. It will neither increase nor decrease their selling meaning, no respite from pressure on
markets. We do not see any major impact of this budget on corporate earnings, hence not much change in fundamentals.
There is a case being made out for rate cut by RBI as government has been able to stick to its fiscal consolidation program.
However we believe RBI will not be in a hurry to bite the bullet as it would like to check how the target of 3.5% is achieved & what
are the factors that will impact this number in FY17E.
FY17E We highlight these numbers have not captured full impact of 7th Pay
Commission. Monsoon will have its own impact on overall numbers. We have factored 50‐75 bps cut in rates by RBI through out
the CY16 but most of this will be back ended.
We expect pressure from global turmoil & continued downgrades of consensus corporate earnings for FY16E & FY17E will limit
any upside in the markets. We remain cautious & continue with stock specific approach.
IndiaNivesh Research
Budget FY16‐17 Review
February 29, 2016 | 6
(contd…)
Rs bn
Total Receipts
Tax receipts
Non‐tax receipts
Capital receipts
Total Expenditure
Plan expenditure
Revenue Account
Capital Account
Capital Account
Non‐plan expenditure
Revenue Account
Capital Account
Fiscal Deficit
in terms of % of GDP
FY15
Actual
11,529
9,036
1,979
515
16,637
4,626
3,576
1,050
12,010
11,094
916
(5107)
(4.1)
FY16
Budget Est
Revised Est
12,218
12,503
9,198
9,475
2,217
2,586
803
442
17,775
17,854
4,653
4,772
3,300
3,350
1,353
1,422
13,122
13,082
12,060
12,127
1,062
955
(5,556)
(5,351)
(3.9)
(3.9)
% change in revised est
2.3
3.0
16.6
‐44.9
0.4
2.6
1.5
5.1
‐0.3
0.6
‐10.0
‐3.7
FY16E
Y‐o‐Y (%)
8.4
4.9
30.7
‐14.1
7.3
3.1
‐6.3
35.4
8.9
9.3
4.2
4.8
Budget Est
FY17
14,442
10,541
3,229
671
19,781
5,500
4,036
1,464
14,281
13,274
1,006
(5,339)
(3.5)
FY17E
Y‐o‐Y (%)
15.5
11.2
24.9
51.8
10.8
15.3
20.5
2.9
9.2
9.5
5.4
‐0.2
Source: CGA; IndiaNivesh Research
Source: CGA; IndiaNivesh Research
7.0
Fiscal Deficit
6.4
6.0
Impact of budgetary provisions:
The impact of specific budget provisions on specific
sectors is discussed in following pages. Please read on
to know which sectors get impacted in which way.
6.0
5.2
5.0
4.9
45
4.5
4.0
3.0
2.0
3.3
2.7
2.6
4.9
44
4.4
4.1
3.5
Revenue Deficit
5.7
44
4.4
4.1
3.6
3.9
3.5
3.1
2.9
2.5
2.3
1.9
1.1
10
1.0
0.0
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E
IndiaNivesh Research
Budget FY16‐17 Review
February 29, 2016 | 7
AGROCHEMICALS/FERTLIZERS EXPECTED BUDGET IMPACT: POSITIVE (Strong focus to drive rural growth…)
UB 2016‐17 has laid more emphasis on agriculture and rural economy growth. This was very well indicated by FM’s commentary to
double farmers income in next five years. On the same line agriculture and farmers welfare expenditure allocation went‐up by 127.6% to
Rs.359 bn ((v/s
/ Rs.158 bn in RE FY15‐16).
) Further,, increase in allocation to Gram Panchayat
y and Urban Local Bodyy should bode well on
overall rural economy. Electrification and higher investment to improve sanitation in rural India should lead to higher job creation.
Issues
g
Agriculture Credit Irrigation Projects MGNREGA
Allocation Increase
Tax
Proposal
Cos Impacted
Allocated Rs 9,000 bn (v/s Rs 8,500 bn in UBFY15‐16) for agriculture credit during 2016‐
17. The ggovernment also allocated Rs 150 bn for Interest Subsidyy ffor Short Term Credit
to Farmers.
