Budget Special February 01, 2021

Bold and growth-oriented Budget

Visit us at www.sharekhan.com Union Budget Review (2021-2022) Bold and growth-oriented Budget Budget Special

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 - Š Large-caps: ICICI Bank, SBI, M&M, L&T, HDFC Life, HCL Tech, UltraTech, Powergrid, Cipla Š Mid-caps: JK Lakshmi Cement, AU Small Finance Bank, Polycab, Kajaria Ceramics, Supreme Ind, Max Financial Services, CESC, Tata Consumer

Budget summary (Rs ‘00 crore) 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 3.1 Source: Budget documents, Sharekhan Research

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Budget Highlights 2021-22

Fiscal Math Š 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 Š 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 Š Nominal growth in GDP pegged at 14.4% and the gross revenue receipts to grow by 16.7% in FY2022 Š Surge in allocation to healthcare sector largely driven by Rs35,000 crore allocation to rollout of corona vaccine

Disinvestment & Privatisation Š Disinvestment target of Rs. 1.75 trillion, which possibly includes proceeds from public offering of LIC of India Š Privatisation of central public-sector enterprises (CPSE) in non-core sectors apart from four identified core sectors Š Privatisation of two public-sector banks and one general insurance company in FY2022

Infrastructure Development & Capital Expenditure Š 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 Š 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 Š Removal of tax deduction at source for foreign investors in case of dividend from REIT and InvIT Š Setting up of Development Financial Institutions with an initial corpus of Rs. 20,000 crore Š Allocation of Rs. 3.06 trillion to ease stress on balance sheet of power distribution companies

Indirect Tax Š 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. Š No excise duty hike on cigarettes is relief to companies like ITC. Š 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. Š 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%. Š 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. Š Hike in custom duty on certain electronic components from 12.5% to 15%; and auto parts from 10% to 15% Š 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%. Š 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. Š For textiles, reduction in customs duty on caprolactum, nylon chips and nylon fibre & yarn reduced to 5% from 7.5%. Š Increase in customs duty on carbon black/bis-phenol A/Epichlorohydrin increased from 5%/Nil/2.5% to 7.5%. Š 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 Š 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). Š 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). Š 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. Š 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. Š 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. Š 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 Misses Sector 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 (á) M&M, Escorts Infrastructure Fund, Micro Irrigation corpus, etc. 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 (â) Havells, Voltas, Bluestar, Hitachi Air 12.5% to 15% Conditioning India Limited, Whirlpool Thrust on clean urban water (drinking water & waste water treatment): 1) Jal (á) L&T, Thermax, ABB India, VA TECH WABAG Jeevan Mission: outlay of Rs. 2.87 lakh crore over five years; and2) Urban LTD Swachh Bharat Mission: Rs 1.416 lakh crore over five years. Import duty on specified insulated wires and cables from 7.5% to 10% and (á) Polycab, KEI companies having strong manufacturing capabilities in India In Railways existing DFCs will commission by June 2022, three new DFC (á) KEC, Kalpataru Power, L&T, Siemens, ABB India 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) Bharat Mala projects: About 3800 km constructed in FY21 and 8500kms will (á) Cummins, L&T be awarded in FY22. Enhanced outlay to Rs. 1.180 lakh crore (Rs. 82000 crore in FY21BE) for ministry of road transport. 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 (á) UPL, Coromandel International and Dhanuka Rs. 30,000 crore in previous year) and agri-credit target of Rs. 16.5 lakh crore. Agritech Cement Higher allocation to MoRTH (up by 16%), NHAI (up 7.3%), Smart Cities (up 9.4%), (á)UltraTech, Shree Cements, The Ramco Pradhan Mantri Gram Sadak Yojana (up 90%) vis-à-vis FY21RE. Cements, JK Lakshmi Cement 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. 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 (á) Metropolis Healthcare, Thyrocare with an outlay of Rs 64180 crore over 6 year period towards strengthening Technologies, Dr Lal Pathlabs, Apollo Hospitals, healthcare infrastructure Fortis Healthcare

