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Union Budget Review 2019-20 Union Budget Review 2019-20 Investment friendly Budget...

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Union Budget Review 2019-20

Union Budget Review 2019-20

Investment friendly Budget...

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Union Budget 2019-20 was an “investment friendly Budget” wherein the long term plan for attaining US$5 trillion GDP by 2025 was laid out, to create a conducive ecosystem withfocus on overall demand creation, raising intellectual and financial capital and labour. The shift from traditional template of focusing more on headline revenue and expendituresegment to a segmental detailed plan of action was a welcome change and reflected as an apt mix of reform focus, pragmatic and inclusive strategic intent. Other key positiveswere containing fiscal deficit target to 3.3% of GDP (vs. 3.4% built in interim Budget) and much needed higher recapitalisation allocation of ~| 70000 crore for PSU banks.Moreover, some long term sustainable efforts, especially in terms of focus on EV manufacturing and providing tax relief for the same, could go a long way in containing oil & oilproduct import bill, which is currently at US$141 billion.

The government is looking to push the investment on three broad themes: i) sustainable living – Promotion of electric vehicles & renewable energy, ii) rationalising duty structureto promote Make in India and iii) Ease of Living through higher infrastructure spending. On the EV front, the government proposes to incentivise purchase of electric vehiclethrough income tax exemption on financing costs as well as provide tax incentive for establishing quite essential Li-On battery manufacturing unit. On the Make in India front, thefocus is on rationalisation of duty structure through increased custom duty on finished goods and lowering custom duty on key raw material, which are in short supplydomestically. On the infrastructure front, the government has set an ambitious plan of annual infra spend of | 20 lakh crore p.a. vs. the present run rate of | 7-8 lakh crore p.a.

Developing intellectual capital by increasing the spends towards the higher education and skill development, the government is preparing the youth to enhance their skills inlanguage training, Artificial Intelligence (AI), Internet of Things, Big Data, 3D Printing, Virtual Reality and Robotics.

The government has proposed to include shareholding of government controlled companies like LIC in calculation of 51% government stake. This move has the potential to raisemoney to the extent of ~ | 289000 crore in listed PSU companies, which can be utilised for financing of the massive infrastructure investment outlays. The government has decidedto start raising a part of its gross borrowing programme in external markets in external currencies. It is likely to improve the demand-supply dynamics in the government securitiesmarket thereby providing space to private sector to tap debt markets for their capacity expansion plans. This we believe will lead to a change in Modus Operandi for financinginfrastructure.

With the government proposal to raise public shareholding threshold from 25% to 35% in listed companies, the potential amount that can be raised from private companies couldbe as high as | 2 lakh crore. While the move is aimed at wider public participation in equities, the overall supply may have a near term overhang. We expect Sebi to implement itin a phased manner.

Key Performance Highlights of the Budget 2019-20

Budget Preview 2019-20E: “Investment friendly Budget”…

• Factoring in the moderation in economy, the government has lowered its GST and direct tax collection target by | 98000 crore and | 51000 crore, respectively. However, thisshortfall is likely to be met via higher-than-expected budgeted excise (duty hike & infra cess on petrol and diesel) and customs duty (to promote “Make in India” initiative) to thetune of | 40000 crore and | 10000 crore, respectively. As anticipated, non tax revenues like disinvestment proceeds (| 15000 crore), higher dividend income ( | 27500 crore) andlower share of states in taxes (| 36000 crore) will account for the remainder of the shortfall in GST and direct tax revenues

• Capital expenditure has been pegged at | 338570 crore. However, at the same time respectable allocation has been made to infrastructure segments like railways (up 24%),housing (15%), defence (8.7%). Also, the decision of the government to borrow from foreign sources for funding deficit is a clear indication that it does not want to crowd outprivate sector from raising financial resources so as to fund capex investment. The IEBR expenditure has been pegged at | 537000 crore for FY20BE. The IEBR support to segmentslike roads (| 75000 crore), railways (| 94000 crore ) and introduction of PPP model of infra asset creation is a clear indicator that the road to $5 trillion economy will be viainfrastructure creation

July 5, 2019 ICICI Securities Ltd. | Retail Equity Research 2

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July 5, 2019 ICICI Securities Ltd. | Retail Equity Research 3