Only 65 mn hectares (v/s 141 mn hectares) of net cultivated area is covered with
irrigation till now. Government targets ~3.0 mn hectares under irrigation in FY16‐17
through PMKSY (Up 60% to Rs.23 mn) and AIBP scheme. In next 5 Year, government
expect
p outlayy of ~Rs 865 mn to complete
p
various irrigation
g
projects.
p
j
Allocation increased to Rs.385 bn (v/s Rs.346 bn in UB15‐16). Key agenda – 0.5 mn farm
ponds & dug wells in rain fed areas & 1.0 mn compost pits for production of organic
manure under MGNREGA.
Increase in allocation to Rashtriya Krishi Vikas Yojana (Up 38% to Rs 54 bn), Pradhan
Mantri Fasal Bima Yojna (Up 86% to Rs.55 bn) and Pradhan Mantri Gram Sadak Yojana
(Up 36% to Rs.190 bn).
Tax reduction ‐ [BCD on membranes & their parts required by caustic soda/potash
reduced from 2.5% to NIL], [SAD on Orthoxylene reduced to 2% from 4% earlier],
[Excise duty on raw material of centrifugal pump being reduced to 6% from 12.5%], [
Service/BCD/Excise ‐ duty on refrigerated containers and cold room is reduced to – Nil
from 14%/5% from 10%/ 6% from 12%, respectively]. Excise duty of micro nutrients
and physical fertiliser mixture (reduce to 6% vs 12% ) and (nil vs 6%), respectively.
Positive: Coromandel, Fertilizer Cos
Positive: Jain irrigation, Shakti Pump
Positive: Rural Economy
Positive: IRB Infra, IL&FS Transport
and Max India.
Positive: Meghmani Organics and
Apcotex
Source: Budget Documents; IndiaNivesh Research | Note: PMKSY‐ Pradhan Mantri Krishi Sinchai Yojana; AIBP ‐ Accelerated Irrigation Benefit Scheme IndiaNivesh Research
Budget FY16‐17 Review
February 29, 2016 | 8
AUTOMOBILES
BUDGET IMPACT: NEGATIVE (Infrastructure cess on cars)
Budget was negative for Auto sector. In order to curb pollution and ease traffic situation in Indian cities the budget proposed to levy a
infrastructure cess of 1% on small petrol, LPG, CNG cars, 2.5% on smaller diesel cars of certain capacity and 4% on other higher engine
capacity vehicles and SUVs. Uniform excise duty on cars and scheme for scrapping of old vehicles, among the top expectations of the
Indian automotive industry has not been addressed. Concessions on custom and excise duty available to electrically operated vehicles
and hybrid vehicles extended without any time limit along with proposal to amend Motor Vehicle Act to open Road transport Passenger
vehicle segment to private sector were few positives for Industry. The government's focus on infrastructure will indirectly help the auto
industry.
Issue
Proposal
Impact
Infrastructure cess levied on all cars
Infra cess of 1% levied on small petrol, CNG, LPG cars, 2.5% on Diesel cars and 4% on SUV’s and higher engine capacity vehicles like luxury cars. Negative for sector as a whole. Negative for Maruti Suzuki, Tata Motors, M&M
Also negative for Force Motors as luxury car sales will take a hit
TDS levied on premium cars
TDS levied on premium cars
1% TDS levied on premium cars above Rs.1 mn 1% TDS levied on premium
cars above Rs.1 mn
Negative for sector as a whole. Negative for Maruti Suzuki, Tata Motors, M&M
for Maruti Suzuki, Tata Motors, M&M
Also negative for Force Motors as luxury car sales will take a hit
Concessions on custom and excise duty available to electrically operated vehicles and hybrid vehicles Concessions on custom and excise duty available to electrically operated vehicles and hybrid vehicles which was valid till 31.03.16 extended without any time limit.
Amendment in Motor Vehicle act will open the road transport in passenger segment to the private sector .This would lead to addition to State Transport Undertakings (STUs) fleet which has remained at same levels for last few years
Overhaul and revival of road transport passenger vehicle segment
Lackluster rural demand
Increase in allocation towards agriculture and Increase
in allocation towards agriculture and
irrigation will increase disposable income in rural area and help to improve the demand of vehicle
Neutral. Sales volume is very small, positive for M&M and Bajaj Auto
Positive for MH&CV and LCV PV manufacturers like Tata
Motors, Ashok Leyland, Force Motors and SML Isuzu
Positive for M&M, Bajaj Auto and Hero Motocorp
Source: Budget Documents; IndiaNivesh Research
IndiaNivesh Research
Budget FY16‐17 Review
February 29, 2016 | 9
BANKING & FINANCIAL SERVICES
BUDGET IMPACT: NEGATIVE (Recapitalization was in‐line with previous announcement but lower than market expectations)
Budget Developments
Union Budget for FY17 was neutral for Banking & Financial services industry. Key takeaways for industry were capital infusion in the
public sector banks which was similar to earlier allocation of Rs 250 bn, 49% FDI in Insurance / Pension via automatic route and
100% sponsor holding in ARC.
