2017-18 - KRChoksey · IMF has projected India’s GDP growth of 7.2% and 7.7% in 2017 and 2018...
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Transcript of 2017-18 - KRChoksey · IMF has projected India’s GDP growth of 7.2% and 7.7% in 2017 and 2018...
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2017-18 Innovative, Consistent, Focus on
Growth with Disciplined Approach
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Contents EXECUTIVE SUMMARY
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ROAD MAP AHEAD
THREE MAJOR EVENTS
KRCHOKSEY THEMES
BUDGET SPEECH
10 BUDGET THEMES
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Executive Summary
Sensex up by 500 points - Why Investors liked the Budget 2017?
1.The budget 2017 is consistent and has followed the roadmap the government has laid down in last 2 years. Various project initiatives taken by the government in last 2 years have further got the
boost with various measures announced by the government in the budget
Make in India | Clean India | Digital India | Skill India | Start up India | Railways | Defense | Infrastructure | Rural India
2. Budget has shown a very strong character for growth by giving thrust on Agriculture | Social and Rural Infrastructure, by covering all these programs.
• Expanding income base of farmers to double in next 5 years, holds the potential of expanding spending in rural India. And this is a good news for corporate sector as they would find larger demand
from rural India apart from government collecting more revenue from GST on such spending, eventually.
• Very importantly, contract farming is being proposed by the government, which means the corporate sector participation not only building farming business but also transforming rural economy
by aiding consumption growth.
• Micro irrigation, dairy farming business with higher allocations to the tune of 25% from budget promises to bring higher growth in business of such companies engaged in those activities.
Various proposals including MNREGA with allocation of INR 48,000 crores, rural housing with allocations of INR 23,000 crores, rural roads with INR 27,000 crores are once again providing greater
thrust for construction companies and material suppliers like cement, steel, pipes and others apart from FMCG companies as increased outlays will leave more sum of money in hands of masses who
would spend the amount, resulting in better prospects for corporate India.
“Expect LIC, IRCTC and AIR India to go listed ”
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Executive Summary
3.Thrust on Infrastructure – A big thrust with allocation of INR 396,135 crores:
FM has combined the Railways with a capital expenditure of INR 131,000 crores, into the overall Infrastructure portfolio of the budget. Infrastructure spend is provided for at INR 396,135 crores.
Investors have a reason to celebrate this move.
• Railways would end up spending money on automation, railways stations and passenger facilities.
• ABB | Siemens | G E T&D | Schneider kind of companies would stand benefited with larger allocation of money for passenger safety. They are big players in supplying automation and
electrification systems which results in safety to passengers.
• On the other end, construction majors like L&T could find larger orders inflow with projects like privatization of 25 railway stations, covering 500 stations for proving lifts and 7000 stations for
building solar power
• There appears to be a pleasant surprise in offing with proposal stating that railway tariffs will be based on or linked to costs and other alternative means of transportation. Does it mean
deregulations of railway tariff? Could it privatize railways eventually! Lets wait and see if it does happen!
4.Budget has stayed away from changing taxation systems both in Direct and Indirect Taxes. On the contrary they have given a sort of stimulus of INR 20,000 crores by forgoing taxes of INR 15,500
crores for personal income tax.
• FM reduced the tax rate to 5% from 10% for income under 5 lakh.
• Very smartly, FM has given tax concession of 5% to 96% of corporate tax payers who falls under MSE segment with revenue under INR 50 crores. In a way, post demonetization they welcomed
those corporates who stayed out of the tax bracket. In our view, this move will not only expand the number of corporate assesse but also would lead to increasing direct tax collection between
INR 75000 – 100,000 L crores.
• FM has partly compensated for loss in revenue by taxing personal income bracket of Rs 50 L to 100 L with adding the surcharge on them
• The MAT credit period has been extended by another 5 years to 15 years. Though it still assumes the tax rate of 20% which is relatively high. It holds the promise to help companies claiming MAT
credits, eventually with the longer period.