Fiscal deficit contained at 3.3% despite challenges…

Particulars FY15A FY18 FY19RE YoY (%) FY20IE* YoY (%) FY20BE YoY (%) Comments

Direct Taxes 1001974 1200000 19.8 1380000 15.0 1335000 11.3

Indirect Taxes & Others 917034 1048175 14.3 1172131 11.8 1126195 7.4

Gross Tax Revenues 1919008 2248175 17.2 2552131 13.5 2461195 9.5

Less: State Shares 676520 763769 12.9 847085 10.9 811613 6.3

Net Tax revenue 1242488 1484406 19.5 1705046 14.9 1649582 11.1

Non Tax Revenues

Dividend 91361 119265 30.5 136071 14.1 163528 37.1

Economic services 61369 89654 46.1 94662 5.6 104729 16.8

Others 40014 36357 (9.1) 41914 15.3 44922 23.6

Total Revenue Receipts 1435232 1729682 20.5 1977693 14.3 1962761 13.5

Capital Receipts

Recovery of Loans 15633 13155 (15.9) 12508 (4.9) 14828 12.7

Disinvestments 100045 80000 (20.0) 90000 12.5 105000 31.3 The disinvestment target optically looks high but given the previous track record over FY17-19, we

expect the target to be achievable

Total 115678 93155 (19.5) 102508 10.0 119828 28.6

Total Receipts 1550910 1822837 17.5 2080201 14.1 2082589 14.2

Scheme Expenditure: 873233 1041645 19.3 1187859 14.0 1202405 15.4

On Revenue Account 627132 765470 22.1 887374 15.9 900204 17.6

On Capital Account 246100 276175 12.2 300486 8.8 302201 9.4

Exp other than Schemes: 739790 828020 11.9 931279 12.5 923473 11.5

On Revenue Account 722751 787571 9.0 895472 13.7 887105 12.6

On Capital Account 17039 40449 137.4 45493 12.5 36368 (10.1)

Interest payments 528952 587570 11.1 665061 13.2 660471 12.4

Total Expenditure 2141975 2457235 14.7 2784200 13.3 2786349 13.4

Fiscal deficit 591065 634398 7.3 703999 11.0 703760 10.9

Primary Deficit 62113 46828 (24.6) 38938 (16.8) 43289 (7.6)

GDP estimates 16784679 18840731 12.2 21007439 11.5 21100607 12.0

Fiscal deficit as % of GDP 3.5% 3.4% 3.4% 3.3%

* Estimates as per Interim budget

Government Revenue & Expenditure

On the dividend front, public sector enterprises and RBI payouts are at ~| 57487 crore and ~|

106042 crore, respectively, for FY20E

The government has pegged a nominal GDP growth of 12% for FY20BE, which implies real GDP

growth of 8%

Factoring in the moderation in economy, the government has lowered its GST and direct tax

collection target by | 98000 crore and | 51000 crore. However, this shortfall is likely to be met via

higher-than-expected budgeted excise and customs duty to the tune of | 40000 crore and | 10000

crore, respectively. As anticipated, non tax revenues like disinvestment proceeds (| 15000 crore),

higher dividend income (| 27500 crore) and lower share of states in taxes (| 36000 crore) will

account for the remainder of the shortfall in GST and direct tax revenues

Capital expenditure has been pegged at | 338570 crore but at the same time respectable allocation

has been made to infrastructure segments like railways (up 24%), housing (15%), defence (8.7%).

Also, the decision of the government to borrow from foreign sources for funding deficit is a clear

indication that government does not want to crowd out private sector from raising financial

resources to fund capex investment

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July 5, 2019 ICICI Securities Ltd. | Retail Equity Research 4

Investment push for sustainable living, indigenisation and Ease of Living

Ease of LivingMake in IndiaSustainable Living

The government has planned forTotal capex worth | 8.76 lakh crore inFY20 - ~| 3.4 lakh crore grossbudgetary support and | 5.38 lakhcrore through Internal ExternalBudgetary Resources (IEBR)

The key highlights of budget oninfrastructure spending:

• Launch of Pradhan Mantri GramSadak Yojana Phase-III underwhich 1,25,000 km road lengthenvisaged to be upgraded atestimated | 80,250 crore

• Proposed additional deductionof | 1,50,000 (total | 3,50,000)for interest on affordablehousing (ticket size: | 45 lakh)

• in the second phase of PMAY-G,1.95 crore houses are expectedto be completed vs. 1.54 crorehouses in previous five years