Issues
Proposal
Companies Impacted
p
Capitalization
PSU Banks would need Rs ~1.8 tn capital
p
byy FY19 to
comply with Basel III norms and in current budget,
Government has allocated Rs 250 bn for capitalisation
of public sector banks vs Rs 79.4 bn in FY16 which was
later revised to Rs 250 bn in August 2015. However,
GOI may increase this based on the requirement.
Negative:
g
Current allocation is inline with earlier
allocated amount. No impact on PSBs as anything above
Rs 250 bn would have been positive for banks having
lower capital adequacy like IOB, United Bank, Union Bank
and Allahabad Bank.
Agriculture credit
Increase Agri‐credit target to Rs 9.0 tn (+5.9% y‐o‐y)
for FY17 as against Rs 8.5 tn for FY16.
Neutral: No major impact as absolute amount increase is
similar to last fiscal.
Bank Board Bureau to be operational in FY17
Bank Board Bureau to be operationalized in FY17
which will spell out road map for consolidation of PSBs
including business strategy, Capital requirements and
appointment of management.
Positive: For all PSBs as it will help in improving efficiency
although
lh
h implementation
i l
i remains
i the
h key.
k
Transformation of IDBI bank
GOI considering to reduce its stake below 50% and
process of bank’s transformation has been already
initiated.
Positive: for IDBI Bank
Source: Budget Documents; IndiaNivesh Research
IndiaNivesh Research
Budget FY16‐17 Review
February 29, 2016 | 10
BANKING & FINANCIAL SERVICES (contd…)
Issues
Proposal
Companies Impacted
49% FDI in insurance and pension by automatic route
FDI in Insurance and Pension upto 49% will be allowed
through automatic route as against current regulation of 26%
through automatic route. However guidelines on Indian
management control has to be verified by IRDA and RBI.
Positive: Listed Insurance companies like Bajaj
Finserv and Max India. Also positive for Banks
having insurance subsidiary like HDFC, ICICI,
Kotak and SBI.
Sponsor to hold upto
100% in ARC and 100% FDI through
g automatic route in ARC: Amendment in SARFAESI Act 2002 by enabling 1) sponsor to
hold upto 100% in ARC as against 50% regulatory limit
currentlyy and 2)) non institutional investors to invest in
securities receipts. In addition, 100% FDI in ARC will also be
allowed through automatic route as against current regulation
of 49% through automatic route.
Positive: for listing companies having ARC
business like Edelweiss, JM Financial, Kotak
Mahindra Bank.
Additional interest deduction on Home Loan
Additional deduction of interest to the extent of Rs 50,000/‐
over and above the existing limit of Rs 2,00,000/‐ for first time
home buyers for Home loan of Rs 3.5 mn sanction provided
the property price doesn’t exceed Rs 5 mn.
Positive: for HFCs like HDFC, LIC Housing,
Dewan Housing, Repco.
Committee based approach to monetary policy decision
RBI Act 1934 will be amended for monetary policy committee
which will add value and transparency to monetary policy
decision
Neutral: as no impact on stocks
IPO for General Insurance companies
General Insurance companies to be listed like Oriental
Insurance, New India Insurance, National Insurance Company
and United India Insurance.
Neutral: as there are no listed Government
owned general insurance company.
Source: Budget Documents; IndiaNivesh Research
IndiaNivesh Research
Budget FY16‐17 Review
February 29, 2016 | 11
CONSUMERS
BUDGET IMPACT: POSITIVE (Except for cigarettes)
FMCG companies have been witnessing weak volume growth due to poor rural demand. With thrust on increasing rural income, rural
employment and rural development, the weakness in rural demand is likely to fade away. However, this would take time to percolate to
company
p y level. Focus on health led to further increase in excise dutyy on tobacco related p
products,, which would be negative
g
for
companies.
Proposal
Effective increase in excise duty on cigarettes by ~10%.