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Executive Summary
5.Fiscal Discipline and lower borrowings are the corner stone of this budget
• FM has pegged fiscal deficit target to 3.2% in FY 17-18 and @ 3% for following 3 years thereafter. Call it demonetization effect, the tax revenue collection has gone up by 17% revised estimates.
• With higher tax paying entities in corporate and personal tax segment post demonetization, along with net lower borrowings by 350,000 crores and thereby lower interest out go, plus higher
receipt of divestment of INR 72,500 crores, the FM could comfortably project down the target fiscal deficit to 3.2% in FY 17-18.
• In long times in recent times, India has not seen such a powerful balance sheet of the country which this budget has presented
• With number of tax payers on rise and GST roll out from 1st July 2017, the tax revenue of the country could indeed go up in CFY and it should result in higher spending on infrastructure. We see a
strong case of 15-20% CAGR in earnings of corporate India with such a large thrust coming into the economy under a well planned fiscal discipline.
6.Banking Reforms
• FM has provided INR 10,000 crores for recapitalization of ailing PSBs in the budget
• FM has also proposed to bring in a law to confiscate the assets of defaulted borrowers
• A new product called Securitized Receipts [SR] is being introduced. SR would help banks to collaterised the NPAs in to a financial product, which would be listed and traded on the market
platform. There by the bank would find a market exit from NPAs under such financial products. Today, banks are saddled with huge NPAs and this innovative approach could help bank in bringing
down the NPA load from balance sheet. Assets of defaulted borrowers like Sahara, Mallya, NSEL could also find market exit eventually if the proposed law comes into reality.
• We believe, government has smartly produced a way out to help PSBs improve their financial health under SR and law confiscation law.
8.Public Sector Enterprise [PSE| Reforms
• All Oil PSU, IOC, ONGC, GAIL, HPCL, BPCL and other public sector companies engaged in oil business when merged into one, will be the largest upstream and downstream exploration to refining
to oil marketing companies.
• This move could result in significant efficiency in their operations with larger control on costs and better utilization of resources by these companies.
• The combined entity would be displacing Reliance from being largest oil company in the country with a combined market capitalization in excess of INR 6 Lakh crores.
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Executive Summary
8.Public Sector Enterprise [PSE| Reforms (contd)
• We see this as a significant move as the government would end up reducing their holdings in favour new investors, which could result in massive value unlocking for the government, eventually.
• At the same time, with close to 3-4% of the total market cap, this entity could invite some of the large global investors only to have a very powerful impact on FPI inflows into it.
• Listing of profitable but unlisted PSE is a significant move proposed by FM, which will provide a significant addition of quality paper in the listed markets. We expect Air India and LIC kind of
companies to come up for listing eventually.
We find capital markets attracting new investors with high quality papers coming up for listing, signalling a mark shift in the benchmark indices, eventually.
9.Black money eradication – a big move, long awaited one!
• Bearer bonds [BB] for electoral funding is a new instrument which is being proposed by the government.
• BB will bring transparency in funding of political parties and will also bring down the black money element in funding of elections. This is a move in right direction as the country progresses for
• Political parties will have to file IT returns and this could also result in weak parties going out of the system. Currently, India has about 1900 political parties in the country and most of them are
small parties with very insignificant presence. Their outfits are nothing short of money laundering machines.
• We expect, this move of government is expected to result in smart consolidation of political parties eventually and it could result in better stability in parliaments thereafter.
• This is a reform in right direction of strengthening political systems in our country.
Overall, this budget scores good marks as it is consistent, growth oriented, reformist, innovative and most importantly it carries no nonsense in its proposals. This is a mark shift and this
government must be complimented for not making market dance and produce volatility under the budget proposals.