Electric Vehicles Renewable Energy

• To meets its NationallyDetermined Contribution (NDC) under Paris Agreement,India is undertaking one ofthe world’s largest renewableenergy expansionprogrammes in the world

• India is aiming to add 175 GWof renewable energy capacityby 2022 and ~500 GW ofrenewable capacity by 2030

• It entails investment ofUS$330 billion till 2030implying annualisedinvestment of US$30 billionper year over the next decade

• Income tax exemptionsunder Section 35 AD ofthe Income Tax Act formega-manufacturingplants in sunrise sectorslike lithium storagebatteries, etc

• Government aims tocreate manufacturingcapacity of 50 GWhr in EVbattery space at aninvestment of US$50billion by 2025

• Personal income taxexemption up to | 1.5lakh on interest paid onpurchase of electricvehicle

In order to achieve net zero import,the government aims to promotedomestic manufacturing throughrationalisation of duty structure. Inthat regards, Union Budget 2019-20proposes a few key changes:-

• Hike in various finished productssuch as auto ancillary parts (250to 500 bps) and electronicproducts (500 to 1000 bps)

• Increasing the ambit of lower corporate tax rate (25%) for MSME sector covering 99.3% of all companies in India

• Interest rate subsidy of 2% for GST registered MSMEs, Budget allocation at | 350 crore

The government is looking to push the investment on three broads themes: i) sustainable living – Promotion of electric vehicles & renewable energy, ii) rationalising duty structure topromote Make in India and iii) Ease of Living through higher infrastructure spending. On the EV front, the government proposes to incentivise purchase of electric vehicle throughincome tax exemption on financing costs as well as provide tax incentive for establishing quite essential Li-On battery manufacturing unit. On the Make in India front, the focus is onrationalisation of duty structure through increased custom duty on finished goods and lowering custom duty on key raw material, which are in short supply domestically. On theinfrastructure front, the government has set an ambitious plan of annual infra spend of | 20 lakh crore per annum vs. the present run rate of | 7-8 lakh crore per annum.

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Under Phase-II of FAME Scheme, the government has proposed an outlay of | 10,000 crore for three years to encourage faster adoption of electric vehicles by way of offering upfrontincentive on purchase of electric vehicles and also by establishing the necessary charging infrastructure for electric vehicles. The emphasis is to provide affordable & environmentfriendly public transportation options

To make electric vehicle affordable to consumers, the government has proposed to provide additional income tax deduction of | 1.5 lakh on interest paid on loans taken to purchaseelectric vehicles. This amounts to a benefit of around | 2.5 lakh over the loan period to taxpayers who take loans to purchase electric vehicle

Approximately 35 crore LED bulbs have been distributed under UJALA Yojana leading to cost saving of | 18,341 crore annually. The government has proposed to use the approach ofmission LED bulb method to promote the use of solar stoves and battery chargers in the country

According to BEE study, overall energy saving has resulted in cost saving of | 53000 crore in FY18 and contributed in reducing 108.3 million tonnes of CO2 emission. The contribution islargely from three major programmes PAT (perform, achieve, trade), Ujala and standard & labelling programme

The overall size of the energy efficiency market in India is estimated to be US$22.81 billion [Energy Efficiency Services (EESL’s Business Plan, 2016-2021)], which could reducesignificant amount of CO2 emission. Realising the potential, the government with BEE in the lead has undertaken a number of schemes for promoting energy efficiency in varioussectors across India

Contribution by programme-type in reduction in CO2 emission

Endeavour to address environmental issues with focused approach

July 5, 2019 ICICI Securities Ltd. | Retail Equity Research 5

24%

34%

37%

5%

UJALA PAT Standard & Labelling Others

29%

22%

45%

4%

UJALA PAT Standard & Labelling Others

Contribution by programme-type in cost savings of | 53000 crore

Source: Economic Survey 2019

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July 5, 2019 ICICI Securities Ltd. | Retail Equity Research 6

Focus on making India Inc job creators, national wealth creators

Budget allocation towards jobs and skill development has seen more than 2.5x increase in last 2 years

Source: RBI, Budget documents, PIB, ICICI Direct Research

The government is planning to bring in a New National Education Policy to transform India’s highereducation system to one of the best global education systems. The government has announced aprogramme ‘Study in India’ and aims to create world class institution. To this end, it has allocated anamount of | 400 crore that has been provided for FY20, more than three times the revised estimates forthe previous year. There has been continuous focus on improving digital skills.

