BUDGET REPORT - Hem Securities · lower the GST rate on electric vehicles from 12 per cent to 5 per...

THE BUDGET INSIGHT

BROKING

INVESTMENT BANKING

RESEARCH

DISTRIBUTION

DEPOSITORY

www.hemsecurities.com

06th July 2019

BUDGET

REPORT

KEY NOTES

India is the sixth-largest economy in the world, up from 11th position five years ago.

The government’s commitment is to make India a $5 trillion economy by 2024.

Proposed to consider issuing Aadhaar to NRIs with Indian passports after their arrival in India

without the mandatory wait of 180 days.

Labour laws to be streamlined into four basic labour codes.

India to open new diplomatic missions

Government to raise part of its borrowings from external markets; aims to buy back bonds

worth Rs 50,000 crore in FY2019-20

Proposal to make PAN and Aadhaar interchangeable

A new series of coins for Re 1, Rs 2 Rs 5, Rs 10, Rs 20 to be minted so that the visually impaired

can easily identify them.

To launch a mission of linking creative industry with the economy and integrate our traditional

artisans and their creative products with global markets.

VISION FOR THE DECADE

BUDGET 2019 Reform, Perform and Transform

BROKING | INVESTMENT BANKING | RESEARCH | DISTRIBUTION | DEPOSITORY

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BUDGET REPORT 2019

TAX PROPOSALS

Lower Corporate Tax All companies having annual turnover up to Rs. 400 crores (earlier Rs. 250 crores) are now subjected to 25% corporate tax. This will cover 99.3% of the companies and hence, now only 0.7% of companies will remain outside this rate. This will enable greater inflow of cash at company’s hand.

Increased surcharge on high income earners: Effective tax rate for individuals having taxable income above ₹2 crore has been increased. Revised surcharge rate and effective income tax rate is as under:

Income Pre-Budget Surchar

ge

Post-Budget

Surcharge

Effective tax rate

Above Rs. 50 lakhs upto Rs. 1 crore

10% 10% 34.32%

Above Rs. 1 crore upto Rs. 2 crores

15% 15% 35.88%

Above Rs. 2 crores upto Rs. 5 crores

15% 25% 39%

Above Rs. 5 crores 15% 37% 42.74%

Curbing of cash withdrawal through taxation TDS of 2% will now be levied on cash withdrawal exceeding Rs. 1 crore in a year from a bank account to promote cash less economy.

Sabka Vishwas Legacy Dispute Resolution Scheme – A masterstroke This has been proposed for quick closure of service tax and excise related litigations. The proposed Scheme covers past disputes of taxes which have got subsumed in GST namely Central Excise, Service Tax and Cesses.

To allow those who do not have PAN to file Income Tax returns by simply quoting their Aadhaar number and also use it wherever they are required to quote PAN.


BUDGET REPORT 2019

SECTORAL OUTLOOK

PUBLIC SECTOR BANKS

Proposal to provide Rs. 70,000 crores capital to Public Sector Banks for a strong credit impetus to the economy. Positive for: SBI, PNB, Canara Bank, BOB

PUBLIC SECTOR UNDERTAKING

To modify the policy of retaining 51% Government stake to retaining 51% stake inclusive of the stake of Government controlled institutions in non-financial PSU’s.

Government is setting an enhanced target of Rs. 1,05,000 crore of disinvestment receipts for the financial year 2019-20. The Government will continue to do consolidation of PSUs in the non-financial space as well.

For bringing better public ownership of the PSUs, Government will take necessary steps to meet public shareholding norms of 25% for all listed PSUs and raise the foreign shareholding limits to maximum permissible sector limits for all PSU companies which are part of Emerging Market Index.

NBFC’s

To enhance liquidity access for the sector, the government will provide one-time 6-month partial guarantee of Rs 1 lakh crore to public sector banks for purchasing consolidated high-rated pooled assets of financially-sound NBFCs. This will cover their first loss of up to 10%.

Permitting investments made by foreign institutional and portfolio investors in debt securities issued by Infrastructure Debt Fund-NBFC, to be transferred or sold to any domestic investor within specified lock-in period.

The government has allowed interest on certain bad or doubtful debts to be taxed in the year in which the interest is actually received as in case of Commercial Banks.

No need to create a Debenture Redemption Reserve (DRR) in NBFC’s while raising funds through public issues.