Impact
Companies Impacted
Duty hike is likely to impact the volume Negative: Companies impacted are ITC,
growth of companies
VST Industries, Godfrey Phillips
Allocation
All
ti to
t MNREGA has
h been
b
i
increased
d to
t Rs
R 385 b
bn This
Thi is
i likely
lik l to
t improve
i
th purchasing
the
h i
P iti for
Positive
f the
th entire
ti FMCG sector
t
from Rs 347 bn.
power of rural consumers
Jewellery: Excise duty on Articles of Jewellery [excluding
silver jewellery, other than studded with diamonds or
other precious stones namely, ruby, emerald and
sapphire] imposed at 1% without input credit or 12.5%
with input credit against 0% earlier
Imposition of duty would lead to increase Negative: Titan, PC Jewellers, TBZ, Rajesh
in price of gold and diamond jewellery. It Exports
could impact the current weak demand
adversely.
Basic excise duty on waters including mineral waters and aerated waters containing added sugar increased to 21% from 18% earlier
F t
Footwear: 1. Abatement rate for all categories of footwear is being increased from 25% to 30%.
2. Excise duty on rubber sheets & resin rubber sheets for soles and heels being reduced to 6% from 12.5% earlier.
Allocated to Swachh Bharat Abhiyan increased from Rs
36.25 bn to Rs 90 bn
This is likely to result in marginal increase Negative: Mostly unlisted MNC players in
in the prices of aerated water products
the segment
f
the sector in Positive: BATA, Liberty, Relaxo Footwear,
Marginally positive for
scenario of weak demand
Mirza International
Improve sanitation facilities and increase Positive: HSIL, Cera Sanitaryware, Kajaria
demand for products like sanitaryware, Ceramics, Somany Ceramics among others
tiles, faucets, etc.
Source: Budget Documents; IndiaNivesh Research
IndiaNivesh Research
Budget FY16‐17 Review
February 29, 2016 | 12
INFORMATION TECHNOLOGY
BUDGET IMPACT: NEUTRAL (Initiation of digital transformation…)
IT/ITES sector even though directly remained untouched in UB 2016‐17. However, focus on digital skill development and e‐
transformation of government departments was clearly visible in FM’s commentary. Plans to implement e‐assessments in all seven
mega cities and dematerialization of education certificates looks to be a initial move towards digitalization.
digitalization In order to incentivize
domestic value addition towards Make in India campaign government proposes suitable changes in customs and excise duty on
components used in manufacturing of routers & modems.
Issues
Proposal
Companies Impacted
Tax
Increase in BCD on E
in BCD on E‐readers from NIL to 7.5% and parts of E‐readers to 5% from NIL, readers from NIL to 7.5% and parts of E readers to 5% from NIL, semiconductor wafer fabrication, LCD fabrication and semiconductor chip is exempted from BCD/SAD (4% to NIL), SAD is applicable on mobile phone/tablet computer to 2% from NIL, Excise/BCD/CVD/SAD is expected on parts and components, subparts for manufacture of Routers, broadband Modems, Set‐top boxes, & CCTV. Positive: Smart Link, D Link
SEZ
Section 10AA is applicable to new SEZ which will commence activities before
31/3/2020
31/3/2020.
Positive: IT Sector
Digital Literacy
Under National Digital Literacy Mission & Digital Saksharta Abhiyan 0.6 mn households
will be trained for digital literacy in rural India over next 3 years.
Positive: NIIT Ltd, CMC
Digitalization Initiative
E‐ modernization of land record (Rs. 1.5 bn allocated) and Development of digital
depository for School Leaving Certificates, College Degrees, Academic Awards and Mark
p
y)
sheets ((similar to Securities Depository).
Positive: Ricoh India, TCS, Infosys
Skill Development
Under Section 35CCD expenditure on skill development project are liable for 150% tax
deduction till 2019‐20. Also allocated Rs.17 bn for development of 1500 Multi Skill
Training Institutes under PMKVY.
Positive: NIIT Ltd, CMC
E Platform
E‐Platform
e‐market platform to be deployed in 585 regulated wholesale markets/APMCs; already
12 states are readyy to come on board. Further, DGS&D will establish a technology
gy
platform to facilitate procurement of goods and services from Gov agencies.
Additionally, the automation of 0.5 mn fair price shops will be done across country.