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Finance Minister Mr. Arun Jaitley in his budget 2017 speech addressed the governments mission to bring a transformative shift to the governance landscape of our country. The government has moved from a discretionary administration to a policy and system based administration; from favoritism to transparency and objectivity in decision making; from blanket and loose entitlements to targeted delivery; and from informal economy to formal economy. IMF has projected India’s GDP growth of 7.2% and 7.7% in 2017 and 2018 respectively with expectations of India to be one of the fastest growing world economies. The World Bank, however has a more optimistic outlook with GDP growth projected of 7% in FY17E, 7.6% in FY18E and 7.8% in FY19E. CPI inflation declined from 6% in July 2016 to 3.4% in December 2016 and is expected to remain within RBI’s mandated range of 2% to 6%. India’s Current Account Deficit declined from about 1% of GDP last year to 0.3% of GDP in the H1FY17. Foreign Direct Investment (FDI) increased from INR 1.07 Lakh Crs in H1FY16 to INR 1.45 Lakh Crs in H1FY17. This marks an increase by 36%, despite 5% reduction in global FDI inflows. Foreign exchange reserves reached USD 361bn as on 20th Jan 2017 which represents a comfortable cover for about 12 months of imports.
Budget Speech
Budget Speech 7
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GST
•The GST Council has finalized its recommendations on almost all the issues based on consensus on the basis of 9 meetings held
•Preparation of IT system for GST is also on schedule.
•The extensive reach-out efforts to trade and industry for GST will start from 1st April, 2017 to make them aware of the new taxation system.
DEMONETIZATION
•Government’s resolve to eliminate corruption, black money, counterfeit currency and terror funding
•The surplus liquidity in the banking system will lower borrowing costs and increase the access to credit
•Pace of remonetisation has picked up and will soon reach comfortable levels despite temporary drop in economic activity
ADVANCEMENT OF UNION BUDGET & RAIL BUDGET MERGER
•Union Budget has been advanced to 01 Feb to enable the Parliament to avoid a Vote on Account and pass a single Appropriation Bill for FY18E, before the close of the current financial year.
•Possibility to operationalise all schemes and projects, including the new schemes, right from the commencement of the next financial year.
•The merger of Rail Budget brings the Railways to the centre stage of Government’s fiscal policy and would facilitate multi modal transport planning between railways, highways and inland waterways.
Three Major Events
Three Major Events 8
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Source: KRChoksey Research
Actual Revised Budgeted INR in crs 2016 2017RE Y-o-Y 2018BE Y-o-Y 1. Tax Revenue Gross Tax Revenue 1455648 1703243 17% 1911579 12% Corporation Tax 453228 493923 9% 538745 9% Taxes on Income 287637 353174 23% 441255 25% Wealth Tax 1080 0 0 Customs 210338 217000 3% 245000 13% Union Excise Duties 288073 387369 34% 406900 5% Service Tax 211414 247500 17% 275000 11% Taxes on Union Territories 3878 4277 10% 4679 9%
Less: NCCD transferred to NCFF/NDRF 5690 6450 13% 10000 55%
Less: States Share 506193 608000 20% 674565 11% 1a Central Tax Revenue 943765 1088793 15% 1227014 13% 2. Non- Tax Revenue 251260 334770 33% 288757 -14% Interest Receipt 25378 18149 -28% 19021 5% Dividend and Profits 112127 153222 37% 142430 -7% Other Non Tax Revenue 110336 159115 44% 122728 -23% Receipts of Union Territories 1538 1402 -9% 1518 8%
Total Revenue Receipts(1a + 2) 1195025 1423563.00 19% 1515771.00 6%
3. Capital Receipts A. Non-debt Receipts
(i) Recoveries of loans and advances@ 20835.00 11071.00 -47% 11933.00 8%
