Feb 01, 2018
BUDGET
UNION
2018-19
Analyst Contact
J K Jain
040 - 3321 6300
jambu@karvy.com
For private circulation only. For important information about Karvy’s rating system and other disclosures
refer to the end of this material. Karvy Stock Broking Research is also available on Bloomberg,
KRVY<GO>, Thomson Publishers & Reuters
India Research - Stock Broking
Union Budget 2018-19:
Spending for Growth
The government released its last full year Budget before the next General Elections.
As expected the budget has largely focused on the Rural sector and on social spending.
The focus on Rural sector will have a positive impact by reducing rural stress; certainty of
income should increase consumer condence and thus rural consumption. Policy initiatives
to lower volatility of product price should reduce ination for consumers as well.
Steps include:
Target to have Minimum Support Price (MSP) 50% above cost in the Kharif season.
Creation of institutional mechanism for farmers to lower volatility of product price and is
positive for futures market.
Agricultural market infrastructure to be created to improve cold chain as well as enable
access to the market for marginal farmers.
In addition, there is a focus on “ease of Living” which is the focus on the social sector.
These include the following steps:
Rashtriya Swasthya Bima Yojana coverage enhanced to 5 Lakh per family from Rs. 30,000
per family, to cover 10 crore families or 50 crore people.
Electricity connections for poor (4 crores households) under Saubhagya Yojna.
Providing gas connections to 8 cr women under Ujjwala Yojana.
In addition the government has taken steps to support the MSME sector and thus
help in job creation. Steps to this include:
Target of 3 lakh crore for lending under MUDRA scheme for 2018-19.
Government of India has identied 372 specic business reform actions under which
government will work with the states for implementation. These should help in ease of
doing business throughout the country.
Infrastructure push:
Total spend of Rs. 597,000 crores.
Railways capex is pegged at Rs. 148528 crores and focus is more towards capacity creation.
Gauge conversion, electrication & modernization of railway stations are the other things
in focus.
Mumbai rail network is allocated with Rs. 11000 crores and allocation of 17000 crore to
Bangalore.
Allocation of 2.04 lakh crore to 99 cities under smart cities.
Airport capacity to be increased to more than 5 times to handle a billion trips a year.
Reiterated investment for Bharatmala of Rs. 535,000 crores until FY 22 in phase I.
However, there are a few negatives:
Introduction of Long term capital gains: saving grace only for gains above Rs. 1 lakh and
grandfathering of investment till January 31, 2018. We believe this is a negative factor and the only
factor that can outweigh it will be a higher growth in corporate earnings leading to a buoyancy in
markets.
Fiscal decit slippage to 3.5% of GDP in current year and estimated to be 3.3% of GDP next year.
Corporate tax rate reduced to 25% only for rms with turnover less than Rs. 250 crores, no reduction
for large rms, we believe this will be a focus in later budgets.
Overall this is a neutral budget from a market perspective.
5
ECONOMY & STRATEGY
Announcements
Minimum Support Price (MSP) of Kharif and Rabi to increase by 1.5 times to that of the
production cost and allocation of Rs. 2000 Cr for agricultural marketing activities.
Sum of Rs. 1290 Cr for National Bamboo Mission.
Rs. 10,000 Cr for dairy, shery, aquaculture, irrigation and animal husbandry infrastructure.
Institutional credit for agriculture sector will be Rs. 11 Lakh Cr for the year 2018-19.
Impact
Ensuring higher MSPs and promoting bamboo cultivation is expected to increase farm
incomes leading to better rural economic growth. Also, emphasis on developing sheries
and aquaculture is likely to boost exports.
Stocks to focus
KRBL, LT Foods, Apex Frozen Foods, Water Base and Avanti Feeds.
Announcements
Proposal to expand airport capacity more than ve times to handle a billion trips a year
under the new initiative – NABH Nirman.
Impact
Positive Impact on Airport Developers.
Stocks to focus
GMR Infra & GVK Power & Infra
AgricultureAirports
Announcements
Developments and initiatives in the Agriculture sector.
Road Infrastructure development of 35,000 Km in phase I for ~Rs. 5.35 Lakh Cr.
Basic Customs Duty hiked Lithium-ion batteries from 10% to 20%
Impact
Agricultural developments are expected to improve tractor and 2W sales. Further road
connectivity programs to be benecial for the logistics sector, thus, encouraging commercial
vehicle volumes. Positive impact for Lithium-ion batteries manufacturers in India.
