budget special

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Budget Special

Bold and growth-oriented Budget

February 01, 2021

February 01, 2021 2

Union Budget Review (2021-2022)Bold and growth-oriented Budget

Budget 2021-22 highlights a significant shift in the government’s fiscal policy stance. Growth is high on the government’s priority list now. The Budget proposes to support economic growth through a substantially higher outlay for healthcare, infrastructure development and other capital expenditure programs. The focus seems to be to put the Indian economy on a higher growth trajectory for the next few years by taking an expansionary fiscal stance.

Importantly, the policy framework is moving away from the piecemeal divestment program to aggressive privatisation of public-sector companies especially in non-core sectors. In addition to privatisation of IDBI Bank, the Finance Minister aims to privatise two public-sector banks and a general insurance company in the next fiscal.

In the Budget, the government has also announced some pragmatic proposals to fund capital expenditure and infrastructure development projects. It proposes to set up a Development Financial Institution (DFI) with an initial equity contribution of Rs. 20,000 crore with a target to provide credit to the tune of Rs. 5 trillion to infrastructure projects over the next three years. Moreover, to fund the capital expenditure, there is a clear intent towards monetisation of existing assets of public-sector companies and attract foreign capital into the Indian infrastructure space.

Lastly, the government has finally warmed to the idea of setting up an Asset Reconstruction Company (ARC) and Asset Management Company (AMC), which would take over the existing stressed debt from banks, etc. A new entity, which can consolidate bad loans of public-sector banks (for faster resolution) and help clean up their balance sheets, will be a positive development. Banks are the lifeline of an economy and essential to support an economic upcycle.

No wonder, the markets are not perturbed by the higher-than-expected fiscal deficit of 6.8% for FY2021-22 and the surge in the gross government borrowing figure to Rs. 12 trillion. The net government borrowing figure stands at Rs. 9.7 trillion which is ahead of street expectations. But the market did get some solace from the abnormally high cash of over Rs. 3 trillion on government cash with RBI despite the busy season.

Markets seem to appreciate the fact that the government has not tinkered with income-tax rates. The proposed increase in capital expenditure is expected to be funded by a higher deficit not only in FY2021-22 but also over the next few years. Though this could mean higher government borrowings and hardening of bond yields, the high priority on growth has boosted market sentiments. Moreover, the Reserve Bank of India (RBI) is expected to take necessary monetary policy steps to calm bond markets.

In terms of fiscal math, the assumption seems to be quite realistic with a 14.4% growth in nominal GDP and a 16.7% increase in gross revenue receipts in FY2022 as against the revised figures of FY2021. Disinvestment receipts of Rs. 1.75 trillion should be achievable, if the government is able to go through with public offering of LIC of India in the next fiscal.

Markets have given a thumbs-up to the Budget. The focus would revert to quarterly earnings and global cues now. The Q3 results season has been quite encouraging with majority of the companies exceeding expectations. We expect the consensus earnings estimates for FY2022 and FY2023 to get upgraded again and provide support to premium valuations. Given the focus of the Union Budget on capital expenditure on infrastructure development, strengthening of banks and privatisation, we see continued re-rating of construction, building materials and public-sector companies.

Investment Picks -

� Large-caps: ICICI Bank, SBI, M&M, L&T, HDFC Life, HCL Tech, UltraTech, Powergrid, Cipla

� Mid-caps: JK Lakshmi Cement, AU Small Finance Bank, Polycab, Kajaria Ceramics, Supreme Ind, Max Financial Services, CESC, Tata Consumer

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Particulars FY17 FY18 FY19 FY20 FY21RE FY22BE

Gross tax revenues 17,158.2 19,190.1 20,804.7 20,100.6 19,002.8 22,170.6

% change y-o-y 17.9% 0.4% -8.4% -7.1% -5.5% 16.7%

Net tax revenues 11,013.7 12,424.9 13,172.1 13,569.0 13,445.0 15,454.3

% change y-o-y 16.8% 1.3% -11.0% -9.8% -0.9% 14.9%

Non tax revenues 2,728.3 1,927.5 2,357.0 3,271.6 2,106.5 2,430.3

Total expenditure 19,751.9 21,419.8 23,151.1 26,863.3 34,503.1 34,832.4

% change y-o-y 10.3% -0.2% -5.2% -0.5% 28.4% 1.0%

Fiscal deficit 5,356.2 5,910.6 6,494.2 9,336.5 18,486.6 15,068.1

as % of GDP 3.5 3.5 3.4 4.6 9.5 6.8

Revenue deficit 3,163.8 4,436.0 4,544.8 6,665.5 14,559.9 11,405.8

as % of GDP 2.1 2.6 2.4 3.3 7.5 5.1

Primary deficit 549.0 621.1 667.7 3,215.8 11,557.6 6,971.1

as % of GDP 0.4 0.4 0.3 1.6 5.9 3.1Source: Budget documents, Sharekhan Research

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Budget Highlights 2021-22

Fiscal Math

� Fiscal deficit pegged at 9.5% for FY2021 and 6.8% for FY2022 with target to gradually reduce fiscal deficit below 4.5% by FY2026

� Gross government borrowing pegged at Rs. 12 trillion whereas net borrowing figure stand at Rs. 9.7 trillion for FY2022 which is ahead of street expectations