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Budget Hits and Misses Sector Hits (á) / Misses (â) Infrastructure Setting up of Development Finance Institution with a target of Rs. 5 lakh crore (á) L&T, Ashoka Buildcon, Sadbhav Engineering, lending portfolio over three years. PNC Infratech, JMC Projects and KNR Outlay towards MoRTH and NHAI up by 16% and 7% at Rs. 1,18,101 crore and Constructions, IRB InvIT 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. 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) (á) TCI Express doubled to Rs. 10 crore from Rs. 5 crore (for less than 5% of business in cash transactions). Metal and mining Revoking provisional countervailing duty (CVD) on imports of stainless steel (â) Jindal Stainless Steel and Jindal Stainless from Indonesia. Temporary revoking of CVD on imports from China and anti- (Hisar) dumping duty on certain hot rolled and cold rolled stainless steel flat products. Oil & Gas Government has proposed to monetise core pipeline infrastructure of GAIL, (á) GAIL (India) and IOCL IOCL and HPCL 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 (á) NTPC Limited and Power Grid to strengthen financial health of discoms Asset monetisation with transfer of power transmission assets worth Rs. 7000 (á) Power Grid crore to infrastructure InvIT 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 (á) DLF, Oberoi Realty, Prestige Estates, Brigade payments of up to Rs. 1.5 lakh for loans sanctioned on before March 31, 2021 Enterprise, Godrej Properties, Ashiana Housing to March 31, 2022; Tax holiday on profits earned by developers of affordable housing project approved by March 31, 2021 extended by another year Dividend income to REIT exempt from TDS. To make suitable amendments for (á) Embassy Office Parks REIT, Mindspace REIT debt financing of REITs by FPIs. Allocation towards smart cities increased to Rs. 6,450 crore for FY22, up 90% (á) Kajaria Ceramics, Century Plyboards, Supreme compared to FY21 RE Industries, Astral Poly Technik, Pidilite Industries, Asian Paints. Jal Jeevan Mission (Urban) to be launched and implemented over five years (á) Supreme Industries, Astral Poly Technik, with an outlay of Rs. 2.87 lakh crore. Pidilite Industries, Asian Paints.

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Tax Proposals Personal income tax proposals

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

Š Senior citizens above the age of 75 with only interest and pension income will not be required to file income-tax returns.

Š 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.

Š 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.

Š 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.

Š Advance tax liability on dividend income is only after payment of dividend. For foreign portfolio investors (FPIs), lower treaty rates will apply for TDS.

Š 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.

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

Š 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.

Š The government has proposed to make dividend payment to REIT/ InvIT exempt from tax deduction at source (TDS).

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

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Sectoral analysis Sector Key announcements Overall impact Key companies to be impacted Budget impact: Positive Sector view: Positive (Preferred picks: Ashok Leyland, Tata Motors, M&M) The budget has proposed a voluntary Positive Details of the scrappage scheme are scrappage policy for commercial vehicles (>15 awaited that will throw more light on years) and other vehicles (>20 years). 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 Automobiles beneficiaries. Increase in customs duties for certain auto parts Positive Positive as it would reduce price from the 10% currently to 15%. Auto components differential between domestic and included under this scheme are safety glass, imported auto parts in respective parts of electrical lighting, windscreen wipers, segments. Key beneficiaries would de-frosters and de-misters, ignition wiring sets Asahi Glass, Bosch, Motherson Sumi, and panel clocks. Lumax Auto Tech Allocation for rural development: The Positive We expect gradual demand creation government continues to focus on farm sectors from the increase in allocation for and has increased allocation to rural sector rural development. Companies such under various schemes such as agriculture as M&M, Escorts will benefit from Infrastructure Fund, Micro Irrigation corpus, etc. improvement in farm sector. Budget impact: Positive Sector view: Positive (Preferred picks: ICICI Bank, SBI, HDFC Life, AU Small Finance Bank, Max Financial Services,) Amending the Insurance Act, 1938 to increase Positive HDFC Life, ICICI Prudential Life, ICICI the FDI limit in Insurance to 74% from 49% Lombard General, Bajaj Finserv, Max and allow foreign ownership and control (with Financial Services safeguards) Asset Reconstruction Company Limited and Positive Banking & NBFCs Sector; will help Asset Management Company to resolve free up BFSI balance sheets, and also stressed assets problem of PSBs. expedite Recovery process Further recapitalization of Rs 20,000 crores for Positive Will help / support PSU Banks most PSU Banks is proposed in 2021-22. of whom are struggling with Capital constraints and NPA challenges For NBFCs with minimum asset size of Rs 100 Positive Positive for NBFCs like LT Finance crores, the minimum loan size eligible for debt Holding, HDFC, HFCs etc (having ticket recovery under SARFAESI) Act, to be reduced size of West Bengal.