Positive: Overall IT Sector
Positive: Overall
IT Sector
Source: Budget Documents; IndiaNivesh Research | PMKVY – Pradhan Mantri Kaushal Vikas Yojana; DGS&D ‐ Director General of Supplies & Disposal
IndiaNivesh Research
Budget FY16‐17 Review
February 29, 2016 | 13
OIL & GAS
BUDGET IMPACT: POSITIVE (Change in the calculation of cess rate is the key highlight)
The Budget impact is positive for the Oil & Gas sector. The key highlight of the budget was change in the calculation of cess rate which
will be based on 20% ad‐valorem vs fixed rate of Rs. 4500/mt (~USD 9/bbl), and thereby cess burden will reduce by USD 3/bbl. Though
change in cess calculation will provide a relief to upstream companies like ONGC, Oil India and Cairn India, the crude price rises above
USD 45/bbl cess rate would again rise beyond USD 9/bbl. For every USD 1/bbl increase/decrease the EBITDA would change for ONGC by
Rs 11 bn and for Oil India by Rs 1.75 bn.
The government has allocated petroleum subsidy for FY17 to Rs. 269 bn for LPG and Kerosene vs budgetary support of Rs. 300 bn for
FY16 (includes Rs. 53 bn for Q4FY15). After deducting Q4FY16 subsidy, the available subsidy for FY16 is Rs. 247 bn while 9MFY16 total
subsidyy stood at Rs. 220 bn. Consideringg benign
g crude p
prices,, we believe Rs. 269 bn allocation for oil subsidyy for FY17 is sufficient to
compensate for OMCs losses. For FY17, we are assuming total subsidy of Rs. 325 bn, out of which, govt. will share Rs. 269 bn (82%),
implying upstream sharing at 18%, which is positive for upstream companies.
Issues
Proposal
Impact
Positive for ONGC and Oil India as the cess rate will now be based on 20% ad‐valorem
will now be based on 20% ad
valorem basis and basis and
cess rate will reduce to USD 6/bbl (at current level of crude) from present cess rate of USD 9/bbl. This would be beneficial till the crude prices remain below USD 45/bbl, above which the cess rate would rise beyond USD 9/bbl.
Change in cess
calculation (from current Rs 4500/tonnes)
Cess rate will now be based on 20% ad‐valorem basis vs existing Rs. 4500/mt (~ USD 9/bbl).
Hike in excise duty on ATF
Basic excise duty on ATF is increased from 8% to 14%, neutral for OMCs as it would be passed on to the consumer.
Neutral for OMCs as the duty would be passed on to the consumer.
Natural gas price non‐viable for deep water development
Government is considering to incentivise gas production from deep‐
water, ultra deep‐water and high pressure‐high temperature areas which are presently not exploited due to higher costs and risks. A proposal is under consideration to provide calibrated marketing
proposal is under consideration to provide calibrated marketing freedom and to do so at a pre‐determined ceiling price which is to be discovered on priciple of landed price of alternative fuels.
Positive for ONGC, Oil India and RIL as these gas blocks will be economically viable due to expected rise in realization.
Source: Budget Documents; IndiaNivesh Research
IndiaNivesh Research
Budget FY16‐17 Review
February 29, 2016 | 14
PHARMACEUTICALS
BUDGET IMPACT : NEUTRAL
Government would reduce the deduction under section 35(2AB) to 150% from existing 200% by FY18 and would further reduce to 100%
from FY20 onwards. The reduced deduction would increase the tax outgo of pharma companies over long term. Other than this, there
has been few small ones. Government would enhance the supply of generic drugs by opening 3000 stores under Jan Aushadhi Yojana in
FY17. Government would also be starting dialysis service in district hospitals and reducing custom duty, excise/ CVD on select dialysis
equipment which would reduce overall cost of dialysis. Government would also launch new health protection scheme which will provide
health cover up to Rs0.1mn per family and additional top‐ups for senior citizens. This scheme would enhance increase in consumption of
medicines and hence demand for the same.
Issues
Weighted Deduction u/s 35(2AB) to be enhanced from existing 200% to 250% for next 10 years on approved expenses
Budget Outcome
Weighted deduction u/s 35(2AB) to be reduced to 150% in FY18‐20 and to 100% from FY20 onwards
Impact
Negative: Though the medium term benefit remains intact, reduced deduction from FY18 onwards would result in higher tax outgo. Negative for companies spending higher amount on R&D.
