BUDGET FY20 – VERY BIG ON RHETORIC

For the first Budget ever by a full time woman Finance Minister, Nirmala Sitharaman was pretty passionate with her speech. She also displayed her linguistic abilities, quoting in Sanskrit, Tamil, Urdu and Hindi and maybe a few words of Gujarati. She was so emphatic and “into it,” the speech, punctuated with constant repeats, was an interesting watch.

But what about the content? After listening to so much, you sit down quiet for a moment and think. Well, the Budget was about a lot of things but little about specifics. The first half hour and every time there was an opportunity, sounded more like a political campaign speech. Maybe somebody needed to tell her that the elections were already won!

The gross disappointment for one and all, notwithstanding the 0.75% super rich of India, was that they were not rewarded with any tax cuts. The huge milieu of middle class, which voted back Modi with a thumping victory were hoping for some gratitude through a tax cut  but got zilch. Yes, one can now buy an affordable house but will have to pay an additional cess of Re.1/litre of petrol/diesel. When price of crude is actually down, we in India, in one form or the other are paying more. So irrespective of whether crude is high or low, we always pay more. Maybe that’s a good ground for electric vehicles (EVs) which had sops galore in this Budget.

The Budget was more about the broader macro benefits – Bharat Mala. UDAN, Sagarmala, industrial corridors, all will continue and she merely made a mention, highlighting the achievement till now. There was a lot of encouragement for startups too. The FM has also mooted the proposal to bring down promoter holding for listed companeis from current threshold of 75% to 65%. This is indeed ironic as most of the PSUs continue to hold over 75%. This move, if approved will not go down well with MNCs and promoter owned companies. In fact this could lead to a lot of MNCs opting for delisting and flight of quality companies from our bourses will not be a good thing. Why this need to bring down the threshold limit to 65% and what’s the guarantee this 65% will be the last?

The banks are to be recapitalized to the tune of Rs.70,000 crore this fiscal and for NBFCs too there are sops but it is the housing finance companies which will be laughing all the way to this bank.

The super-rich are being taxed more and that is better than adding another new tax like wealth tax or inheritance tax. And well, they comprise of less than 1% of India’s total population so it does not affect the masses as such. But understating income and increased flow of money to safer havens abroad will only go up.

As usual, there is a lot for the farmer and education is being given a fillip. Cigarette makers are being punished while Apple is a big beneficiary. With plans mooted to ease norms for single brand retailing, the likes of Xiaomi, Apple and OnePlus will now open their own stores in India.

The question again – so how was the Budget? It’s a mixed bag and maybe we will be able to see the benefits only in the longer run. As of now, for the common man on the street, Sitharaman did not really give much to ease his/her living in the short run.  

A quick look at the Budget highlights:

Fiscal deficit target for FY20 at 3.3% (cut from 3.4%)

To raise part of its gross borrowing requirements via foreign currency borrowing

Seeks higher dividend payout from RBI at Rs.90,000 crore

Rs.10,000 crore allocation to FAME II scheme – Electric vehicles (EVs) booster

To increase FDI cap in media, aviation, animation, insurance

100% FDI in single brand retail, insurance intermediary

Study in India – New education policy

Labour laws – streamline multiple labour laws in 4 categories codes

FY20 divestment target increased to Rs.1,05,000 cr from Rs. 90,000 in the interim budget and Rs. 80,000 crore in FY19 (Rs. 85,000 cr achieved)

To Reduce govt holding in listed stocks to 75%, Reinitiate strategic disinvestment of Air India, 51% govt holding (along with holding of public financial institution like LIC) in public sector entities to be evaluated on case to case basis.

Easy of Tax compliance, with assesses not facing harassment:

• Inter-changeability of PAN & Aadhar (can file IT return with Aadhar card alone)
• Pre-filling of IT returns – encourage filing, improve accuracy of returns & save time.
• E-assessment launched - faceless assessment in electronic mode

Cashless Economy: To discourage business payments in cash, TDS of 2% on cash withdrawal above Rs.1 cr in 1 bank account, in one year.

Digital Push: Business over Rs.50 cr to offer digital modes of payment to customers – business & customer waived transaction charge which will be borne by bank/intermediary.

Social stock exchange to be launched under SEBI’s ambit to enable capital raising for social enterprises – while this appears good on paper, it may become another Mahila bank scheme which becomes difficult to practice / make sustainable.

Housing Finance companies to come under RBI purview from NHB currently – is this a pre-cursor to consolidation action among banks/HFCs/NBFCs?

Enhanced effective tax rate by additional surcharge on individuals earning income between Rs.2-5 cr and 5cr+ by 3% & 7% respectively – this is being viewed as a substitute to inheritance tax and wealth tax. .