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Sectoral analysis Sector Key announcements Overall impact Key companies to be impacted Budget impact: Positive Sector view: Positive (Preferred picks: L&T, Kalpataru Power, KEC International, Cummins India, Polycab and KEI Industries) Customs duty on room air conditioner and Negative Havells, Voltas, Blue Star and Hitachi refrigerator compressors hiked from 12.5% to Air Conditioning India Limited and 15% Whirlpool Import duty on inputs for LED lights such as Negative Crompton Consumer, Havells drivers, PCBs has been hiked from 5% to 10% Import duty on specified insulated wires and Positive Polycab, KEI Industries cables from 7.5% to 10% and companies having strong manufacturing capabilities in India Thrust on clean urban water (drinking water & Positive L&T, Thermax, ABB India, VA TECH waste water treatment): 1) Jal Jeevan Mission: WABAG LTD outlay of Rs 287,000 crore over five years; and 2) Urban Swachh Bharat Mission: Rs 1.416 lakh crore over five years. In railways existing DFCs will commission Positive KEC, Kalpataru Power, L&T, Siemens, by June 2022, three new DFC projects are ABB India Capital Goods 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. Bharat Mala projects: About 3800 km to be Positive Cummins, L&T 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. Capital outlay on defence services (Central Neutral L&T, Bharat Electronics 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) Customs duty on Copper Scrap lowered from Positive Havells, Voltas, Polycab, KEI, Blue Star, 5% to 2.5% Finolex Cables Budget impact: Positive Sector view: Positive (Preferred picks: Coromandel International and PI Industries) Agri infra fund and agri credit: Agri infra fund Positive To benefit farmer and thus positive increased to Rs. 40,000 crore (versus Rs. 30,000 for agri-commodity players like UPL, crore in the previous year) and agri-credit target Coromandel international, Dhanuka of Rs. 16.5 lakh crore. Agritech Fertiliser subsidy: Fertiliser subsidy provision Neutral Neutral for Gujarat Narmada Valley Agri and fertilisers has been increased sharply to Rs. 133,947 Fertilizers & Chemicals Ltd, Rashtriya crore for FY2021 (88% higher than earlier Chemical and Fertilizers (GNFC), budget estimate of Rs. 71,309 crore. However, National Fertilisers Limited, Madras for FY2022 fertiliser subsidy provision is at Rs. Fertilisers as subsidy provisions for 79,530 crore. FY2022 seems reasonable given sharply higher provisioning in FY2021.

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Sectoral analysis Sector Key announcements Overall impact Key companies to be impacted Budget impact: Neutral Sector view: Positive (Preferred picks: HUL, Dabur India, ITC and Tata Consumer Products) Cigarettes: No hike in tax rates - It was Positive In Union Budget 2020-21 weighted anticipated tax rate on cigarettes will be average tax rate on cigarettes was increased by 10-15% in Union Budget 2021-22. ~9%, which was passed on by ITC However, the Budget skipped a tax rate hike on through price hikes. With no increase cigarettes and avoided imposing any additional in the tax rate on cigarettes in the cess on tobacco and tobacco products. 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 Positive Higher allocation under AYUSH will be crore from Rs. 2,122 crore earlier positive for companies such as Dabur India and Emami Consumer Goods Customs duty on alcoholic beverages (including Neutral This will act as a neutral for liquor scotch, brandy, etc) has been reduced to 50% and alcoholic beverage companies as and AIDC of 100% has been imposed. So net-net there is no increase or deduction on there is no increase in the duty which was 150% actual duty rate on imports of liquor/ earlier. alcoholic beverages. Allocation for rural development: The Positive Rural demand for consumer goods government continues to focus on farm sectors is ahead of urban mainly on account and has increased allocation to rural sector better agri production and higher under various schemes such as agriculture stimulus provided by the government. Infrastructure Fund, Micro Irrigation corpus, etc. Further allocation under infra and micro irrigation scheme will give a boost to agri economy. Positive for HUL, Dabur India and Emami Budget impact: Neutral Sector view: Positive (Preferred picks: KPR Mill, Arvind and Titan) Jewellery - Custom duty on Gold & Silver Positive The deduction in customs duty on gold & rationalized from 12.5% to 7.5%. However silver is in line with demand for Jewellery Agriculture & Infra Development Cess (AIDC) of industry in the backdrop of rising gold 2.5% was imposed. Customs duty on precious prices. The overall cut of 2.5% will be metals such as platinum and palladium cut by beneficial for large branded players such 2.5% to 10%. as Titan. Consumer Discretionary So overall reduction is 2.5% on gold, silver & precious metals. Textile - Mega investment textile park; seven Positive Focus on making Indian textile textile parks will be established over three competitive in the exports market will years to make the sector export competitive. be positive for garment/textile exporting companies such as KPR Mill, Arvind and Welspun India, etc. Budget impact: Positive Sector view: Neutral (Preferred picks: Triveni Engineering, Balrampur Chini and Dhampur Sugar Mills) Allocation under scheme for creation and Positive Government is supporting sugar maintenance of buffer stock of 40 lakh metric mills to export sugar in the global tonnes of sugar from Rs. 500-600 crore markets. This is positive for large Sugar Allocation of Rs. 2000crore to providing sugar companies such as Balrampur assistance to sugar mills on export of sugar Chini, Dhampur Sugar Mills and Triveni (introduced for the first time). Engineering. Budget impact: Positive Sector view: Positive (Preferred picks - UltraTech, Shree Cements, The Ramco Cements and JK Lakshmi Cement) Higher allocation to MoRTH (up by 16%), NHAI Positive UltraTech, Shree Cement, The Ramco (up by 7.3%), Smart cities (up 90%), Pradhan Cements, JK Lakshmi Cement Mantri Gram Sadak Yojana (up 9.4%) vis-à-vis Cement & Cement FY21RE. Incentives for affordable housing have Products been extended by one year on additional tax exemption of Rs. 1.5 lakh for individuals and tax holiday for developers.