To rationalise excise duty on API manufacturing to prevent accumulation of CENVAT credit
Remained status‐quo
No impact
Removal of service tax on Clinical trials of drugs
Remained status‐quo
No impact
Incentive for setting‐up facilities in backward areas
Remained status‐quo
No impact
Source: Budget Documents; IndiaNivesh Research
IndiaNivesh Research
Budget FY16‐17 Review
February 29, 2016 | 15
POWER
BUDGET IMPACT: NEUTRAL (No concrete action taken)
The Budget was Neutral for the Power sector. Increase in allocation in Deendayal Upadhyaya Gram Jyoti Yojana and Integrated Power
Development Schemes is slight positive for the sector, while increase in clean energy cess from Rs. 200 /ton to Rs. 400 /tonne levied
on coal will lead to increase in power tariff as hike in clean energy cess would be passed on end users.
Issues
Proposal
Impact on Companies
Increase in Clean Energy Cess
gy Cess’ levied on coal, lignite
g
and p
peat renamed to
Clean Energy
‘Clean Environment Cess’ and rate increased from Rs. 200 per
tonne to Rs. 400 per tonne
Neutral It will lead to increase in p
power
tariff as hike in clean energy cess would be
passed on end users
100% village Electrification
target by 1, May 2018
Govt. committed to achieve 100% village electrification by
May 1, 2018. Govt. allocated funds for Deendayal Upadhyaya
Gram Jyoti Yojana and Integrated Power Development
Schemes at Rs 85 bn vs 51 bn in FY16 budget)
Positive: for companies involved in rural
electrification scheme of the government
like KEC International, Kalpataru Power,
TRIL, Voltamp, Power Grid
Allocation in renewable energy
Allocation in new and renewable energy
gy increased to Rs. 50.3
bn vs. 2.62 bn in FY16 budget.
Positive for sector as a
beneficiaries are NTPC,
NTPC Tata
Suzlon, Inox wind etc.
whole,
Power,
Power
Source: Budget Documents; IndiaNivesh Research
IndiaNivesh Research
Budget FY16‐17 Review
February 29, 2016 | 16
REAL ESTATE
BUDGET IMPACT: POSITIVE (Catalyst for affordable housing)
Budget Developments
Union Budget for FY17 was positive for Real Estate sector.
sector Key takeaways for industry are 1) 100% deduction for companies building
affordable housing (under Saleable area‐ 30 sq.mt.) which are completed in 3 years 2) Additional interest deduction of Rs.50,000 p.a.
for loans up to Rs. 3.5 mn availed in FY17 for first time home buyers 3) Exemption from DDT for REIT’s and INVIT’s. We believe this will
provide a positive stimulus to affordable housing sector. Companies having large annuity portfolios will be key beneficiaries.
Key Budget Impact
Issues
Deduction for affordable housing
DDT on REIT's, INVIT's
Exemption of service tax
Proposal
100% deduction on profits to companies building affordable housing (SA‐ 30 sq. mt per unit in four metros & 60 sq. mt per unit in other metros)
Exemption of DDT for dividend paid by SPV to the REIT's and INVIT's Exemption of service tax for building houses (up to 60 sq. mt per unit) under all schemes of central, state govt. & PPP schemes
Companies Impacted
Positive ‐ Poddar, Ashiana, Tata Housing
Positive ‐ Phoenix Mills, DLF, Oberoi Realty, Brigade, etc.
Positive ‐ Poddar, Ashiana, Tata Housing
Interest deduction for home loans
Deduction for additional interest of 50,000 per annum Deduction
for additional interest of 50 000 per annum
for home loans (up to Rs.3.5 mn) sanctioned in 2016‐17 for first time home buyers, where house cost is below Rs.5 mn
Positive – Real Estate Sector (Ashiana, Oberoi Realty, etc.)
Excise duty on ready mix concrete
Extend excise duty exemption presently available for Concrete Mix to Ready Mix manufactured at site for construction activities
Positive – Overall Real Estate Sector
Source: Budget Documents; IndiaNivesh Research
IndiaNivesh Research
Budget FY16‐17 Review
February 29, 2016 | 17
TELECOM
BUDGET IMPACT: NEUTRAL (Digital India to drive data growth…)
Expectations from UB 2016‐17 was not much, but finance minister tried to cheer Telecom/Media sector through higher budget
allocation on making rural India smarter and digital. Despite huge potential (Rural‐43% v/s Urban‐145% teledensity), regulatory
overhang, intense competition and leveraged balance sheet resulted in sector underperformance. The government estimate to raise Rs
989 bn (v/s Rs. 560 bn RE FY15‐16) through spectrum sale will further lever the telcos balance sheet. In our view, this will lead to
significant shareholder value destruction, amid increasing competition in data business.