(ii) Miscellaneous Capital Receipts 42132.00 45500.00 8% 72500.00 59%
B. Debt Receipts* 532791.00 534273 0% 546531 2% Total Capital Receipts (A+B) 595758.00 590844.00 -1% 630964.00 7%
Total Receipts (1a+2+3) 1790783.00 2014407.00 12% 2146735.00 7%
4. DRAW-DOWN OF CASH BALANCE
13170 40227 205% 12844 -68%
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Source: KRChoksey Research
INR in crs Actual Revised Budgeted
2016 2017RE Y-o-Y 2018BE Y-o-Y
A. Centre’s Expenditure
I Establishment Expenditure of Centre 334,870 406,711 21% 437,538 8%
II Central Sector Schemes/ Projects 521,374 624,411 20% 666,644 7%
III Other Central Sector Expenditure 592,909 585,589 -1% 619,225 6%
a. Statutory and Regulatory Bodies 5,818 6,196 6% 6,482 5%
b. Autonomous Bodies 41,939 49,331 18% 60,278 22%
c. Public Sector Undertakings 9,696 8,090 -17% 4,639 -43%
d. Public Sector Banks 25,000 25,000 0% 10,000 -60%
e. Financial Institutions 1,627 1,905 17% 4,608 142%
f. Others 508,829 495,066 -3% 533,758 8%
B. Centrally Sponsored Schemes and other Transfers
IV Centrally Sponsored Schemes 203,741 245,435 20% 278,433 13%
V Finance Commission Grants 84,579 99,115 17% 103,101 4%
VI Other Grants/Loans/Transfers 53,310 53,146 0% 41,794 -21%
Grand Total 1,790,873 2,014,407 12% 2,146,735 7%
Primary deficit 92,470 51,204 -45% 23,454 -54%
Fiscal Deficit 535,090 534,273 0% 546,532 2%
Fiscal Deficit % 3.93% 3.20% 3.20%
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4.89% 4.43%
4.05% 3.93%
3.20% 3.20%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
2012-13 2013-14 2014-15RE 2015-16RE 2016-17BE 2017-18BE
Fiscal deficit
Fiscal deficit Linear (Fiscal deficit)
Source: Ministry of finance, KRChoksey Research
9.9%
10.3%
10.0% 9.9%
10.7%
11.2% 11.2%
9.00%
9.50%
10.00%
10.50%
11.00%
11.50%
FY12 A FY13 A FY14 A FY15 A FY16 A FY17 BE FY18 BE
Tax to GDP ratio
Tax to GDP ratio
8.1% 10.4% 10.8%
8.0% 6.3%
9.0% 9.0%
16.2% 18.3%
20.5%
14.7%
7.3%
18.1%
24.9%
0%
5%
10%
15%
20%
25%
30%
FY12 A FY13 A FY14 A FY15 A FY16 A FY17 BE FY18 BE
% growth in corporate tax % growth in income tax
1.7% 1.6% 1.5% 1.5% 1.5% 1.6% 1.4%
1.6% 1.8% 1.5% 1.5%
2.1% 2.2% 2.4%
1.1% 1.3%
1.4% 1.3%
1.5% 1.6% 1.6%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
FY12 A FY13 A FY14 A FY15 A FY16 A FY17 BE FY18 BE
- Customs - Union Excise Duities - Service Tax
Indirect Tax - Contribution from Custom, Excise & Services Taxes
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Energize various sections of society, especially the
youth and the vulnerable, and enable them to
unleash their true potential
Transform the quality of
governance and quality of life of
our people
Clean the country from the evils of corruption, black money and non-
transparent political funding
TEC INDIA
Road Map Ahead
Road Map Ahead 12
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Farmers Rural Population
Youth
Poor & the Underprivileged
Infrastructure Financial Sector
Digital Economy
Public Service
Prudent Fiscal Management
Tax Administration
10 Budget Themes
10 Budget Themes 13
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Agriculture is expected to grow at 4.1% in the current year on account of a superior monsoon
The target for agricultural credit in 2017-18 has been fixed at a record level of INR 10 Lakh Crs
Coverage of Fasal Bima Yojana scheme will be increased from 30% of cropped area in FY17E to 40% in FY18E and 50% in FY19E
Set up 1,000 new mini labs in Krishi Vigyan Kendras (KVKs) for Issuance of Soil Health Cards Long Term
Irrigation Fund has already been set up in NABARD and a total corpus of this Fund to INR 40,000 Crs
Dairy Processing and Infrastructure Development Fund to be set up in NABARD with a corpus of INR 8,000 Crs over 3 years