To place appropriate proposals for strengthening the regulatory authority of RBI over NBFCs

Steps will be taken to allow NBFCs to directly participate on the TReDS platform. Positive for: Bajaj Finance, HDFC,L&TFH


BUDGET REPORT 2019

BOOSTING DIGITAL PAYMENTS

Business establishments with annual turnover of more than Rs. 50 crores shall levy no charges or Merchant Discount Rate on customers as well as merchants. RBI and Banks will absorb these costs from the savings that will accrue to them on account of handling less cash as people move to these digital modes of payment.

BIG BOOST FOR ELECTRIC VEHICLES With the increasing levels of pollution and depleting resources, Niti Ayog recently proposed the sale of only electric vehicles (EVs) in India by 2030 and consequently, the government has taken good note of the importance of EV adoption in India. Incentive to purchase electric vehicle

In order to incentivise purchase of electric vehicle by an individual, the government has proposed additional income tax deduction of Rs 1.5 lakh on interest on loan taken for electric vehicle purchase.

In addition to this, the government has already moved a proposal in GST council to lower the GST rate on electric vehicles from 12 per cent to 5 per cent.

Other Incentives

The government has committed Rs. 10,000cr under Phase-II of FAME Scheme which aims to establish the necessary charging infrastructure for electric vehicles.

To promote domestic manufacturing, customs duty will be exempted on certain parts of electric vehicles.

Tax Exemptions related to Electric vehicles

The government to provide investment linked income tax exemptions under section 35 AD of the Income Tax Act, and other indirect tax benefits to set up mega-manufacturing plants in sunrise and advanced technology areas such as Semi-conductor Fabrication (FAB), Solar Photo Voltaic cells, Lithium storage batteries, Solar electric charging infrastructure, Computer Servers, Laptops, etc.

Positive for: M&M, Tata Motors


BUDGET REPORT 2019

SECURITIES MARKET:

Listed companies to pay an additional tax of 20% in case of a share buyback, as is the case

currently for unlisted companies. Buy-Back gains will now be exempted in the hands of

shareholders.

Negative for: Cash rich companies like IT companies which brings frequent buy back of shares.

Proposal made to SEBI to consider increase in minimum public shareholding in the listed

companies from 25% to 35%.

Negative for: Companies having promoter holding greater than 65%

Creation of Social Stock Exchange for listing social enterprises and voluntary

organizations working for the realization of a social welfare objective so that they can raise

capital as equity, debt or as units like a mutual fund under the ambit of SEBI.

Inter-operability of RBI and SEBI depositories to get retail investors to invest in treasury

bills and securities issued by the Government.

Government to reinitiate the process of strategic disinvestment of Air India and will also

offer more CPSEs for strategic participation by the private sector.

To encourage its own motto of divestment and long term investment in CPSE ETF’s,

government will offer investment options in ETF’s on line with ELSS.

Relief in levy of Securities Transaction Tax (STT) by restricting it only to the difference

between settlement and strike price in case of exercise of options.

FOREIGN INVESTORS

Proposition to rationalize and streamline the existing KYC norms for FPIs to make it more

investor friendly.

Proposal to increase the statutory limit for FPI investment in a company from 24% to

sectoral foreign investment limit.

Proposal to merge the NRI-Portfolio Investment Scheme Route with the Foreign Portfolio

Investment Route.

Insurance

100% Foreign Direct Investment (FDI) will be permitted for insurance intermediaries.

Opening up of FDI in insurance sectors.

Positive for: HDFC Life, ICICI General Insurance

Retail Sector

Local sourcing norms will be eased for FDI in Single Brand Retail sector.

Positive for: Trent


BUDGET REPORT 2019

AVIATION INDUSTRY

Government will implement the essential elements of the regulatory roadmap for aircraft

financing and leasing activities from Indian shores.

To carry out the Maintenance work of airlines locally, government will create a congenial

atmosphere for the development of Maintenance, Repair and Overhaul (MRO) of aviation

sector.

Opening up of FDI in aviation sector.

Positive for: Indigo

INFRASTRUCTURE

Investment of Rs.100 lakh crore in infrastructure over the next five years

Positive for: L&T, BHEL

Railways

Investment of Rs.50 lakh crores during 2018-2030 towards railway Infrastructure.

Public-Private Partnership for faster development and completion of tracks, rolling stock

manufacturing and delivery of passenger freight services.

Railways will be encouraged to invest more in suburban railways through Special Purpose

Vehicle (SPV).

Enhancement of the metro-railway initiatives by encouraging more PPP initiatives.