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Sectoral analysis Sector Key announcements Overall impact Key companies to be impacted Budget impact: Positive Sector view: Positive (Preferred picks: L&T, KNR Constructions, Ashoka Buildcon, Sadbhav Engineering, PNC Infratech and JMC Projects) Proposal to set up a Development Financial Positive L&T, Ashoka Buildcon, Sadbhav Institution. The government has provided a sum Engineering, PNC Infratech, JMC of Rs. 20,000 crore. Lending portfolio of at least Projects and KNR Constructions. Rs. 5 lakh crore targeted over three years. Outlay towards Ministry of Road Transport and Positive Ashoka Buildcon, Sadbhav Highways stands at Rs. 1,18,101 crore (up 16%) for Engineering, PNC Infratech, JMC FY22 as compared to FY21 RE. Outlay towards Projects and KNR Constructions. National Highways Authority of India (NHAI) is at Rs. 1,22,350 crore (up 7.3%) for FY22 as compared to FY21 RE. Proposal for relaxation of some conditions Positive L&T, Ashoka Buildcon, Sadbhav for 100% tax exemption on interest, dividend Engineering, PNC Infratech, JMC and capital gains income for sovereign wealth Projects and KNR Constructions. 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. Infrastructure Pradhan Mantri Gram Sadak Yojana outlay for Positive Ashoka Buildcon, Sadbhav FY21 stands at Rs. 15,000 crore, up by 9.4% as Engineering, PNC Infratech, JMC against FY20RE Projects and KNR Constructions. By March 2022, to award 8,500 km and Positive Ashoka Buildcon, Sadbhav complete an additional 11,000 km of national Engineering, PNC Infratech, JMC highway corridors. National Highway works of Projects and KNR Constructions. 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 Positive Ashoka Buildcon, Sadbhav Rs. 5,000 crore to get transferred to NHAI InvIT. Engineering, PNC Infratech, JMC Asset monetisation programme to be rolled out Projects and KNR Constructions. including NHAI operational toll roads. Debt financing of InvITs by foreign portfolio Positive IRB InvIT 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. Budget impact: Neutral Sector view: Neutral (Preferred pick – TCI Express, Mahindra Logistics, Gateway Distriparks) Proposals to undertake future dedicated Positive Container Corporation, Gateway freight corridor projects namely East Coast Distriparks 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 Logistics of 274.3 km will also be taken up in short succession. Railway Capital Outlay remained at elevated Neutral Container Corporation of India, level at Rs. 2.1 lakh crore. Gateway Distriparks Turnover threshold limit for audit of micro, small Positive TCI Express, as almost half of its & medium enterprises (MSMEs) increased to Rs. revenue is generated from MSME 10 crore from Rs. 5 crore (for less than 5% of sector. business in cash transactions).