FARMERS
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RURAL POPULATION
Swachh Bharat Mission is progressing and sanitation have gone up to 60%
Allocation for MGNREGA has been increased to INR 48,000 Crs in FY18E
MGNREGA to support at least 100 days employment to every rural household. With Women participation increased to 55%
The Pradhan Mantri Gram Sadak Yojana (PMGSY)allocates INR 27000 Crs FY18E. Pradhan Mantri Awaas Yojana Gramin was allocated sum of INR 23,000 Crs in FY18E
Pace of construction of PMGSY roads accelerated to 133 km roads/day in FY17E, against an average of 73 km/day in 2011-2014
The Government will continue to work closely with the farmers and people in rural to improve their life & environment. Total allocation was INR 1.87 Lakh Crs
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100 India International Skills Centre's will be established
across the country
National Testing Agency to be set-up as an autonomous and self-sustained premier testing
organization to conduct all entrance examinations for
higher education institutions
Skill Acquisition and Knowledge Awareness for
Livelihood Promotion programme (SANKALP) to
be launched at a cost of INR 4,000 Crs
Next phase of Skill Strengthening for Industrial
Value Enhancement (STRIVE) will also be launched in FY18E
at a cost of INR 2,200 Crs
Incredible India 2.0 Campaign will be launched
across the world to promote tourism and
employment
YOUTH
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The allocation for Scheduled Tribes has been increased to INR 31,920 Crs and for Minority Affairs to INR 4,195 Crs
Mahila Shakti Kendra will be set up with an allocation of INR 500 Crs in 1.4mn ICDS Anganwadi Centres
Affordable housing to be given infrastructure status
National Housing Bank will refinance individual housing loans of about INR 20,000 Crs in FY18E
Rationalize and amalgamate the existing labour laws into 4 Codes on (i) wages; (ii) industrial relations; (iii) social security and welfare; and (iv) safety and working conditions
Propose to amend the Drugs and Cosmetics Rules to ensure availability of drugs at reasonable prices and promote use of generic medicines
For senior citizens, Aadhar based Smart Cards containing their health details will be introduced
THE POOR AND THE
UNDERPRIVILEGED
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Railway lines of 3,500kms will be commissioned in FY18E. During FY18E, at
least 25 stations are expected to be awarded
for station redevelopment
Proposed to set up strategic crude oil reserves at 2 more locations, namely,
Chandikhole in Odisha and Bikaner in Rajasthan. This will take our strategic reserve capacity to 15.33
MMT
A new Metro Rail Act will be enacted by rationalizing the
existing laws. This will facilitate greater private
participation and investment in construction and
operation
For FY18E, the total capital and development
expenditure of Railways has been pegged at INR 1.31 Lakh Crs. This includes INR 55,000
Crs provided by the Government
For transportation sector as a whole, including rail, roads, shipping, provision
of INR 2.41 Lakh Crs has been made in FY18E.
In the road sector, Budget allocation for highways
increased from INR 57,976 Crs in BE FY17E to INR 64,900 Crs in FY18E
Select airports in Tier 2 cities will be taken up for
operation and maintenance in the PPP
mode
By the end of FY18E, high speed broadband
connectivity on optical fibre will be available in
more than 1,50,000 gram panchayats, under
BharatNet
INFRASTRUCTURE
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Revised mechanism and procedure to ensure time bound listing of identified
CPSEs on stock exchanges. The shares of Railway PSEs like IRCTC, IRFC and IRCON
will be listed in stock exchanges.