� Nominal growth in GDP pegged at 14.4% and the gross revenue receipts to grow by 16.7% in FY2022

� Surge in allocation to healthcare sector largely driven by Rs35,000 crore allocation to rollout of corona vaccine

Disinvestment & Privatisation

� Disinvestment target of Rs. 1.75 trillion, which possibly includes proceeds from public offering of LIC of India

� Privatisation of central public-sector enterprises (CPSE) in non-core sectors apart from four identified core sectors

� Privatisation of two public-sector banks and one general insurance company in FY2022

Infrastructure Development & Capital Expenditure

� Increase of 34.5% in allocation for capital expenditure to Rs. 5.54 trillion – amounting to 15.9% of GDP, which is the highest in many decades; includes capital expenditure of over Rs. 1 trillion each in roads and railways

� Monetisation of surplus land and other existing assets with CPSEs; also raising of resources through InvIT by assets with NHAI, PowerGrid and oil & gas companies

� Removal of tax deduction at source for foreign investors in case of dividend from REIT and InvIT

� Setting up of Development Financial Institutions with an initial corpus of Rs. 20,000 crore

� Allocation of Rs. 3.06 trillion to ease stress on balance sheet of power distribution companies

Indirect Tax

� Reduction in custom duty on gold & silver from 12.5% to 7.5%; however, the net effective tax rate works out to 10% after taking into account the Agriculture & Infra Development Cess (AIDC) of 2.5% was imposed in the Budget.

� No excise duty hike on cigarettes is relief to companies like ITC.

� Reduction in customs duty on certain steel products (semis, flats, longs, stainless steel) to 7.5% from 10%/12.5% earlier will have marginal impact on steel prices as imports are quite limited into India.

� Mid-sized steel and copper companies to benefit from exemption of duty on steel scrap and reduction of custom duty on copper scrap reduced to 2.5% from 5%.

� Hike in customs duty on specified auto parts like ignition wiring sets, safety glass, parts of signalling equipment to 15% from 7.5%/10% earlier.

� Hike in custom duty on certain electronic components from 12.5% to 15%; and auto parts from 10% to 15%

� Reduction in customs duty on compressors of refrigerators/air-conditioners increased to 15% from 12.5% and customs duty on specified wires and cables also increased from 7.5% to 10%.

� Reduction in basic excise duty on petrol to Rs1.4/litre (versus Rs4.16/litre currently) and on diesel to Rs1.8/litre (versus Rs. 4.83/litre currently) but cut in excise duty gets largely neutralised by agri cess. Customs duty on Naphtha reduced to 2.5% from 4% earlier.

� For textiles, reduction in customs duty on caprolactum, nylon chips and nylon fibre & yarn reduced to 5% from 7.5%.

� Increase in customs duty on carbon black/bis-phenol A/Epichlorohydrin increased from 5%/Nil/2.5% to 7.5%.

� Increased duty on steel screws and plastic builder wares from 10-15%. Increase duty on prawn feed from 5% to 15%. Withdrawal of exemptions on imports of certain kind of leathers and now customs duty of 10%.

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Key Winners

� Power companies to benefit from monetisation of power transmission assets (Power Grid) and 100%

electrification of Broad-gauge routes will be completed by December-2023 (KEC International, Kalpataru

Power Transmission).

� Oil & gas companies are key beneficiaries of the potential monetisation of core pipeline infrastructure assets

(GAIL and IOCL) and addition of 100 new districts under city gas distribution (IGL).

� Strong boost for infrastructure with increased outlays towards Ministry of Road Transport & Highways

(MoRTH), NHAI, Smart Cities, Pradhan Mantri Gram Sadak Yojana (PMGSY). Strong road projects pipeline

built up till FY2022 and beyond. Financing addressed through DFIs, NHAI InvIT and proposal for relaxation

of conditions for sovereign wealth funds – Positive for L&T, Cummins India, KNR Construction, PNC Infratech,

Ashoka Buildcon, Ultratech, Shree Cement, The Ramco Cements, JK Lakshmi Cement among others.

� Real Estate and building materials companies to benefit from extension of one year for claiming additional

tax deduction for buyers and a tax holiday for developers. Financing addressed through dividend exemption

to REITs and amendments for FPIs. Allocation towards smart cities and Jal Jeevan Mission (Urban) would give

demand fillip for building materials companies – Positive for DLF, Oberoi Realty, Prestige Estates, Brigade

Enterprise, Godrej Properties, IRB InvIT, Embassy Office Parks REIT, Mindspace REIT, Kajaria Ceramics,

Century Plyboards, Supreme Industries, Astral Poly Technik, Pidilite Industries and Asian Paints.

� Domestic auto-ancillary companies (Bosch, Motherson Sumi and Lumax Auto Tech) to benefit from a

proposed increase in customs duties for certain auto parts from the 10% currently to 15%, while the rural-

centric automobile companies (M&M, Escorts) to benefit from allocation to farm/rural sector.

� Banks & financial sector will be benefited by setting up of an Asset Reconstruction Company (ARC) and Asset

Management Company (AMC), which would be set up to take over the existing stressed debt from banks, etc,

would not only help in speedy resolution / value recovery from NPAs, but also help to clean up the balance

sheets (mainly of public sector banks). PSU banks to also benefit from the Rs. 20,000 crore capital infusion.