February 01, 2021 11 Budget Special

Sectoral analysis Sector Key announcements Overall impact Key companies to be impacted Budget impact: Positive Sector view: Positive (Preferred picks: Reliance Industries, IGL, MGL, Gujarat Gas, Petronet LNG) Asset Monetization dashboard: Government Positive GAIL (India), IOCL and HPCL as the has proposed to monetise core pipeline move would help in value-unlocking infrastructure of GAIL, IOCL and HPCL. Add new districts to CGD network and Positive Indraprastha Gas, Mahanagar Gas, independent gas transport system: Plan to add Gujarat Gas and GAIL as it would 100 new districts for city-gas distribution mean a manifold increase in gas sales volumes Introduction of farm cess on petrol and diesel Neutral Neutral for IOCL, BPCL and HPCL 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 Oil & Gas Rs. 1.8/litre (versus Rs. 4.83/litre currently) Fuel subsidy provision: A sharp 66% cut in fuel Neutral Despite lower subsidy provision, we subsidy provision to Rs. 12,995 crore for FY2022 do see any impact on either upstream (versus Rs. 38,790 crore for FY2021) despite a PSUs (ONGC and Oil India) and OMCs sharp recovery in crude oil price to $55/bbl. (IOCL, BPCL and HPCL) given the DBTL for LPG subsidy to customers. A gas pipeline project will be taken up in Union Positive GAIL & GSPL Territory of Jammu & Kashmir. Cut in custom duty on naphtha to 2.5% Marginally Reliance Industries and IOCL Positive Disinvestment: Government has set Positive Privatisation of BPCL could re-rate disinvestment target of Rs. 1.75 lakh crore entire OMC pack (IOCL, BPCL and (including strategic divestment of stake in BPCL). HPCL). Budget impact: Positive Sector view: NA Power distribution scheme: Reforms-based Positive Positive for NTPC Limited and Power result-linked power distribution sector scheme Grid Corporation of India Limited as it with an outlay of Rs. 3,05,984 crore over five would improve their balance sheets years. To provide support to discoms for pre- with likely reduction in dues from paid smart metering, feeder separation and discoms. upgradation of systems. Focus to remove monopoly in power Positive Implementation of these reforms will distribution: A framework will be put in place be important for power sector as the Power to give consumers alternatives to choose from same would lead to privatisation of more than one discom. discoms. Positive for private players like Tata Power, Adani Power and CESC. Monetisation of power transmission assets: Positive Power Grid Corporation of India Power transmission assets worth Rs. 7000 crore as it is undergoing sale of TCBC transferred to InvIT assets through creation of power infrastructure InvIT.

February 01, 2021 12 Budget Special

Sectoral analysis Sector Key announcements Overall impact Key companies to be impacted Budget impact: Neutral Sector view: NA Lowered custom duty on certain steel Neutral Neutral for steel players like JSW products: Government has proposed to lower Steel, Tata Steel, SAIL and Jindal Steel custom duty on certain steel products (semis, & Power as there is not much imports flats, longs, stainless steel) to 7.5% from of long steel products. 10%/12.5% earlier. Revoking anti-dumping duty (ADD) and Negative Negative mainly for Jindal Stainless countervailing duty (CVD) on certain steel Steel and Jindal Stainless Hisar products: Revoking provisional countervailing duty (CVD) on imports of stainless steel from Indonesia, Metals & Mining temporarily revoking CVD on imports from China and anti-dumping duty on certain hot rolled and cold rolled stainless steel flat products. Scrappage policy and infrastructure investment Positive Positive for steel sector as the infra (DFI to be set-up for infra funding of Rs5 lakh push bodes well for higher steel crore). demand. Custom duty on copper scrap lowered to 2.5% Neutral Neutral for Hindalco Industries and from 5% earlier. Vedanta Limited (do not produce much of copper scrap as of now) Budget impact: Positive Sector view: Positive (Preferred Picks : Aurobindo, Cipla, Divis Laboratories, Laurus Labs, Granules, Sanofi India, Abbott India, Strides Pharma Science) Introduced AtmaNirbhar Swasth Bharat Yojana Positive Proceeds to be utilised towards in addition to National Health Mission with an setting up healthcare centers, public outlay of Rs. 64,180 crore over 6 years, towards health labs and critical care blocks strengthening healthcare infrastructure. in hospitals. Positive for - Metropolis Healthcare, Thyrocare Technologies, Dr. Lal Pathlabs, Apollo Hospitals, Fortis Healthcare Pharmaceuticals/ Allocation of Rs. 35,000 crore towards the Positive This could benefit pharmaceutical Healthcare COVID-19 vaccine in FY22 companies such as Cadila Healthcare, Dr Reddys which are developing COVID-19 vaccines. Total health budget outlay for FY2022 is Positive Positive for the sector at large as it estimated at Rs. 2.23 lakh crore as against Rs. could open up new growth avenues 94,000 crore in FY2021 for the companies in healthcare / pharmaceutical space. Budget impact: Positive Sector view: Positive (Preferred picks: Kajaria Ceramics, Century Plyboards, Supreme Industries, Astral Poly Technik, Asian Paints, Pidilite Industries) Extension of one more year for claiming Positive DLF, Oberoi Realty, Prestige Estates, additional deduction on loan interest payments Brigade Enterprise, Godrej Properties, of up to Rs. 1.5 lakh for loans sanctioned on Ashiana Housing among others. before March 31, 2021 to March 31, 2022. Tax holiday on profits earned by developers of Positive DLF, Oberoi Realty, Prestige Estates, affordable housing project approved by March 31, Brigade Enterprises, Godrej Properties, 2021 extended by one more year. Tax exemption for Ashiana Housing among others. notified affordable rental housing projects Debt financing of REITs by foreign portfolio Positive Embassy Office Parks REIT, Mindspace investors will be enabled by making suitable REIT Real Estate/ amendments in relevant legislations. Dividend Building materials payment to REIT exempt from TDS. Advanced tax liability on dividend income from REIT shall arise only after declaration/payment of dividends. Allocation towards Smart Cities increased to Rs. Positive Kajaria Ceramics, Century Plyboard, 6450 crore for FY22, up 90% compared to FY21 Supreme Industries, Astral Poly RE. Technik, Pidilite Industries, Asian Paints. Jal Jeevan Mission (Urban) to be launched and Positive Beneficial for Supreme Industries, implemented over five years with an outlay of Astral Poly Technik, Pidilite Industries, Rs. 2.87 lakh crore. Asian Paints. Source: Budget documents, Sharekhan Research February 01, 2021 13 Budget Special