Massive programme of railway station modernization to be launched this year.

Positive for: RITES, Timken India, BEML

Power Supply

Power availability to states at affordable rates.

Improvements in UDAY scheme viz. remove barriers like cross subsidy surcharges and

undesirable duties.


BUDGET REPORT 2019

Connectivity

Positive for: CONCOR, Sterlite Technologies

Others

Development of gas grids, water grids, i-ways, and regional airports.

Retirement of old & inefficient Gas plants and addressing low utilisation of Gas plant capacity.

To build public infrastructure on land parcels held by Central Ministries and Central Public

Sector Enterprises

The government is developing 17 iconic tourism sites as world-class tourist centres to improve

the flow of domestic and foreign tourists to these destinations.

•To carry internal trade through inland water transport

•To set up multi modal terminals to enhance navigational capcacity ofriver ganga

•The movement of cargo volume on Ganga is estimated to increase bynearly four times in the next four years.

Jal Vikas Marg

•Improve infrastructure availability for greater industrial investment in the catchment regions

Industrial Corridor

•Mitigate the congestion of our railway networkFreight Corridor

•Develop national road corridors and highways

•To develop State road networks in the second phase of the project

•Comprehensive restructuring of National Highway Programme Bhartamala

•Enhance port connectivity, modernization and port-linked industrialization

Sagarmala projects

•Providing air connectivity to smaller cities UDAN

•Broadband connectivity to households under village Panchayats and even to government institutions

Bharat Net

•PMGSY-III is envisaged to upgrade 1,25,000kms of road length over the next five years, with an estimated cost of ` 80,250 crore.

PMGSY


BUDGET REPORT 2019

INFRASTRUTURE FINANCING To enhance the sources of capital for infrastructure financing:

To set up Credit Guarantee Enhancement Corporation in 2019-20.

Transfer of FII/FPI investment in debt securities issued by IDF-NBFCs to domestic

investors.

An action plan to deepen the market for long term bonds viz.

Stock exchanges to allow AA rated bonds as collaterals. To review the trading platforms for corporate bonds

RURAL INDIA

The government plans to provide electricity and a clean cooking facility to every single

rural family by 2022 under its UjjwalaYojana and SaubhagyaYojana.

Positive for: Hawkins, TTK Prestige

To promote the use of solar stoves and battery chargers in the country under mission LED.

Expansion of the Swachh Bharat Mission to undertake sustainable solid waste management

in every village.

SFURTI envisions 100 new clusters in 2019-20 to help 50,000 artisans economically. The

focused sectors are Bamboo, Honey and Khadi clusters.

Pradhan Mantri Matsya Sampada Yojana (PMMSY) – the Department of Fisheries will

establish a robust fisheries management framework

WATER MANAGEMENT

Water will be supplied to all rural households by 2024 under Jaljeevan Mission.

Creation of local infrastructure for source sustainability like rainwater harvesting,

groundwater recharge and management of household wastewater for reuse in agriculture.

Positive for: Va Tech Wabag

HOUSING

In the 2nd phase of Pradhan Mantri Awas Yojana (PMAY) 1.95 crore houses are proposed

to be provided during 2019-20 to 2021-22.

Additional deduction of up to Rs.1,50,000/- for interest paid on loans borrowed up to 31st

March, 2020 for purchase of an affordable house valued up to Rs. 45 lakh.

Proposed to return the regulation authority over the housing finance sector from NHB to

RBI.

FPIs will be permitted to subscribe to listed debt securities issued by ReITs and InvITs.


BUDGET REPORT 2019

Positive for: Brigade Enterprises, Godrej Properties

AGRICULTURE

Revolutionizing Gramin Bharat with 'zero budget farming' (natural farming which is not

chemical-loaded with its reliance on manure)

The Government will work with State Governments to allow farmers to benefit from e-

NAM (online trading platform for agricultural commodities in India.).

To form 10,000 new Farmer Producer Organizations, to ensure economies of scale for

farmers over the next five years.

Creating infrastructure for cattle feed manufacturing, milk procurement, processing &

marketing.

Support to private entrepreneurships in driving value-addition to farmers’ produce from

the field and for those from allied activities.

EDUCATION SECTOR

Government to launch 'Study in India' programme to attract foreign students in higher

education.

Allocation of Rs 400 crores for world-class higher education institutions in FY 2020.

National research foundation to fund, coordinate and to promote research in the country.

