TRANSACTIONAL. NOT TRANSFORMATIONAL.
In a Nutshell
The FM had a herculean task at hand – with a slowing economy, tough deficit conditions, and clamour for friendly measures from multiple sections of the economy. It was probably unfair to expect miracles, but it is precisely at such points that vision and leadership matter.
We had a long speech that was short on ambition. It is a transactional budget. Not a transformational one.
The markets had priced in measures to spur demand, specific measures for sectors like NBFCs, Real Estate, Banking, measures to cut LTCG amongst others, and clearly showed their disappointment.
Now that the budget is behind us, markets will focus on earnings growth, global macros and impact of expected slowdown in China due to spread of the Coronavirus.
Budgets are increasingly becoming ‘non-events’ and investors should continue to take a long-term and asset allocation-based approach towards their investments and associated volatility. Mutual Fund Investors who are in the highest tax slab are advised to shift from Dividend to Growth Option before 31st March 2020.
We are positive on Infrastructure sector, Pharma and Consumption oriented businesses.
Getting Down to Brass Tacks
1. Increase in Customs Duties across categories
Positive for domestic manufacturers. While the measure was intended to primarily help MSMEs, it will benefit larger players across categories.
Negative for consumers who might notice a price increase.
2. Income Tax Rates Reduction
Positive– Overall direction of reduction of rates and eliminating the exemptions. Will bring down the tax for a large chunk of taxpayers.
Negative– Complicated ‘opt in’ policy with increase in tax slabs. Several sectors that have benefited from ‘investments of exemptions’ will likely take a hit – Insurance, Home Loans, etc.
3. Removal of Dividend Distribution Tax
Positive– Removal of double taxation measure. Will help foreign / NRI investors as well.
Negative– For large investors who will effectively pay more tax. Will negatively impact the Mutual Fund investors in the higher tax bracket as well.
4. Affordable Housing
Positive– Additional deduction extended for one more year.
Negative– Removal of exemption under the new IT regime would be a dampener for the sector.
5. Infra Funds – SWF
Positive– The exemption on interest, dividend and capital gains for investment in Infra Projects by Sovereign Wealth Funds will likely attract more funding in this stressed sector.
6. Corporate Bonds – FPI NRIs – Select G Secs
Positive– The measure to relax the limits for FPI participation (from 9% to 15% of the outstanding) will likely reduce borrowing rates.
7. ‘Amnesty Scheme’ for Direct Taxes & Tax Charter
Positive– While these measures along with e-appeal will not eliminate the legal and procedural challenges, it is definitely a welcome step in the right direction.
8. Divestment Target & LIC
Positive– Government is making the right noise in this regard.
Negative– Past performance does not inspire confidence. LIC stake sale might spill over to the next financial year.
9. Infra Push & 15% Tax for new Power Companies, Data Parks and Solar Firms
Positive– The budget has delivered strong measures to accelerate projects in highways, railways, airports, ports and Power. Infra finance companies like IIFCL and NIIF will leverage allocations made in budget. 100 airports under UDAN by 2025 is a welcome move. Data is the new oil. Rs 22,000 crore to Power and Renewable energy sector will create new opportunities for players. Implementation is key, though.
10. E Com Platforms
1% TDS on deals is a Negative for the sector.
11. Liberalized Remittance Scheme
5% Tax Collected at Source on LRS Remittances is a Negative for Individuals and Authorised Dealers.
12. NRI Definition
Might expand the tax base, but we believe that the actual individuals who were misusing the earlier provisions will likely find a way out and this measure may end up hurting the genuine NRIs.
13. Fiscal Math
Positive– Government finally bites the fiscal bullet by utilizing the mechanism for deviation from the provisions of the FRBM Act.
Negative– The math for the next FY stills revolves around increased receipts from Telecom, Divestment and expected 10% GDP Growth (Nominal Terms). We find this ambitious.
14. Measures in Agri & Rural Sectors
Positive– The Centre has raised the target for Agri Credit by 11%, Kisan Rail Program with refrigerated vans planned, PM KISAN continues to receive Rs 75,000 crore allocation.
Negative– Schemes designed to increase rural income saw sharp cuts in allocations.
15. Measures in Welfare
Positive– Jan Aushadhi Scheme to be expanded, PM JAY receives Rs 69,000 crore with plans for enhanced coverage across Tier 2 and Tier 3 towns.
Positive– Allocation of Rs 35,000 crore for Nutritional Improvement Program & Rs 85,000 crore for SC/ST and Backward Communities.