• In the last two Budgets, the focus of this government has been on increasing thecreation of intellectual capital by increasing spends towards higher education andskill development

• With these measures, the government is preparing the youth to enhance their skillsin language training, artificial intelligence (AI), internet of things, big data, 3Dprinting, virtual reality and robotics. These skills are esteemed highly in India &overseas. Moreover, it also fetches higher remuneration

• Moreover, it is also encouraging start-ups by giving them an extended period of taxrebates, reduced labour laws (from 44 to four) and financial assistance. In thisBudget, the government also proposed a TV programme for start-ups, which wouldwork as a platform to discuss growth related issues, finding a venture capitalist, fundraising and tax planning related issues. These channels would be designed andexecuted by start-ups themselves

129

400

0

50

100

150

200

250

300

350

400

450

2018-19 2019-20

| crore

World Class Education (in | crore)

3x increase in allocation

304

517

336

511.3

579

0

100

200

300

400

500

600

700

2015-16 2016-17 2017-18 2018-19 2019-20

| crore

Total Digital e-learning (in | crore)

Higher focus on digital skills

These measures of the government will help reduce Indian students going to foreign universities, saveforeign exchange and improve skills. This will have an indirect benefit in terms of higher patent filing.

1177

1817

2723

6830

7260

0

1000

2000

3000

4000

5000

6000

7000

8000

2015-16 2016-17 2017-18 2018-19 2019-20

| crore

More than 2.5x increase in Budget allocation towards job & skill development in last two years

409 442 519 557 504 479

1632

1931

2467

1980

26432776

0

500

1000

1500

2000

2500

3000

FY13 FY14 FY15 FY16 FY17 FY18

Education related forex expenses (in US$ million)

Inflow Outflow

4000

13000

0

2000

4000

6000

8000

10000

12000

14000

Pre- 2014 Post-2014

Number of petents

3x rise in patents

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July 5, 2019 ICICI Securities Ltd. | Retail Equity Research 7

Multifold measures to unveil novel source of infrastructure financing

The government has decided to start raising a part of its gross borrowing programme in external markets in external currencies. It is likely to improve the demand-supply

dynamics in the government securities market. Government borrowing for FY2019-20 is pegged at | 7.1 lakh crore. At 10-15%, as indicated by the Finance Secretary, inflows

through foreign bonds may be at | 70000 crore to | 1 lakh crore. With lower cost of funds, interest cost saving of ~| 4000 crore can be seen.

The government has proposed to include shareholding of government controlled companies like LIC in calculation of 51% government stake. This move has the potential to

raise money to the extent of ~ | 289000 crore in listed PSU companies, which can be utilised for financing of the massive infrastructure investment outlays

Source:: RBI, Budget Document, ICICI Direct Research,

With the government proposing to raise public shareholding threshold from 25% to

35% in listed companies, the potential amount that can be raised from private

companies could be as high as | 2 lakh crore. While the move is aimed at wider

public participation in equities, the overall supply may have a near term overhang.

We expect Sebi to implement in a phased manner.

Shareholding reduction to release | 2 lakh of additional funds

Release of locked promoter wealth and flow of funds to startups/bond

markets/deposits, etc.

10% LTCG on stocks sold to flow to the exchequer

Equity supply in these companies seen rising creating short-term overhang in

stock prices. However, FII buying can lead to forex inflows

70000-100000

(proposed foreign

bonds)

710000 (government borrowing)

Lower bond yieldsInterest savings

Fund raising potential from government PSU stake saleGovernment to issue sovereign bonds overseas (| crore)

Companies with promoter shareholding >65% to release ~| 2 lakh crore of funds

35700

289000

99900

154000

0

50000

100000

150000

200000

250000

300000

350000

Govt holding at 65% Govt holding at 51% Govt and controlled

PSUs holding at 51%

Total potential stake

sale

| C

rore

Company Name Promoter stake % Stake to be sold (| crore)

TCS 72 59326

Wipro 74 15159

Hind. Unilever 67 8497

Interglobe Aviat 75 6254

Siemens 75 4836

SBI Life Insuran 70 3635

A B B 75 3503

DLF 72 3327

Berger Paints 75 3105

Pidilite Inds. 70 2962

L & T Infotech 75 2814

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Other key highlights

• Due to a slew of measures taken by government , the direct tax revenue has increased 78.2%, from | 6.38 lakh crore in FY14 to | 11.37 crore in FY19. It isgrowing at a double digit rate every year