Issues
Proposal
Impact on Companies
Tax
BCD/CVD/SAD is withdrawn on changer,
changer battery & wired headsets for
manufacture of mobile phone from NIL to 12.5%. However, input part
required in the manufacturing of these products are exempted from all
duties. Telecom equipment [Soft switches, VoIP, media gateways and etc]
are included into income tax bracket from NIL to 10%, Populated PCBs for
manufacture of personal computers (laptop or desktop) being included in
SAD from NIL to 4%,
4% SAD on populated PCBs of mobile phone/tablet
computer being withdrawn from NIL to 2%.
Positive: Smartlink; D‐Link
Smartlink; D Link
Spectrum Auction Government estimate of Rs 989 bn (v/s Rs. 560 bn RE FY15‐16) from
spectrum auction (all time high in the telecom spectrum action history)
Negative: Bharti; Idea; Rcom
Optical Fibre
BCD exemption on silica to Manufacture optical fibre /cables being
withdrawn from NIL to 10%.
Positive: Sterlite Tech
Digital Literacy
Under National Digital Literacy Mission & Digital Saksharta Abhiyan 0.6 mn
households will be trained for digital literacy in rural India over next 3
years.
Positive: Data Demand (Bharti, Idea, Rcom, R‐JIO)
Source: Budget Documents; IndiaNivesh Research
IndiaNivesh Research
Budget FY16‐17 Review
February 29, 2016 | 18
TEXTILES
BUDGET IMPACT: NEUTRAL
Budget allocation to Ministry of Textiles would remain flat at Rs 33.5 bn in 2016‐17 against Rs 33.15 bn in 2015‐16. With Make‐in‐India in
mind, Union Budget favored products to be manufactured in India rather than imported. Thereby, It focused on reducing the duties on
raw materials imported for manufacturing in India especially technical textiles. Garment players could be negatively impacted due to
i
increase
i excise
in
i duty.
d t
Proposal
1. Excise on branded readymade garments
with retail price of Rs 1000 or more: ‐ raised
to 2% without input tax credit from 0%
earlier‐ raised to 12.5% with input tax credit
from 6%/12.5% with input credit
2. The Tariff value for excise /CVD purposes on
readymade garments and made up articles
of textiles increased from 30% of retail price
to 60% of retail price
Basic Customs Duty on specified fibres and yarns
being reduced from 5% to 2.5%.
Excise duty on PSF/PFY manufactured from
plastic scrap or plastic waste including waste
PET bottles has been increased to 12.5% from
6% earlier for companies following CENVAT
route. For companies not using CENVAT credit,
rate remains unchanged at 2%
Impact
Marginally Negative for garment players as it would
lead to increase in product price. It could have a
negative impact on already weak consumer demand.
Companies Impacted
Negative: Arvind, Raymond, Kewal
Kiran Clothing, Aditya Birla Fashions,
Mandhana Industries
‐Marginally positive as these fibres are generally used
in technical textile products (primarily imported)
which form a very small portion of total revenues.
‐Marginally negative for companies manufacturing
these products (Nylon 66 ) as they would have to
reduce price.
Importers have to use CENVAT credit route
compulsorily while domestic manufacturers of
PSF/PSFY have both the options of duty with/without
CENVAT route.
route Domestic manufacturers are currently
not using CENVAT credit route leading to positive
differential with this move.