Budget focus on Infra, keeping ‘Ease of Living’ for Gaon, garib, kisan in mind –

• By 2022, every single rural family to have electricity & clean cooking facility
• Under Ujala scheme - 35 cr LED bulbs distributed resulting in cost savings of Rs. 18,341 Cr annually
• Rs.50 lk cr investment for railways over 2019-30 i.e. Rs.4.2 lakh cr /yr
• Railway station modernisation to be launched

Mega manufacturing plants by foreign cos in sunrise and technology sectors like solar, batteries, computer server, laptop, PVC, semi-conductors etc to get investment linked tax benefits under section 35AD – big boost to ‘Make in India’ & job creation.

Impact of key measures on listed stocks

(green indicates positive while red indicates negative impact)

Rs.100 lakh crore investment in infrastructure over next five years – positive for cement stocks such as Ultratech, ACC, Ambuja, Shree Cement as 1/3^rd demand for cement come from infra. Also construction and EPC firms like L&T, NCC etc. stand to gain.

Rs. 70,000 cr re-capitalisation of PSU banks in FY20 – positive for PSU banks like Allahabad Bank, Corporation Bank, Bank of India, Bank of Maharashtra as these banks recently came out of PCA and will need capital for growth.

Consolidation in PSU banks to continue as their number reduced by 8 – may be negative for bigger banks like SBI if merger of a weak bank is forced onto it.  

Widen lower corporate tax rate: 25% tax rate for companies with Rs.250 crore revenue extended to corporates with topline of upto Rs.400 crore – will not have much of an impact on the listed universe as the increase is too little, but many auto component makers like Sundaram Brake Lining, Talbros Engineering, Triton Valves, Yuken India may witness surge in bottomlines as tax outgo reduces, given the slim margins they operate on. Likewise, small companies in other sectors like Indo National, Matrimony etc.will also witness augmented PAT on lower tax burden.

1,25,000 km rural roads to be upgraded (69 km/day) under PM Gram Sadak Yojana (phase 3) for Rs. 80,250 cr investment over 5 years (i.e. 16,000 cr per yr) – key beneficiaries PNC Infra, IRB Infra, KNR Construction, Ashoka Buildcon

Sops for women self help groups (SHP) – like extending interest subvention programme to all districts, womes SHG with Jan Dhan account allowed Rs. 5,000 crore overdraft, 1 women in the self-help group to be eligible for loan upto 1 lakh under the Mudra scheme - Positive for MFIs like Bharat Financial (now merged with Indusind Bank), Bandhan, Ujjivan, Equitas.

PM Awas Yojana (Housing for All by 2022) – Grameen: Target fast-tracked to 1.95 cr houses for FY20 & FY21 put together (looks achievable as number of days to build new house down from 314 days in FY16 to 114 days now). During FY16-18, 38 lakh homes constructed vs 51 lakh targeted – positive for rural housing finance companies like LIC Housing Fin, GIC Housing Fin, Can Fin Homes, Repco Home

Additional deduction on interest of Rs. 1.5 lakh (Rs. 2 lakh existing, so Rs. 3.5 lakh now) for house value upto 45 lakh on loan taken till 31-3-20 – positive for real estate players in the affordable housing domain like Arihant Superstructures, DB Realty, Mahindra Lifespaces etc.

Rs.350 cr fund for 2% interest subvention for GST registered MSMEs for quick disbursal of online loans upto Rs. 1 lakh – positive for NBFCs/Banks lending to MSMEs like IDFC First, RBL Bank, Federal Bank, Cholamandalam Investment.

Basic customs duty increased on tiles, marble slabs – positive for domestic players like Nitco, Kajaria Ceramics, HSIL, Orient Bell, Somany Ceramics, Asian Granito, Cera Sanitaryware.

Custom duty increase on gold from 10% to 12.5% - positive for gold loan financers like Muthoot Finance and Manappuram as loan amount disbursed increases for the same asset but negative for jewellery stocks like Titan, PC Jewellers as sentimental dent on sales.

To encourage re-insurance, net owned funds required to start re-insurance business to reduce from Rs. 5,000 cr to Rs. 1,000 cr – negative for GIC Re as foreign reinsurers will deepen their local presence

Special Additional Excise duty and Road and Infrastructure Cess each by one rupee a litre on petrol and diesel i.e. hike of Rs. 2 per litre on both the fuels – negative for logistics companies such as VRL Logistics, Gati, Blue Dart as direct operating costs rise. Cement sector also impacted adversely by higher freight charges.

EV push gets stronger: Rs. 1.5 lakh interest subvention for loan taken by buyer + GST concession for manufacturer – sentimental negative for Bajaj Auto, TVS Motor, Hero who are opposing fast-paced EV adoption.