Privatization of two PSU Banks (apart from IDBI Bank) and one general insurance company, along with LIC

divestment will also be a positive.

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Budget Hits and MissesSector Hits (á) / Misses (â)

Automobiles and Ancillaries

Increase in customs duties for certain auto parts from the 10% currently to 15% (á) Bosch, Motherson Sumi, Lumax Auto tech

Allocation for rural and farm sector under various schemes such as agriculture Infrastructure Fund, Micro Irrigation corpus, etc.

(á) M&M, Escorts

Announcement of Scrappage policy (á) Ashok Leyland, Tata Motors

Banks & Financial Services

PSU Bank recapitalization of Rs 20,000 crores (á) Benefits low capitalized PSU banks

Announcement of ARC / AMC to take over NPAs; help cleanup bank books (á) PSU Banks, Banking sector

Hike in FDI in Insurance from 49% to 74% (á) HDFC Life, ICICI Life, ICICI Lombard, Max Financials, Bajaj Finserv

Capital Goods

Customs duty on room air conditioner and refrigerator compressors hiked from 12.5% to 15%

(â) Havells, Voltas, Bluestar, Hitachi Air Conditioning India Limited, Whirlpool

Thrust on clean urban water (drinking water & waste water treatment): 1) Jal Jeevan Mission: outlay of Rs. 2.87 lakh crore over five years; and 2) Urban Swachh Bharat Mission: Rs 1.416 lakh crore over five years.

(á) L&T, Thermax, ABB India, VA TECH WABAG LTD

Import duty on specified insulated wires and cables from 7.5% to 10% and companies having strong manufacturing capabilities in India

(á) Polycab, KEI

In Railways existing DFCs will commission by June 2022, three new DFC projects are being planned (feasibility studies), 76% rail electrification done, targets 100% electrification by Dec 2023. Rail safety systems to see step-up spend. Metro & RRTs projects will continue to be focus areas (Kochi, Chennai, Bangalore, Nagpur and Nashik)

(á) KEC, Kalpataru Power, L&T, Siemens, ABB India

Bharat Mala projects: About 3800 km constructed in FY21 and 8500kms will be awarded in FY22. Enhanced outlay to Rs. 1.180 lakh crore (Rs. 82000 crore in FY21BE) for ministry of road transport.

(á) Cummins, L&T

Customs duty on Copper Scrap lowered from 5% to 2.5% (á) Havells, Voltas, Polycab, KEI, Blue Star, Finolex Cables

Chemicals & Fertilisers

Agri infra fund increased to Rs. 40,000 crore (versus Rs. 30,000 crore in previous year) and agri-credit target of Rs. 16.5 lakh crore.

(á) UPL, Coromandel International and Dhanuka Agritech

Cement

Higher allocation to MoRTH (up by 16%), NHAI (up 7.3%), Smart Cities (up 9.4%), Pradhan Mantri Gram Sadak Yojana (up 90%) vis-à-vis FY21RE. Incentives for affordable housing to continue with an extension of one year on additional tax exemption of Rs. 1.5 lakh for individuals and a tax holiday for developers.

(á)UltraTech, Shree Cements, The Ramco Cements, JK Lakshmi Cement

Consumer goods

No increase in the excise duty/cess rate on cigarettes (á) ITC, Godfrey Phillips

Healthcare

Allocation of Rs 35,000 crore towards COVID-19 vaccine in 2021-22 (á) Cadila Healthcare, Dr Reddys

Introduced Atmanirbhar Health Yojana in addition to National Health Mission with an outlay of Rs 64180 crore over 6 year period towards strengthening healthcare infrastructure

(á) Metropolis Healthcare, Thyrocare Technologies, Dr Lal Pathlabs, Apollo Hospitals, Fortis Healthcare

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Budget Hits and MissesSector Hits (á) / Misses (â)

Infrastructure

Setting up of Development Finance Institution with a target of Rs. 5 lakh crore lending portfolio over three years.Outlay towards MoRTH and NHAI up by 16% and 7% at Rs. 1,18,101 crore and Rs. 1,22,350 crore, respectively.Proposal of relaxation in conditions for 100% tax exemption on interest, dividend and capital gains income for sovereign wealth funds in Infrastructure.Pradhan Mantri Gram Sadak Yojana outlay for FY2021 stands at Rs. 15,000 crore, up by 9.4% as against FY21RE Project awards of 8500kms by March 2022. Works of Rs. 2.27 lakh crore planned in four states.NHAI InvIT with five assets with an EV of Rs. 5,000 crore. Monetisation of NHAI toll roads planned.Dividend income to InvIT exempt from TDS. To make suitable amendments for debt financing of InvITs by FPIs.

(á) L&T, Ashoka Buildcon, Sadbhav Engineering, PNC Infratech, JMC Projects and KNR Constructions, IRB InvIT

Logistics

Proposal to undertake work on future dedicated freight corridors (á) Container Corporation, Gateway Distriparks

Railways’ capital outlay remained elevated at Rs. 2.1 lakh crore (á) Container Corporation of India, Gateway Distriparks

Turnover threshold limit for audit of micro, small & medium enterprises (MSMEs) doubled to Rs. 10 crore from Rs. 5 crore (for less than 5% of business in cash transactions).