• The government has announced its intention to invest | 100 lakh crore in infrastructure over the next five years

• Railway infrastructure requirement is estimated at | 50 lakh crore in 2018-30. Current annual spend hovers around | 1.5-1.6 lakh crore. Therefore, thegovernment proposes to use public-private partnership model for faster development and completion of tracks, rolling stock manufacturing and delivery ofpassenger freight services

• Currently, the lower rate of 25% is only applicable to companies having annual turnover up to | 250 crore. The government proposes to widen this to includeall companies having annual turnover up to | 400 crore. This will cover 99.3% of companies

• Proposed levy of tax deduction at source (TDS) at the rate of 2% on cash withdrawal by a person in excess of | 1 crore in a year from a bank account

• Proposed to enhance surcharge on individuals having taxable income from | 2 crore to | 5 crore and | 5 crore and above so that effective tax rates for thesetwo categories will increase around 3% and 7%, respectively

• In order to discourage the practice of avoiding dividend distribution tax (DDT) through buy back of shares by listed companies, the government proposes toprovide that listed companies shall also be liable to pay additional tax at 20% in case of buy back of share, as is the case currently for unlisted companies

• The government is setting an enhanced target of | 105000 crore of disinvestment receipts for the financial year 2019-20. It will undertake strategic sale ofPSUs. The government will also continue to consolidate PSUs in the non-financial space as well

• Proposed to give relief in levy of securities transaction tax (STT) by restricting it only to the difference between settlement and strike price in case of exerciseof options

• Proposed that one woman in every self help group (SHG) will be made eligible for a loan up to | 1 lakh under the MUDRA Scheme. Furthermore, for everyverified women SHG member having a Jan Dhan Bank Account, an overdraft of | 5000 shall be allowed

• For ease of access to credit for MSMEs, the government has introduced providing of loans up to 1 crore for MSMEs within 59 minutes through a dedicatedonline portal. Under the Interest Subvention Scheme for MSMEs, | 350 crore has been allocated for FY20 for 2% interest subvention for all GST registeredMSMEs, on fresh or incremental loans

July 5, 2019 ICICI Securities Ltd. | Retail Equity Research 8

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Other key highlights

• Regulation of HFCs has been moved from NHB to RBI

• Propose to consider issuing Aadhaar card for Non-Resident Indians with Indian Passports after their arrival in India without waiting for 180 days

• To resolve the ‘angel tax’ issue the start-ups and their investors who file requisite declarations and provide information in their returns will not be subjected toany kind of scrutiny in respect of valuations of share premiums

• Propose that business establishments with annual turnover more than | 50 crore shall offer such low cost digital modes of payment to their customers and nocharges or merchant discount rate shall be imposed on customers as well as merchants

• A public sector enterprise viz. New Space India (NSIL) has been incorporated as a new commercial arm of Department of Space to tap the benefits of theresearch & development (R&D) carried out by Isro

• The government is developing 17 iconic tourism sites into world class tourist destinations and to serve as a model for other tourism sites

• Government plans to promote more ‘Zero Budget farming’. In turn, this reduces consumption of chemical fertiliser and agro chemicals while increasing theusage of organic manures

• It is proposed to make PAN and Aadhaar interchangeable and allow those who do not have PAN to file Income tax returns by quoting their Aadhaar number

• To facilitate on-shoring of international insurance transactions and enable opening of branches by foreign reinsurers in the International Financial ServicesCentre, the government proposes to reduce net owned fund requirement from | 5000 crore to | 1000 crore

July 5, 2019 ICICI Securities Ltd. | Retail Equity Research 9

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July 5, 2019 ICICI Securities Ltd. | Retail Equity Research 10

Sectoral Impact

Measures Sectors Impacted Impact Key stocks

Proposal to raise minimum public shareholding threshold from 25% to 35% Across sectors Case specific IT, pharma, MNC, PSU among others

Deduction for interest payment on electric vehicle (EV) purchase up to | 1.5 lakh per annum for loan taken till