Stocks to focus
Escorts, VST Tillers & Tractors, Mahindra & Mahindra, TATA Motors, Ashok Leyland, Hero
Moto Corp and TVS Motors.
Auto and Auto Ancillary
Summary of announcements for key sectors and stocks to focus
6
ECONOMY & STRATEGY
Announcements
Strengthening the rural economy: 1) As a principle government to announce MSP for
Kharif crops at at-least 150% of the cost of production, 2) To put in place mechanism for
the eective implementation of procurement at MSPs 3) Funds allocated towards Micro
Irrigation, 4) Rs. 14.34 lakh crore, (including extra-budgetary and non-budgetary resources
of Rs. 11.98 lakh crore) to be spent towards rural jobs and infrastructure.
Kisan Credit cards to sheries and animal husbandry farmers to help them meet their
working capital needs. Agriculture loans target has been increased by 10% to 11 lakh
crore.
Rs. 16000 crore allocated towards providing electricity to the poor.
To establish a dedicated Aordable Housing Fund (AHF) in National Housing Bank.
To launch a agship National Health Protection Scheme (NHPS) to cover over 10 crore
poor and vulnerable families (approximately 50 crore beneciaries) providing coverage
upto Rs 5 lakh rupees per family per year for secondary and tertiary care hospitalization.
Target of Rs. 3 lakh crore has been set towards MUDRA loans to MSMEs.
Ambitious Bharatmala Pariyojana has been approved for providing seamless connectivity
of interior and backward areas and borders of the country to develop about 35000 kms in
Phase-I at an estimated cost of Rs. 5,35,000 crore.
Impact
Focus on rural economy shall impart predictability to rural income. Kisan credit cards to
sheries, unless implemented eectively can impact the credit quality of PSU banks.
Allocation to power should partly allay the stress on the power sector. Establishment of
AHF is positive for HFCs in the aordable housing segment. Launch of NHPS is positive
for all the General Insurance Companies. MUDRA loans to MSME, unless implemented,
eectively can impact the credit quality of PSU banks. Finally, Bharatmala pariyojana shall
lead to improved loan growth.
Stocks to focus
Mahindra Finance, Cholamandalam Investment & Finance, Bharat Financial, IndusInd
Bank, PSU Banks, ICICI bank, Axis bank, DHFL, REPCO, ICICI Lombard and New India
Assurance.
Banking
7
ECONOMY & STRATEGY
Announcements
Excess solar power from solar pumps to be purchased by distribution companies at
reasonably remunerative rates.
Customs duty has been withdrawn on import of solar tempered glass.
Impact
Farmers can now not only be the power generator but can also be seller of power. Farmers
installing solar pumps in their agriculture eld will now be able to sell the surplus power
generated to distribution companies. This will be add on benet as farmers would reduce
the dependency on grid connected power and at the same time can look for selling its
excess solar power. This should encourage the awareness towards solar pumps.
To promote renewable energy sector and provide impetus to in-house manufacturing of
solar panels, cells and modules the customs duty of 5% has been withdrawn on importing
of solar tempered glass. This would lower the cost of manufacturing solar panels and make
the prices competitive to Chinese solar panels.
Stock to focus
Shakti Pumps, Jain Irrigation Systems, Indosolar, Swelect Energy and Ujaas Energy.
Capital Goods
Announcements
A new Defence Production Policy 2018 will be brought out to promote domestic production
by public sector, private sector and MSMEs.
Two defence industrial corridors will be developed in the country.
Defence budget (including Pensions) increased by 8.1% to Rs. 4.04 lakh Cr from
Rs. 3.74 lakh Cr for the year FY18.
Revenue expenditure is increased by 7.9% to Rs. 3.04 lakh Cr.
Defence pension provision increased by 14.6% to Rs. 1.01 lakh Cr from
Rs. 0.95 lakh Cr.
Pay & allowances increased by 5.1% to Rs. 1.19 lakh Cr from Rs. 1.12 lakh Cr.
Capital expenditure increased by 8.9% to Rs. 1 lakh Cr.
Allocation for capital procurement increased by 8.7% to Rs.0.94 lakh Cr from
Rs. 0.86 lakh Cr.
R&D budget received highest allocation of Rs. 2182 Cr, which is ~28.9%
higher than previous year allocation.
Capital procurement budget for Army, Navy and Air Force increased by
5.9%, 7.8% and 6.6% to Rs. 0.27 lakh Cr, Rs. 0.21 lakh Cr, Rs. 0.36 lakh Cr.
respectively.