(á) TCI Express

Metal and mining

Revoking provisional countervailing duty (CVD) on imports of stainless steel from Indonesia. Temporary revoking of CVD on imports from China and anti-dumping duty on certain hot rolled and cold rolled stainless steel flat products.

(â) Jindal Stainless Steel and Jindal Stainless (Hisar)

Oil & Gas

Government has proposed to monetise core pipeline infrastructure of GAIL, IOCL and HPCL

(á) GAIL (India) and IOCL

Plan to add 100 new districts for city-gas distribution (á) IGL, Gujarat Gas and MGL

Power

Power distribution scheme with an outlay of Rs. 3,05,984 crore over five years to strengthen financial health of discoms

(á) NTPC Limited and Power Grid

Asset monetisation with transfer of power transmission assets worth Rs. 7000 crore to infrastructure InvIT

(á) Power Grid

Framework to end monopoly in power distribution (á) Tata power, Adani Power and CESC

Real Estate/Building materials

Extension of one more year for claiming additional deduction on loan interest payments of up to Rs. 1.5 lakh for loans sanctioned on before March 31, 2021 to March 31, 2022; Tax holiday on profits earned by developers of affordable housing project approved by March 31, 2021 extended by another year

(á) DLF, Oberoi Realty, Prestige Estates, Brigade Enterprise, Godrej Properties, Ashiana Housing

Dividend income to REIT exempt from TDS. To make suitable amendments for debt financing of REITs by FPIs.

(á) Embassy Office Parks REIT, Mindspace REIT

Allocation towards smart cities increased to Rs. 6,450 crore for FY22, up 90% compared to FY21 RE

(á) Kajaria Ceramics, Century Plyboards, Supreme Industries, Astral Poly Technik, Pidilite Industries, Asian Paints.

Jal Jeevan Mission (Urban) to be launched and implemented over five years with an outlay of Rs. 2.87 lakh crore.

(á) Supreme Industries, Astral Poly Technik, Pidilite Industries, Asian Paints.

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Tax Proposals

Personal income tax proposals

� No changes in the overall income-tax slab rates in Union Budget 2021-22.

� Senior citizens above the age of 75 with only interest and pension income will not be required to file

income-tax returns.

� It is proposed to set up a faceless dispute resolution committee for individual taxpayers. Anyone

with a taxable income of up to Rs. 50 lakh, disputed income of up to Rs. 10 lakh is eligible to

approach the committee.

� Time limit for reopening tax returns is proposed to be reduced to 3 years from 6 years. Even in

cases of serious fraud, only if tax concealed has evidence of more than Rs. 50 lakh, will the term go

beyond this timeframe.

� Easy compliance for taxpayers. Currently, details of salary income, tax payment and TDS are

prefilled in the tax forms. The government has proposed to pre-fill tax forms with additional data

such as details of capital gains from listed securities, dividend income, and interest income from

banks and post offices.

� Advance tax liability on dividend income is only after payment of dividend. For foreign portfolio

investors (FPIs), lower treaty rates will apply for TDS.

� Extending eligibility of provision for additional deduction of Rs 1.5 lakh for loans taken to purchase

affordable houses extended by one more year up to March 31, 2022.

� Tax exemption on rent on affordable housing for migrant workers.

� To ensure employees’ contribution of retirement schemes is done on time, late payment of such

contributions by employers will not be allowed for tax deduction.

� The government has proposed to make dividend payment to REIT/ InvIT exempt from tax deduction

at source (TDS).

� Tax audit threshold raised to Rs. 10 crore for digital transactions

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Sectoral analysisSector Key announcements Overall impact Key companies to be impacted

Budget impact: PositiveSector view: Positive (Preferred picks: Ashok Leyland, Tata Motors, M&M)

Automobiles

The budget has proposed a voluntary scrappage policy for commercial vehicles (>15 years) and other vehicles (>20 years).

Positive Details of the scrappage scheme are awaited that will throw more light on incentive provisions. A mandatory scrappage policy would have directly resulted in demand creation, especially for CVs. However, the intention of the government is clear on scrappage policy and we expect it to be a long-term benefit for the industry. CV companies such as Ashok Leyland and Tata Motors would be the key beneficiaries.

Increase in customs duties for certain auto parts from the 10% currently to 15%. Auto components included under this scheme are safety glass, parts of electrical lighting, windscreen wipers, de-frosters and de-misters, ignition wiring sets and panel clocks.

Positive Positive as it would reduce price differential between domestic and imported auto parts in respective segments. Key beneficiaries would Asahi Glass, Bosch, Motherson Sumi, Lumax Auto Tech

Allocation for rural development: The government continues to focus on farm sectors and has increased allocation to rural sector under various schemes such as agriculture Infrastructure Fund, Micro Irrigation corpus, etc.

Positive We expect gradual demand creation from the increase in allocation for rural development. Companies such as M&M, Escorts will benefit from improvement in farm sector.

Budget impact: PositiveSector view: Positive (Preferred picks: ICICI Bank, SBI, HDFC Life, AU Small Finance Bank, Max Financial Services,)

Banking & Financial Services

Amending the Insurance Act, 1938 to increase the FDI limit in Insurance to 74% from 49% and allow foreign ownership and control (with safeguards)

Positive HDFC Life, ICICI Prudential Life, ICICI Lombard General, Bajaj Finserv, Max Financial Services

Asset Reconstruction Company Limited and Asset Management Company to resolve stressed assets problem of PSBs.