Positive: RSWM, Vardhman Textiles,
Sutlej
Negative: Sarla Performance Fibers"
Positive: RSWM, Ganesha Ecospheres
Source: Budget Documents; IndiaNivesh Research
IndiaNivesh Research
Budget FY16‐17 Review
February 29, 2016 | 19
RESEARCH TEAM
Daljeet S. Kohli
Head of Research
Tel: +91 22 66188826
daljeet.kohli@indianivesh.in
Amar Mourya
Research Analyst
Tel: +91 22 66188836
amar.mourya@indianivesh.in
Kaushal Patel
Research Associate
Tel: +91 22 66188834
kaushal.patel@indianivesh.in
Abhishek Jain
Research Analyst
Tel: +91 22 66188832
abhishek.jain@indianivesh.in
Abhitesh Agarwal
Research Associate
Tel: +91 22 66188823
abhitesh.agarwal@indianivesh.in
Prerna Jhunjhunwala
Research Analyst
Tel: +91 22 66188848
prerna.jhunjhunwala@indianivesh.in
Harshraj Aggarwal
Harshraj
Aggarwal
Research Associate
Tel: +91 22 66188879
harshraj.aggarwal@indianivesh.in
Yogesh Hotwani
Research Analyst
Research Analyst
Tel: +91 22 66188839
yogesh.hotwani@indianivesh.in
Tushar Manudhane
Research Analyst
Tel: +91 22 66188835
Tel: +91 22 66188835
tushar.manudhane@indianivesh.in
Aman Vij
Research Analyst
Tel: +91 22 66188818
aman.vij@indianivesh.in
ij@i di i h i
IndiaNivesh Research
Budget FY16‐17 Review
February 29, 2016 | 20
DISCLAIMER
This document has been prepared by IndiaNivesh Securities Limited (“INSL”), for use by the recipient as information only and is not for circulation or public
distribution. INSL includes subsidiaries, group and associate companies, promoters, employees and affiliates. INSL researches, aggregates and faithfully
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Regulations 2014.
2014 This document is based on technical and derivative analysis center on
studying charts of a stock’s price movement, outstanding positions and trading volume, as opposed to focusing on a company’s fundamentals and, as such,
may not match with a report on a company’s fundamentals. Nothing in this document constitutes investment, legal, accounting and/or tax advice or a
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to change
g without anyy notice. INSL directors/employees
p y
and its clients mayy have holdings
g in the stocks mentioned in the document.
This report is based / focused on fundamentals of the Company and forward‐looking statements as such, may not match with a report on a company’s
technical analysis report
EEach
h off the
th analysts
l t named
d below
b l
h b certifies
hereby
tifi that,
th t with
ith respectt to
t each
h subject
bj t company and
d its
it securities
iti for
f which
hi h the
th analyst
l t is
i responsible
ibl in
i this
thi
report, (1) all of the views expressed in this report accurately reflect his or her personal views about the subject companies and securities, and (2) no part of
his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report: Daljeet S Kohli,
Amar Maurya, Abhishek Jain, Yogesh Hotwani, Prerna Jhunjhunwala, Kaushal Patel, Tushar Manudhane, Abhitesh Agarwal, Harshraj Aggarwal & Dharmesh
Kant.
IndiaNivesh Research
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February 29, 2016 | 21
DISCLAIMER (contd…)
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p
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Please refer to the important 'Stock Holding Disclosure' report on the IndiaNivesh website (investment Research Section ‐
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IndiaNivesh Research
Budget FY16‐17 Review
February 29, 2016 | 22
DISCLAIMER (contd…)
INSL, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or
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Definitions of ratings
BUY.
We expect this stock to deliver more than 15% returns over the next 12 months.
HOLD. We expect this stock to deliver ‐15% to +15% returns over the next 12 months.
SELL.
We expect this stock to deliver <‐15% returns over the next 12 months.
Our target prices are on a 12‐month horizon basis.
Other definitions
NR =
Not Rated. The investment rating and target price, if any, have been arrived at due to certain circumstances not in control of INSL
CS =
Coverage Suspended. INSL has suspended coverage of this company.
UR=
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waiting for some more information to draw conclusion on rating/target.
NA =
Not Available or Not Applicable. The information is not available for display or is not applicable.
NM = Not Meaningful.
g
The information is not meaningful
g and is therefore excluded.
Research Analyst has not served as an officer, director or employee of Subject Company
One year Price history of the daily closing price of the securities covered in this note is available at www.nseindia.com and
www.economictimes.indiatimes.com/markets/stocks/stock‐quotes. (Choose name of company in the list browse companies and select 1 year in icon YTD in
the price chart)
IndiaNivesh Research
Budget FY16‐17 Review
February 29, 2016 | 23
Thank You
Thank You
IndiaNivesh Securities Limited
IndiaNivesh Securities Limited
Research Analyst SEBI Registration No. INH000000511
601 & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai 400 007.
Tel: (022) 66188800 / Fax: (022) 66188899
Tel: (022) 66188800 / Fax: (022) 66188899
e‐mail: research@indianivesh.in | Website: www.indianivesh.in
IndiaNivesh Research
Budget FY16‐17 Review
February 29, 2016 | 24