FY23. Further, the government has proposed to the GST Council to reduce GST rate on EV from 12% to 5% and

lowered customs duty on certain EV components

Auto OEMs Positive M&M, Hero MotoCorp

Government's thrust on increasing EV penetration in India and increasing exise on conventional fuels like petrol &

diesel thereby discouraging the use of internal cumbustion engine vehicles

Auto OEMs Negative Maruti Suzuki, Bajaj Auto

Hike in basic customs duty on some auto components including mirrors, locks, catalytic covertors, air filters, etcDomestic auto

ancillaries

Positive Motherson Sumi

Increase in allocation towards Pradhan Mantri Gram Sadak Yojana to | 19,000 crore, up 22% YoY Commercial Vehicle Positive Ashok Leyland, Tata Motors

Increase in custom duty on certain types of synthetic rubber, which forms <10% of RM costs for tyre players Tyres Negative Apollo Tyres, Jk Tyres

Fertiliser subsidies increased from | 70,125 crore to | 80035 crore of which urea subsidy increased by | 8629

crore to | 53629 crore and nutrient based subsidiy to | 26367 crore from | 25090 crore

Fertilizer Positive Fertiliser stocks

Increase in the outlay for micro irrigation fund to | 3500 crore from | 4000 croreMicro Irrigation

System

Negative EPC Industrie

Funds allocated to PM Kisan scheme to the tune of | 75000 crore Agri input Positive Fertiliser and agro chemical stocks

PSB recapitalisation proposed at | 70,000 crore Public sector banks Positive BoI, Allahabad Bank, Canara Bank, etc

Additional | 1.5 lakh deduction on interest paid for affordable housing loans till March 2020

Housing Finance

Companies and BanksPositive HDFC Ltd, Repco Home Finance, Gruh Finance, SBI etc

Government to provide one time credit guarantee for first time loss of 10% for bonds of sound NBFCs for total

issuance up to | 1 lakh crore

NBFC Positive HDFC Ltd, Bajaj Finance, M&M Finance, L&T Finance

Regulation of HFCs moved from NHB to RBIHousing Finance

Companies

Negative PNB HF, Canfin HF etc

Proposing recognition of interest on bad or doubtful debts in case of deposit-taking NBFC and systemically

important non deposit-taking NBFC shall be charged to tax on receipt basis

NBFC PositiveManappuram Finance, Muthoot Finance, L&T Finance,

M&M Finance etc

Defence capital outlay increased 8.7% YoY to | 108,248 crore (up from | 99,563 crore)DPSUs and Private

defence companies

Positive Bharat Electronics, L&T, Cochin Shipyard

Targeted increase in manufacture of electric locomotives, coaches and wagons to 725, 7690 and 15000 units,

respectively, thereby translating to an increase of 26.5%, 49.0% and 25% YoY, respectively. Overall, investment

allocation for rolling stock has been increased 15.5% to | 34,514 crore. In addition, allocation for metro projects

has increased 24.2% YoY to | 17,714 crore

Bearings, Railway

manufacturing

companies

Positive Timken India, SKF India, Hind Rectifiers, Titagarh wagons

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July 5, 2019 ICICI Securities Ltd. | Retail Equity Research 11

Sectoral Impact

Measures Sectors Impacted Impact Key stocks

Allocation for grid interactive renewable power including green energy corridor, has been hiked by 14% YoY to |

4272 crore. This could result in higher tendering opportunities for solar PV, green energy corridor projects

Power transmission,

Capital goodsPositive Kalpataru Power

Budgetary allocation for railway electrification projects has been increased 10.5% YoY to | 6960 crore. This could

benefit players catering to railway electrification

Capital goods Positive KEC, Kalpataru power

‘Nal se Jal’ (water from tap) mission to provide tap water to 14 crore household by 2024. Capital allocation under

national rural drinking water mission has been doubled to | 10000 crorePlastic piping industry Positive Astral Poly, Supreme Industries

Excise duty on cigarettes has been increased by a miniscule | 5 per thousand cigarettes, which will increase the

indirect tax outgo marginally. However, levying excise duty on cigarettes has opened new avenues for the

government for increasing tax on cigarettes in future

FMCG Neutral ITC, VST Industries

Under Pradhan Mantri Gram Sadak Yojana (PMGSY) Phase-III, 1,25,000 km road length is envisaged to be

upgraded at an estimated cost of | 80,250 crore. This will present a host of opportunities for road based EPC

players, going ahead

Roads Positive NBCC, PNC Infratech

The government has proposed to increase special additional excise duty and road & infrastructure cess each by

| 1 per litre on petrol and diesel. Levy of | 1 per litre road and infrastructure cess could result in annualised

collections worth | 14,500 crore, which should be further utilised towards development of roads