Defence
8
ECONOMY & STRATEGY
Announcements
Focus on strengthening rural and agricultural economy. Priority is to increase income
for farmers. Emphasis is also on generating productive and gainful farm and non-farm
employment for the farmers and landless families. Agri-Market Development Fund with a
corpus of Rs. 2000 crore will be set up for developing and upgrading agricultural markets.
Credit for agricultural activities is increased from Rs 10 lakh crore to Rs 11 lakh crore.
Impact
Allocations for rural development and agriculture will help the markets to revive from
sluggish demand scenario. Rural development will be reected in improvement in rural
spending. Spending will uplift rural volumes, which were subdued from last 2 years due to
demonetisation and implication of GST. Increase in the farmer’s income will improve their
disposable incomes and purchasing power.
Stocks to focus
Britannia, Gillette India, Jyothy Laboratories and Bajaj Corp.
FMCG
Impact
Allocation for capital procurement is meager and would only suce for servicing committed
liabilities and we do not expect any llip to new armed forces modernization program.
However, established players participating in the existing programs would benet from this
budget.
Stocks to focus
BEL, Astra Microwave Products and Premier Explosives - could be the key beneciary for
these initiatives.
Defence
Announcements
Allocations for food processing industry has been doubled to Rs.1400 cores in 2018-19
from Rs.715 cores in 2017-18.
Promotion of establishment of specialized agro-processing nancial institutions.
Proposal to set up state-of-the art testing facilities in all 42 Mega Food Parks.
Setting up of Micro Irrigation Fund for facilitating expansion of coverage under micro
irrigation.
Ground water irrigation scheme to be taken up in 96 deprived irrigation districts and
allocation of Rs. 2600 crore for the same.
Proposal to bring 1.81 lakhs hectares area under protective irrigation.
Increasing the scope of Long Term Irrigation Fund in NABARD.
Decision to keep MSP for all Kharif crops at 1.5x of their production cost aiming at doubling
the income of farmers.
Increase in custom duty for Orange fruit from 30% to 35%.
Increase in custom duty for other fruit juices from 30% to 50%.
Increase in custom duty for miscellaneous preparations from 30% to 50%.
Food Processing
9
ECONOMY & STRATEGY
Announcements
Government to launch a agship National Health Protection Scheme to provide medical
coverage of up to 5 Lakh rupees per family per year for secondary and tertiary care
hospitalization. This scheme would cover over 10 crore poor and vulnerable families
(approximately 50 crore beneciaries). Also government will provide Rs. 500 per month for
nutritional support to all TB patients for the duration of their treatment.
Government to raise the tax deductible amount for senior citizens allowed under section
80D for health insurance premium and/or medical expenditure from current limit of Rs.
30,000 to Rs. 50,000.
Government to raise deduction limit under section 80DDB for medical expenditure in
respect of certain critical illnesses to Rs.1 Lakh for all senior citizens (earlier limit was Rs.
60,000 for senior citizens and Rs. 80,000 for very senior citizens).
Ayushman Bharat launched to address primary, secondary and tertiary needs covering
both prevention and health promotion. Government to commit Rs. 1200 crores to about 1.5
Lakh Health and Wellness Centers. These centers will provide comprehensive health care,
including for non-communicable diseases and maternal and child health services as well
as free essential drugs and diagnostic services.
Impact
Increased use of private hospitals for in-patient hospitalization and services.
Rise in purchase of higher sum assured policies and increased health insurance
penetration.
Higher use of hospitals both in-patient and out-patient, diagnostic services and medicines.
Major pharma companies should see increased otake.
Stocks to focus
Apollo Hospitals Enterprise, Narayana Hrudayalaya, Shalby, Healthcare Global Enterprises,
Thyrocare Technologies, Dr. Lal PathLabs, Sun Pharma, Lupin, Cipla, Dr Reddys, GSK
Pharma, Sano India, Eris Lifesciences, New India Assurance and ICICI Lombard General
Insurance.
Healthcare & Pharma
Impact
All aforementioned measures taken will prove to be very supportive for companies dealing
in MIS and food processing.
Stocks to focus
Jain Irrigation, KRBL, LT foods and Manpasand Beverages.
Food Processing
10
ECONOMY & STRATEGY
Announcements
The government is developing policies to promote the growth of Fintech companies in
India.
NITI Aayog will initiate a national program to encourage work in the area of Articial
Intelligence, including research and development of its applications.