Positive Banking & NBFCs Sector; will help free up BFSI balance sheets, and also expedite Recovery process

Further recapitalization of Rs 20,000 crores for PSU Banks is proposed in 2021-22.

Positive Will help / support PSU Banks most of whom are struggling with Capital constraints and NPA challenges

For NBFCs with minimum asset size of Rs 100 crores, the minimum loan size eligible for debt recovery under SARFAESI) Act, to be reduced from Rs 50 lakhs to Rs 20 lakhs.

Positive Positive for NBFCs like LT Finance Holding, HDFC, HFCs etc (having ticket size of <Rs50 Lakhs

Other than IDBI Bank, proposed privatization of two Public Sector Banks and one General Insurance company

Positive Will improve efficiency, increase disinvestment Receipts

To rationalise taxation of ULIP, to allow tax exemption for maturity proceed of the ULIP having annual premium up to Rs 2.5 lakh. The cap of Rs 2.5 lakh on the annual premium of ULIP shall be applicable only for the policies taken on or after 01 FEB 2021. Further, in order to provide parity, the nonexempt ULIP shall be provided same concessional capital gains taxation regime as available to the mutual fund.

Sentimentally Negative

Sentimentally Negative for Life Insurance Cos; more impact on ICICI Prudential (ULIPs 48% of APE as for 9M FY2021), less for HDFC Life (has 20% of APE for 9M FY2021 from ULIPs); The move takes away tax benefit of ULIP plans brings them at PAR with MFs Schemes.

Announced creation of a permanent institutional framework which would purchase investment grade debt securities both in stressed and normal times.

Positive Will improve depth of Debt market

Proposed to provide Rs 1,000 crores for the welfare of Tea workers especially women and their children in Assam and West Bengal.

Positive Positive for players like Bandhan Bank, MFIs etc

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Budget impact: PositiveSector view: Positive (Preferred picks: L&T, Kalpataru Power, KEC International, Cummins India, Polycab and KEI Industries)

Capital Goods

Customs duty on room air conditioner and refrigerator compressors hiked from 12.5% to 15%

Negative Havells, Voltas, Blue Star and Hitachi Air Conditioning India Limited and Whirlpool

Import duty on inputs for LED lights such as drivers, PCBs has been hiked from 5% to 10%

Negative Crompton Consumer, Havells

Import duty on specified insulated wires and cables from 7.5% to 10% and companies having strong manufacturing capabilities in India

Positive Polycab, KEI Industries

Thrust on clean urban water (drinking water & waste water treatment): 1) Jal Jeevan Mission: outlay of Rs 287,000 crore over five years; and 2) Urban Swachh Bharat Mission: Rs 1.416 lakh crore over five years.

Positive L&T, Thermax, ABB India, VA TECH WABAG LTD

In railways existing DFCs will commission by June 2022, three new DFC projects are being planned (feasibility studies), 76% rail electrification done, targets 100% electrification by December 2023. Rail safety systems to see step-up spends. Metro & RRTs projects will continue to be focus areas (Kochi, Chennai, Bangalore, Nagpur, Nashik.

Positive KEC, Kalpataru Power, L&T, Siemens, ABB India

Bharat Mala projects: About 3800 km to be constructed in FY21 and 8500 km will be awarded in FY22. Enhanced outlay to Rs 1.180 lakh crore (Rs. 82000 crore in FY21BE) for ministry of road transport.

Positive Cummins, L&T

Capital outlay on defence services (Central Sector Schemes/Projects) for FY2021-FY2022 announced at Rs. 1,35,061 crore (up 0.4% y-o-y) vs. Rs. 1,34,510 crore in FY2020-FY2021 (RE)

Neutral L&T, Bharat Electronics

Customs duty on Copper Scrap lowered from 5% to 2.5%

Positive Havells, Voltas, Polycab, KEI, Blue Star, Finolex Cables

Budget impact: PositiveSector view: Positive (Preferred picks: Coromandel International and PI Industries)

Agri and fertilisers

Agri infra fund and agri credit: Agri infra fund increased to Rs. 40,000 crore (versus Rs. 30,000 crore in the previous year) and agri-credit target of Rs. 16.5 lakh crore.

Positive To benefit farmer and thus positive for agri-commodity players like UPL, Coromandel international, Dhanuka Agritech

Fertiliser subsidy: Fertiliser subsidy provision has been increased sharply to Rs. 133,947 crore for FY2021 (88% higher than earlier budget estimate of Rs. 71,309 crore. However, for FY2022 fertiliser subsidy provision is at Rs. 79,530 crore.

Neutral Neutral for Gujarat Narmada Valley Fertilizers & Chemicals Ltd, Rashtriya Chemical and Fertilizers (GNFC), National Fertilisers Limited, Madras Fertilisers as subsidy provisions for FY2022 seems reasonable given sharply higher provisioning in FY2021.

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Budget impact: NeutralSector view: Positive (Preferred picks: HUL, Dabur India, ITC and Tata Consumer Products)

Consumer Goods

Cigarettes: No hike in tax rates - It was anticipated tax rate on cigarettes will be increased by 10-15% in Union Budget 2021-22. However, the Budget skipped a tax rate hike on cigarettes and avoided imposing any additional cess on tobacco and tobacco products.