Roads Positive PNC Infratech, Ashoka Buildcon, KNR Construction

Thrust to dedicated freight corridorContainer Train

Operators

Positive Container corporation of India, Gateway Distriparks

The government envisions to develop inland waterway for cargo transportation. As part of the Jal Marg Vikas

Project for enhancing navigational capacity of Ganga, a multimodal terminal at Varanasi has become functional in

November 2018 and two more such terminals at Sahibganj and Haldia and navigational lock at Farakka would be

completed in 2019-20

Dredging Positive Dredging Corporation of India

Increase in special additional excise duty and road & infrastructure cess by | 1/litre each on petrol and diesel.

Although petrol and diesel are deregulated, increase in taxes by | 2 per litre will impact marketing margins in the

near term and in case of higher oil prices

Oil Marketing

CompaniesNegative HPCL, BPCL, IOC

Government intends to develop a blueprint for developing gas grids Gas utility companies PositiveGAIL, GSPL, Indraprastha Gas, Mahanagar Gas, Gujarat

Gas, Petronet LNG

Government will address low utilisation of gas power plants. This will increase demand for domestic natural gas

as well as low cost LNG

Gas utility companies Positive GAIL, GSPL, Petronet LNG

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July 5, 2019 ICICI Securities Ltd. | Retail Equity Research 12

Measures Sectors Impacted Impact Key stocks

The government has proposed additional deduction of up to | 1,50,000 lakh (total | 3,50,000 lakh) for interest

paid on loans borrowed up to March 31, 2020 for purchase of an affordable house valued up to | 45 lakh. This

move will boost demand for affordable housing and will be positive for leading real estate players

Real Estate

Marginally

Positive

Mahindra Lifespace, Sobha, Sunteck and Brigade

Enterprises

Hiked customs duty on imported gold from existing 10% to 12.5%. Gold prices are already prevailing near all-time

highs. An increase in customs duty would increase the price of gold jewellery for the customer, which can

negatively impact volume growth for jewellery sector

Gems & Jewellery Negative Titan

The government has proposed to relax local sourcing norms for FDI in single branded retail to attract more FDI in

the sector. Given the huge opportunity in the organised retail space, there is enough room for all players to grow

on a sustainable business. On the operational front, adoption of global best practices would enhance the

efficiency of players

Retail sector Neutral ABFRL, Trent, Shoppers Stop, Bata

To promote digital transactions, the government has proposed that no charges or merchant discount rate (MDR)

shall be imposed on customers as well as on merchants as RBI and banks will absorb these costs

Retail sector Positive ABFRL, Trent, Shoppers Stop, Bata

Customs duty on optical fibres, optical fibre bundles and cables increased from 10% to 15% OF/OFC Players Positive Sterlite Technologies

Customs duty for water blocking tapes for manufacture of optical fiber cables increased from nil to 20% OF/OFC Players Neutral Sterlite Technologies

Customs duty for certain raw materials used for manufacture of preform of silica from their respective applicable

rates to nil

OF/OFC Players Positive Sterlite Technologies

Customs duty on newsprint increased from nil to 10%Print media

companies

Negative DB Corp, Jagran Prakashan

Government will examine suggestions on further opening up of FDI in media (GEC could be one of the favoured

segments)

Media Neutral

Customs duty on wool fibre and wool tops reduced from 5% to 2.5%. Since indigenous production of fine quality

of wool is very limited, India depends almost exclusively on imports

Woolen players Positive Monte Carlo Fashions

Allocation for Amended Technology Upgradation Fund Scheme (ATUFS) increased from | 623 crore in 2018-19 to

| 700 crore in 2019-20

Textile Players Neutral Vardhman Textiles, KPR Mills

Government intends to promote aircraft financing and leasing from Indian Shores. Additionally,it would provide

support for enabling and the growth of Maintenance, Repair and Overhaul industry which is vital for the aviation

industry

Aviation Industry Positive Interglobe Aviation, Spicejet

Under Pradhan Mantri Gram Sadak Yojana (PMGSY) Phase-III, 1,25,000 km road length is envisaged to be

upgraded at an estimated cost of | 80,250 crore.This is expected to enhance the cement demand going aheadCement Industry Positive All cement majors

Sectoral Impact

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Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]

July 5, 2019 ICICI Securities Ltd. | Retail Equity Research 13

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31

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