To set up Higher Education Commission of India with focus on higher autonomy.

New national education policy to propose changes in school, higher education.

National Sports Education Board for Development of Sportspersons would be set up under

Khelo India Scheme.

STARTUPS

Propose to commence television channel for start-ups.

Stand up India' Scheme to continue till 2025.

Funds raised by start-ups will not require any kind of scrutiny from the Income Tax

Department.

Special administrative arrangements by CBDT for pending assessments of start-ups and

redressal of their grievances

No justification of fair market value of shares to be extended to Category-II Alternative

Investment Funds also.

Extension of the period of exemption of capital gains arising from sale of residential house

for investment in start-ups up to 31.3.2021


BUDGET REPORT 2019

MSME

Government has introduced providing of loans upto Rs. 1 crore for MSMEs within 59

minutes through a dedicated online portal.

Under the Interest Subvention Scheme for MSMEs, Rs. 350 crore has been allocated for

FY 2019-20 for 2% interest subvention for all GST registered MSMEs, on fresh or

incremental loans.

Government will create a payment platform for MSMEs suppliers and contractors to

enable filing of bills and payment thereof on the platform itself.

Pension benefits to be extended to 3 crore retail traders and small shopkeepers with

annual turnover less than Rs 1.5 crores under Pradhan Mantri Karam Yogi Maandhan

Scheme.

INDIRECT TAX PROPOSALS:

Sector Proposal Impact DEFENCE

Import of defence equipment that are not being manufactured in India are being exempted from the basic customs duty. Customs duty reductions are being proposed on fuels for nuclear power plants.

Positive for: Hindustan Aeronautics Limited, R NAVAL, Bharat Dynamics Limited

OIL SECTOR Increase in Special Additional Excise duty and Road and Infrastructure Cess each by one rupee a litre on petrol and diesel.

Minor Negative Impact on IOCL, BPCL and HPCL

GOLD & METALS Proposal to increase custom duty on gold and other precious metals from 10% to 12.5%.

Slightly Negative for Titan

TOBACCO SECTOR

A nominal basic excise duty is being imposed on Tobacco products and Crude.

Slightly negative for ITC and Godfrey Philips

OTHER MATERIALS

Basic customs duty is being increased on items such as cashew kernels, PVC, Vinyl flooring, tiles, metal fittings, mountings for furniture, auto parts, certain kinds of synthetic rubbers, marble slabs, optical fibre cable, CCTV camera, IP camera, digital and network video recorders etc.

Positive for : CERA Sanitaryware, Finolex Pipe, Akzo Nobel India, Supreme Industries


BUDGET REPORT 2019

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Others

Exemptions from custom duty on certain electronic items which are now being manufactured in India are being withdrawn.

Export duty is being rationalised on raw and semi-finished leather to provide relief to this sector.

Exemptions to various kinds of papers are also being withdrawn.

End use based exemptions on palm stearin, fatty oils are withdrawn.

To encourage domestic publishing and printing industry, 5 % custom duty is being imposed on imported books.

Customs duty is also being exempted on capital goods required for manufacture of specified electronic goods.

Customs duty reductions are being proposed on certain raw materials and capital goods which includes certain inputs of CRGO sheets, amorphous alloy ribbon, ethylene di-chloride, propylene oxide, cobalt matte, naphtha, wool fibres, inputs for manufacture of artificial kidney and disposable sterilised dialyser.

CONCLUSION

The intent of FM has been very good by looking at all the sectors holistically. The concerns relating to NBFC sectors has been addressed very well which will provide the boost to the mongering hopes in the days to come. The injection of Rs. 70,000 crores is also a good step to improve the structure of PSU Banks. The government has continued to maintain its focus on divestment strategy. On the back of benefits to MSME and reduction in corporate sector, small and midcap companies are likely to recover from here. Further, the push for digital India and raising government debt externally are the stepping stones for a 5 trillion economy. Make in India impulse could be felt by the effort to raise import tariffs on various goods. The step to reduce promoter shareholding from 75% to 65% will initially hit the equity markets however, the same will be subsumed partially by foreign investors. Also, the super high tax rates on super rich will indirectly impact the economy as a whole. All in all, continued focus on digital transactions, infrastructure projects and its financing, small and MSME enterprises, housing for all, education and startup will provide a push to the economy to reach its dream target. Our view on equity markets in long term is positive, though in the short term we expect the markets to sail in waters of high volatility since the economy is in the transition stage.

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