Positive In Union Budget 2020-21 weighted average tax rate on cigarettes was ~9%, which was passed on by ITC through price hikes. With no increase in the tax rate on cigarettes in the Budget 2021-22, we should not expect any price hikes in the cigarette portfolio in the near term. This will help sales volumes recover in the coming quarters.

Increase in Outlay under AYUSH to Rs. 2970 crore from Rs. 2,122 crore earlier

Positive Higher allocation under AYUSH will be positive for companies such as Dabur India and Emami

Customs duty on alcoholic beverages (including scotch, brandy, etc) has been reduced to 50% and AIDC of 100% has been imposed. So net-net there is no increase in the duty which was 150% earlier.

Neutral This will act as a neutral for liquor and alcoholic beverage companies as there is no increase or deduction on actual duty rate on imports of liquor/alcoholic beverages.

Allocation for rural development: The government continues to focus on farm sectors and has increased allocation to rural sector under various schemes such as agriculture Infrastructure Fund, Micro Irrigation corpus, etc.

Positive Rural demand for consumer goods is ahead of urban mainly on account better agri production and higher stimulus provided by the government. Further allocation under infra and micro irrigation scheme will give a boost to agri economy. Positive for HUL, Dabur India and Emami

Budget impact: NeutralSector view: Positive (Preferred picks: KPR Mill, Arvind and Titan)

Consumer Discretionary

Jewellery - Custom duty on Gold & Silver rationalized from 12.5% to 7.5%. However Agriculture & Infra Development Cess (AIDC) of 2.5% was imposed. Customs duty on precious metals such as platinum and palladium cut by 2.5% to 10%.

So overall reduction is 2.5% on gold, silver & precious metals.

Positive The deduction in customs duty on gold & silver is in line with demand for Jewellery industry in the backdrop of rising gold prices. The overall cut of 2.5% will be beneficial for large branded players such as Titan.

Textile - Mega investment textile park; seven textile parks will be established over three years to make the sector export competitive.

Positive Focus on making Indian textile competitive in the exports market will be positive for garment/textile exporting companies such as KPR Mill, Arvind and Welspun India, etc.

Budget impact: PositiveSector view: Neutral (Preferred picks: Triveni Engineering, Balrampur Chini and Dhampur Sugar Mills)

Sugar

Allocation under scheme for creation and maintenance of buffer stock of 40 lakh metric tonnes of sugar from Rs. 500-600 crore

Positive Government is supporting sugar mills to export sugar in the global markets. This is positive for large sugar companies such as Balrampur Chini, Dhampur Sugar Mills and Triveni Engineering.

Allocation of Rs. 2000crore to providing assistance to sugar mills on export of sugar (introduced for the first time).

Budget impact: PositiveSector view: Positive (Preferred picks - UltraTech, Shree Cements, The Ramco Cements and JK Lakshmi Cement)

Cement & Cement Products

Higher allocation to MoRTH (up by 16%), NHAI (up by 7.3%), Smart cities (up 90%), Pradhan Mantri Gram Sadak Yojana (up 9.4%) vis-à-vis FY21RE. Incentives for affordable housing have been extended by one year on additional tax exemption of Rs. 1.5 lakh for individuals and tax holiday for developers.

Positive UltraTech, Shree Cement, The Ramco Cements, JK Lakshmi Cement


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Budget impact: PositiveSector view: Positive (Preferred picks: L&T, KNR Constructions, Ashoka Buildcon, Sadbhav Engineering, PNC Infratech and JMC Projects)

Infrastructure

Proposal to set up a Development Financial Institution. The government has provided a sum of Rs. 20,000 crore. Lending portfolio of at least Rs. 5 lakh crore targeted over three years.

Positive L&T, Ashoka Buildcon, Sadbhav Engineering, PNC Infratech, JMC Projects and KNR Constructions.

Outlay towards Ministry of Road Transport and Highways stands at Rs. 1,18,101 crore (up 16%) for FY22 as compared to FY21 RE. Outlay towards National Highways Authority of India (NHAI) is at Rs. 1,22,350 crore (up 7.3%) for FY22 as compared to FY21 RE.

Positive Ashoka Buildcon, Sadbhav Engineering, PNC Infratech, JMC Projects and KNR Constructions.

Proposal for relaxation of some conditions for 100% tax exemption on interest, dividend and capital gains income for sovereign wealth funds of foreign governments in respect of investments made by them in infrastructure and other notified sectors before March 31, 2024 with a minimum lock-in period of three years. Proposal to make notified Infrastructure debt funds eligible to raise funds by issuing tax efficient zero coupon bonds.

Positive L&T, Ashoka Buildcon, Sadbhav Engineering, PNC Infratech, JMC Projects and KNR Constructions.

Pradhan Mantri Gram Sadak Yojana outlay for FY21 stands at Rs. 15,000 crore, up by 9.4% as against FY20RE


By March 2022, to award 8,500 km and complete an additional 11,000 km of national highway corridors. National Highway works of Rs. 2.27 lakh crore covering 6,575 km in Tamil Nadu, Kerala, West Bengal and Assam are being planned.