Allocation on Digital India initiative has been doubled to Rs. 3,073 Cr for 2018-19.
Impact
MSMEs will benet from any policy launched towards creating a conducive environment
for the growth of Fintech companies.
Articial Intelligence (AI) is the new fuel for digitally transforming the way of doing business.
Government initiatives to promote AI will help India establish itself as a digital society.
A higher allocation to the Digital India initiative will encourage research, training and skilling
in the areas of robotics, articial intelligence, digital manufacturing, big data analysis,
quantum communication and Internet of Things. This will help build-up a future ready
human power in the technology space.
Stocks to focus
Infoedge (India) Ltd, Zensar Technologies Ltd, Tata Elxsi & Firstsource Solutions Ltd.
Information Technology
Announcements
Total spend of Rs. 597,000 thousand crores.
Allocation of 2.04 lakh crore to 99 cities under smart cities.
Airport capacity to be increased more than 5 times to handle a billion trips a year.
Reiterated investment for Bharatmala of Rs. 535,000 crores until FY22 in Phase I.
Railways capex is pegged at Rs. 148528 crores and focus is more towards capacity
creation. Gauge conversion, electrication & modernization of railway stations are the
other things in focus.
Mumbai rail network is allocated with Rs. 11000 crores for 90 kms of double line tracks
along with 150 kms of additional suburban network at a cost of Rs. 40000 crores.
A suburban network of 160 kms at an estimated cost of Rs. 17000 crore allocated to
Bangalore.
Modern train sets with state-of-the-art amenities and features are being designed and are
to be commissioned in 2018-19.
Impact
Higher allocation towards the sector cascades into newer investments focusing on speed,
durability and eciency.
Stocks to focus
L&T, KNR Construction, Timken India & SKF India.
Infrastructure & Railways
11
ECONOMY & STRATEGY
Announcements
Department of Commerce will be developing a National Logistics Portal as a single window
online market place to link all stakeholders.
Developing of logistics parks.
Increasing of budgetary and non-budgetary expenditure on infrastructure for 2018-19 to
Rs. 5.97 lakh crore against estimated expenditures of Rs. 4.94 lakh crore in 2017-18.
Projects of worth 9.46 lakh crore have been facilitated and fast tracked to connect, integrate
the nation with roads, airports, railways, ports and inland waterways.
Impact
Measures adopted as mentioned will be of help in addressing the industry concerns.
Stocks to focus
GDL, Container Corporation of India Ltd, VRL Logistics, Gati, Snowman Logistics.
Logistics
Announcements
In order to avail the benet of additional 30% deduction u/s in respect of emoluments
paid to eligible new employees of leather and footwear industry, the minimum period of
employment has been brought down from 240 days to 150 days.
Increase in customs duty for footwear products increased from 10% to 20%.
Increase in customs duty for parts of footwear increased from 10% to 15%.
Impact
Additional deduction will help with the bottom-line performance of the industry.
The measures will promote the domestic leather and footwear industry.
Stocks to focus
Bata India Ltd, Mirza International, Liberty & Relaxo Footwear.
Leather & Footwear
Announcements
An all time high allocation to infrastructure.
Provisions for rationalizing key linkages like, coal for power, power for railways, and railways
rakes for coal.
Building urban and rural infrastructure, building 100 smart cities.
Impact
Measures adopted as mentioned above will prove to be positive for company dealing in
mining and metals.
Stocks to focus
GMDC, Tata Sponge Iron Limited, NMDC, MOIL, Hindustan Zinc, Hindustan Copper etc.
Mining & Metals
12
ECONOMY & STRATEGY
Announcements
A substantial portion of foreign investments in the start-up sector are currently attracted by
way of hybrid instruments. The government has announced that it will evolve a separate
policy for the introduction and operations of hybrid instruments.
Impact
Any policy focusing on promotion of hybrid instruments will amplify the investment routes
for the start-up sector and encourage new ventures to come into existence.
Announcements
Textile sector allocation has been increased to Rs. 7148 crores in 2018-19 from Rs. 6000
crores in 2016 with primary focus on the apparel and made up segments.
Customs duty on Silk fabric has been raised from 10% to 20%.
Impact
Will encourage companies to focus more on higher value products (fabric and garments
instead of Yarn).
Stocks to focus
KPR Mill, Ambika Cotton Mills, Himatsingka Seide, Sintex Industries.