Budget in Charts

Budget Reciepts Budget Payments

Non-Tax Non-Debt Other Centrally revenue Capital Expenditure sponsored 6% 5% 10% Schemes GST & other Pensions 9% tax 5% Central Sector 15% Borrowing & Schemes other 13% States share of Union Excise liabilities tax duties Duties 36% 8% 16%

Customs Interest 3% Finance Payments Commission & 20% Income tax other Corporation 14% 10% tax Subsidies Defence 13% 9% 8% Source: Budget documents, Sharekhan Research Source: Budget documents, Sharekhan Research Note: Total receipts are inclusive of States’ share of taxes and duties Note:- Total expenditure is inclusive of the States’ share of taxes and duties.

Gross tax revenue and Tax as % of GDP Rs. ‘00 cr Fiscal deficit movement and FD as % to GDP Rs. ‘00 cr

29,000 13.0 20,000 10.0 18,000 9.0 25,000 12.0 16,000 8.0 21,000 14,000 7.0 17,000 11.0 12,000 6.0 10,000 5.0 13,000 10.0 8,000 4.0 9,000 6,000 3.0 9.0 5,000 4,000 2.0 2,000 1.0 1,000 8.0 - - FY16 FY17 FY18 FY19 FY20 FY16 FY17 FY18 FY19 FY20 FY21RE FY21BE FY22BE FY21RE FY21BE FY22BE

Gross Tax Revenue Tax/GDP ratio (%) Fiscal Deficit (LHS) FD/GDP ratio (RHS,%) Source: Budget documents, Sharekhan Research Source: Budget documents, Sharekhan Research

Trends in Tax Receipts (% of GDP) Net Receipts of the Center (Rs in lakh crore)

1.9 11.2 11.2 10.4 10.6 10.9 0.7 10.2 10.1 10.0 9.8 9.9 1.1 2.4 3.3 0.5 1.2 2.4 2.1 0.7 1.9 2.7 5.9 6 0.6 5.6 5.6 5.6 5.5 5.4 5.6 5.3 5.1 5.0 2.5 4.5 4.8 4.4 4.4 5.2 4.9 4.7 4.9 15.5 13.2 13.6 13.5 11 12.4 9.4 12 13 14 15 16 17 18 22 21 2019 2011 - 2012 - 2013 - 2014 - 2015 - 2016 - 2017 - BE21 -

2018 - 2015-16 2016-17 2017-18 2018-19 2019-20 RE20-21 BE21-22 Re 2020 -

Gross Tax Receipt Direct Tax Indirect Tax Net Center's Tax revenue Non Tax Revenue Non Debt Capital Receipt Source: Budget documents, Sharekhan Research Source: Budget documents, Sharekhan Research

February 01, 2021 14 Know more about our products and services

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