Five operational roads with an estimated EV of Rs. 5,000 crore to get transferred to NHAI InvIT. Asset monetisation programme to be rolled out including NHAI operational toll roads.


Debt financing of InvITs by foreign portfolio investors will be enabled by making suitable amendments in relevant legislations. Dividend payment to InvIT exempt from TDS. Advance tax liability on dividend income from InvIT shall arise only after declaration/payment of dividend.

Positive IRB InvIT

Budget impact: NeutralSector view: Neutral (Preferred pick – TCI Express, Mahindra Logistics, Gateway Distriparks)

Logistics

Proposals to undertake future dedicated freight corridor projects namely East Coast corridor from Kharagpur to Vijayawada, East-West Corridor from Bhusaval to Kharagpur to Dankuni and North-South corridor from Itarsi to Vijayawada. Sonnagar – Gomoh Section (263.7 km) of Eastern DFC will be taken up in PPP mode in 2021-22. Gomoh-Dankuni section of 274.3 km will also be taken up in short succession.

Positive Container Corporation, Gateway Distriparks

Railway Capital Outlay remained at elevated level at Rs. 2.1 lakh crore.

Neutral Container Corporation of India, Gateway Distriparks

Turnover threshold limit for audit of micro, small & medium enterprises (MSMEs) increased to Rs. 10 crore from Rs. 5 crore (for less than 5% of business in cash transactions).

Positive TCI Express, as almost half of its revenue is generated from MSME sector.


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Budget impact: PositiveSector view: Positive (Preferred picks: Reliance Industries, IGL, MGL, Gujarat Gas, Petronet LNG)

Oil & Gas

Asset Monetization dashboard: Government has proposed to monetise core pipeline infrastructure of GAIL, IOCL and HPCL.

Positive GAIL (India), IOCL and HPCL as the move would help in value-unlocking

Add new districts to CGD network and independent gas transport system: Plan to add 100 new districts for city-gas distribution

Positive Indraprastha Gas, Mahanagar Gas, Gujarat Gas and GAIL as it would mean a manifold increase in gas sales volumes

Introduction of farm cess on petrol and diesel gets largely offset by lower excise duty: The government proposed to introduce farm cess of Rs. 2.5/Rs. 4 per litre on petrol/diesel but also lowers basic excise duty on petrol to Rs. 1.4/litre (versus Rs. 4.16/litre currently) and on diesel to Rs. 1.8/litre (versus Rs. 4.83/litre currently)

Neutral Neutral for IOCL, BPCL and HPCL

Fuel subsidy provision: A sharp 66% cut in fuel subsidy provision to Rs. 12,995 crore for FY2022 (versus Rs. 38,790 crore for FY2021) despite a sharp recovery in crude oil price to $55/bbl.

Neutral Despite lower subsidy provision, we do see any impact on either upstream PSUs (ONGC and Oil India) and OMCs (IOCL, BPCL and HPCL) given the DBTL for LPG subsidy to customers.

A gas pipeline project will be taken up in Union Territory of Jammu & Kashmir.

Positive GAIL & GSPL

Cut in custom duty on naphtha to 2.5% Marginally Positive

Reliance Industries and IOCL

Disinvestment: Government has set disinvestment target of Rs. 1.75 lakh crore (including strategic divestment of stake in BPCL).

Positive Privatisation of BPCL could re-rate entire OMC pack (IOCL, BPCL and HPCL).

Budget impact: PositiveSector view: NA

Power

Power distribution scheme: Reforms-based result-linked power distribution sector scheme with an outlay of Rs. 3,05,984 crore over five years. To provide support to discoms for pre-paid smart metering, feeder separation and upgradation of systems.

Positive Positive for NTPC Limited and Power Grid Corporation of India Limited as it would improve their balance sheets with likely reduction in dues from discoms.

Focus to remove monopoly in power distribution: A framework will be put in place to give consumers alternatives to choose from more than one discom.

Positive Implementation of these reforms will be important for power sector as the same would lead to privatisation of discoms. Positive for private players like Tata Power, Adani Power and CESC.

Monetisation of power transmission assets: Power transmission assets worth Rs. 7000 crore transferred to InvIT

Positive Power Grid Corporation of India as it is undergoing sale of TCBC assets through creation of power infrastructure InvIT.


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Budget impact: NeutralSector view: NA

Metals & Mining

Lowered custom duty on certain steel products: Government has proposed to lower custom duty on certain steel products (semis, flats, longs, stainless steel) to 7.5% from 10%/12.5% earlier.

Neutral Neutral for steel players like JSW Steel, Tata Steel, SAIL and Jindal Steel & Power as there is not much imports of long steel products.

Revoking anti-dumping duty (ADD) and countervailing duty (CVD) on certain steel products: Revoking provisional countervailing duty (CVD) on imports of stainless steel from Indonesia, temporarily revoking CVD on imports from China and anti-dumping duty on certain hot rolled and cold rolled stainless steel flat products.

Negative Negative mainly for Jindal Stainless Steel and Jindal Stainless Hisar

Scrappage policy and infrastructure investment (DFI to be set-up for infra funding of Rs5 lakh crore).

Positive Positive for steel sector as the infra push bodes well for higher steel demand.

Custom duty on copper scrap lowered to 2.5% from 5% earlier.