Start-UpTextile
Announcements
Basic Customs Duty hiked on Truck and Bus radial Tyres from 10% to 15%.
Impact
Positive impact on Radial tyre manufacturers in India.
Stocks to focus
JK, CEAT, MRF and Apollo.
Tyres
13
ECONOMY & STRATEGY
Exhibit: Budget at a Glance (Rs. Cr.)
2016-17
Actuals
2017-2018
RE
2018-2019
BE
1 Revenue Receipts 1374203 1505428 1725738
2. Tax Revenue(Net to Centre) 1101372 1269454 1480649
3. Non-Tax Revenue 272831 235974 245089
4 Capital Receipts 1 600991 712322 716475
5. Recovery of Loans 17630 17473 12199
6. Other Receipts 47743 100000 80000
7. Borrowings and Other Liabilitites 2 535618 594849 624276
8 Total Receipts (1+4) 1975194 2217750 2442213
9 Total Expenditure (10+13) 1975194 2217750 2442213
10 On Revenue Account of which 1690584 1944305 2141772
11 Interest Payments 480714 530843 575795
12 Grants in Aid for creation of capital assets 165733 189245 195345
13 On Capital Account 284610 273445 300441
14 Revenue Decit (10-1) 316381 438877 416034
as a % of GDP (2.1) (2.6) (2.2)
15 Eective Revenue Decit (14-12) 150648 249632 220689
as a % of GDP (1.0) (1.5) (1.2)
16 Fiscal Decit [9-(1+5+6)] 535618 594849 624276
as a % of GDP (3.5) (3.5) (3.3)
17 Primary Decit (16-11) 54904 64006 48481
as a % of GDP (0.4) (0.4) (0.3)
Source: Budget Documents, Karvy Research; RE: Revised Estimates, BE: Budget Estimates
1 Excluding receipts under Market Stabilisation Scheme
2 Includes drawdown of Cash Balance
Notes:
(i) GDP for BE 2018-2019 has been projected at Rs. 1,87,22,302 crore assuming 11.5% growth over the estimated GDP of Rs. 1,67,84,679 crore for 2017-18 (RE).
(ii) Individual items in this document may not sum up to the totals due to rounding o
(iii) Figures in parenthesis are as a percentage of GDP
14
ECONOMY & STRATEGY
(
`
ãÉÉJÉ BÉE®Éä½ àÉå)
(In
`
lakh crore)
14 15
Public Sector
Undertakings 0.04
Food
1.69
Subsidy
2.95
Central
Sector
Schemes
7.09
Economic
Services
2.27
Scheme
Expenditure
(CS+CSS)
10.15
Transfers,
Establishment
and Other
Expenditure
14.27
Other
Central
Expenditure
6.78
Interest
Payment
5.78
Autonomous Bodies 0.61
Regulatory/Statutary
Bodies
0.07
Others 0.28
Salary &
Allowances
2.07
Pension
1.68
Establishment
Expenditure
5.08
Other Grants/
Loaans
1.32
Finance
Commission
Transfers
1.09
Transfer
to States
2.41
Core of the Core
Schemes 0.78
Core
Schemes
2.28
Centrally
Sponsored
Schemes
3.06
Petroleum
0.25
Fertilizer
0.70
Others
0.31
Social
services 0.45
General
Services 1.02
Others 0.40
Budget Size
24.42
Debt
Receipts
6.24
Non Debt Capital Receipts, 0.92
Others 1.25
Capital
Receipts
7.16
Customs
1.12
Taxes
on UTs
0.05
GST
7.44
Union
Excise
Duties
2.60
Taxes on
Income
5.29
Gross Tax
Revenue
22.71
Transfer to
NDR Fund
0.03
Corporation
Tax
6.21
Others
1.23
Dividend &
Profit, 1.07
Net Tax
Receipts
14.81
Market
Loans
4.07
Interest
Receipts
0.15
Non-Tax
Revenue
2.45
State Share
of Taxes
7.88
Small Savings and
State Provident Fund
0.92
¤ÉVÉ] BÉEÉÒ °ô{É®äJÉÉ
BUDGET PROFILE
Others
1.33
Budget Profile
(Money Comes From Money Goes To)
Disclaimer
Analyst certication: The following analyst(s), J K Jain, who is (are) primarily responsible for this report and whose name(s) is/
are mentioned there in, certify (ies) that the views expressed herein accurately reect his (their) personal view(s) about the subject
security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specic
recommendation(s) or views contained in this research report.
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