Neutral Neutral for Hindalco Industries and Vedanta Limited (do not produce much of copper scrap as of now)

Budget impact: PositiveSector view: Positive (Preferred Picks : Aurobindo, Cipla, Divis Laboratories, Laurus Labs, Granules, Sanofi India, Abbott India, Strides Pharma Science)

Pharmaceuticals/ Healthcare

Introduced AtmaNirbhar Swasth Bharat Yojana in addition to National Health Mission with an outlay of Rs. 64,180 crore over 6 years, towards strengthening healthcare infrastructure.

Positive Proceeds to be utilised towards setting up healthcare centers, public health labs and critical care blocks in hospitals. Positive for - Metropolis Healthcare, Thyrocare Technologies, Dr. Lal Pathlabs, Apollo Hospitals, Fortis Healthcare

Allocation of Rs. 35,000 crore towards the COVID-19 vaccine in FY22

Positive This could benefit pharmaceutical companies such as Cadila Healthcare, Dr Reddys which are developing COVID-19 vaccines.

Total health budget outlay for FY2022 is estimated at Rs. 2.23 lakh crore as against Rs. 94,000 crore in FY2021

Positive Positive for the sector at large as it could open up new growth avenues for the companies in healthcare / pharmaceutical space.

Budget impact: PositiveSector view: Positive (Preferred picks: Kajaria Ceramics, Century Plyboards, Supreme Industries, Astral Poly Technik, Asian Paints, Pidilite Industries)

Real Estate/ Building materials

Extension of one more year for claiming additional deduction on loan interest payments of up to Rs. 1.5 lakh for loans sanctioned on before March 31, 2021 to March 31, 2022.

Positive DLF, Oberoi Realty, Prestige Estates, Brigade Enterprise, Godrej Properties, Ashiana Housing among others.

Tax holiday on profits earned by developers of affordable housing project approved by March 31, 2021 extended by one more year. Tax exemption for notified affordable rental housing projects

Positive DLF, Oberoi Realty, Prestige Estates, Brigade Enterprises, Godrej Properties, Ashiana Housing among others.

Debt financing of REITs by foreign portfolio investors will be enabled by making suitable amendments in relevant legislations. Dividend payment to REIT exempt from TDS. Advanced tax liability on dividend income from REIT shall arise only after declaration/payment of dividends.

Positive Embassy Office Parks REIT, Mindspace REIT

Allocation towards Smart Cities increased to Rs. 6450 crore for FY22, up 90% compared to FY21 RE.

Positive Kajaria Ceramics, Century Plyboard, Supreme Industries, Astral Poly Technik, Pidilite Industries, Asian Paints.

Jal Jeevan Mission (Urban) to be launched and implemented over five years with an outlay of Rs. 2.87 lakh crore.

Positive Beneficial for Supreme Industries, Astral Poly Technik, Pidilite Industries, Asian Paints.

Source: Budget documents, Sharekhan Research


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Budget Reciepts

Gross tax revenue and Tax as % of GDP Rs. ‘00 cr

Trends in Tax Receipts (% of GDP)

Budget Payments

Fiscal deficit movement and FD as % to GDP Rs. ‘00 cr

Net Receipts of the Center (Rs in lakh crore)

Source: Budget documents, Sharekhan ResearchNote: Total receipts are inclusive of States’ share of taxes and duties



Source: Budget documents, Sharekhan ResearchNote:- Total expenditure is inclusive of the States’ share of taxes and duties.



Budget in Charts

Non-Debt Capital

5%

Borrowing & other

liabilities36%

Corporation tax

13%

Income tax14%

Customs3%

Union Excise Duties

8%

GST & other tax

15%

Non-Tax revenue

6%

Centrally sponsored Schemes

9%Central Sector

Schemes13%

Interest Payments

20%

Defence8%

Subsidies9%

Finance Commission &

other10%

States share of tax duties

16%

Pensions5%

Other Expenditure

10%

10.2 10.4 10.1 10.0 10.6 11.2 11.2 10.99.8 9.9

5.6 5.6 5.6 5.5 5.4 5.6 5.9 65.1 5.0

4.5 4.8 4.4 4.4 5.25.6 5.3 4.9 4.7 4.9

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

2016

-17

2017

-18

2018

-201

9

Re 2

020-

21

BE21

-22

Gross Tax Receipt Direct Tax Indirect Tax

9.4 11 12.4 13.2 13.6 13.515.5

2.52.7

1.92.4 3.3 2.1

2.4

0.60.7 1.2

1.10.7

0.5

1.9

2015-16 2016-17 2017-18 2018-19 2019-20 RE20-21 BE21-22

Net Center's Tax revenue Non Tax Revenue Non Debt Capital Receipt

8.0

9.0

10.0

11.0

12.0

13.0

1,000

5,000

9,000

13,000

17,000

21,000

25,000

29,000

FY16

FY17

FY18

FY19

FY20

FY21

BE

FY21

RE

FY22

BE

Gross Tax Revenue Tax/GDP ratio (%)

-1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0

-2,000 4,000 6,000 8,000

10,000 12,000 14,000 16,000 18,000 20,000

FY16

FY17

FY18

FY19

FY20

FY21

BE

FY21

RE

FY22

BE

Fiscal Deficit (LHS) FD/GDP ratio (RHS,%)

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