Bill relating to curtail the menace of illicit deposit
schemes will be introduced
An expert committee will be constituted to study and promote creation of an operational and legal framework to
integrate spot market and derivatives market in the agricultural sector, for
commodities trading
In line with the ‘Indradhanush’ roadmap INR10,000 Crs for
recapitalization of Banks provided in FY18E
A new ETF with diversified CPSE stocks and other
Government holdings will be launched in 2017-18
Lending target under Pradhan Mantri Mudra Yojana to be set
at INR 2.44 Lakh Crs. Priority will be given to Dalits, Tribals,
Backward Classes and Women.
FINANCIAL SECTOR
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12.5mn people have adopted the BHIM app so far. The Government will launch two new schemes to promote the usage of BHIM; these are, Referral Bonus Scheme for individuals and a Cash back Scheme for merchants.
A Mission will be set up with a target of 2,500 Crs digital transactions for FY18E through UPI, USSD, Aadhar Pay, IMPS and debit cards
Banks have targeted to introduce additional 1mn new POS terminals by March 2017. They will be encouraged to introduce 2mn Aadhar based POS by September 2017
Proposed to create a Payments Regulatory Board in the Reserve Bank of India by replacing the existing Board for Regulation and Supervision of Payment and Settlement Systems
DIGITAL ECONOMY
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A Centralized Defense Travel System has been developed through which travel tickets can be booked online by our soldiers and officers
Web based interactive Pension Disbursement System for Defense Pensioners will be established
To utilize the Head Post Offices as front offices for rendering passport services
The Government e-market place which is now functional for procurement of goods and services
PUBLIC SERVICE
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Stepped up allocation for Capital expenditure by 25.4% over the previous
year
Revenue Deficit of 2.3% in BE 2016-17 stands reduced to 2.1% in
the Revised Estimates. The Revenue Deficit for next year is
pegged at 1.9% against 2% mandated by the FRBM Act
FRBM Committee has recommended 3% fiscal deficit for the next 3 years, keeping in mind the sustainable debt target and
need for public investment, fiscal deficit for FY18E is targeted at 3.2% of GDP and Government remains
committed to achieve 3% in the following year
Total resources being transferred to the States and
the Union Territories with Legislatures is INR 4.11 Lakh
Crs, against INR 3.60 Lakh Crs in BE 2016-17
Net market borrowing of Government restricted to INR 3.48 Lakh Crs after buyback in
2017-18, much lower than INR 4.25 Lakh Crs of the previous year
Consolidated Outcome Budget, covering all Ministries and
Departments, is being laid along with the other Budget documents
PRUDENT FISCAL
MANAGEMENT
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MAT credit is allowed to be carried forward
up to a period of 15 years instead of 10
years at present
Corporate Tax rate for MSME’s with
annual turnover less than INR 50 Crs to be
at 25%
Concessional withholding rate will
be extended to 3o Jun 2020 and for
Rupee denominated masala bonds
No Cash transactions above INR 3 Lakh
India is largely a tax non-compliant
society
Transparency in Political funding
Parties continue to receive anonymous donations
TAX ADMINISTRATION
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AGRICULTURE
BANK
HOUSING
INFRASTRUCTURE
OIL & GAS
RAILWAYS & TRANSPORTATION
TELECOM
MISCELLANEOUS
KRChoksey THEMES
KRChoksey THEMES
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KRChoksey THEMES
POSITIVE
Government’s agenda of “Pro Poor and Pro Growth” was underlining theme towards uplifting of dwindling
rural economy. Demonetization’s temporary impact on Indian economy led to subdued sentiments amongst
farmers and overall economy per se. Keeping in mind the ill effects as well as benefits of demonetization,
Government delivered a complete package covering various benefits for Rural and Agriculture sector.
Key measures
• Agriculture will grow at 4.1% on account of better monsoons and higher area sown under kharif and rabi
season bearing in mind to reach the target of doubling farmer’s income in 5 years.
• The target for agricultural credit has been set at a record of INR 10 Lakh Crs for FY18. During this period,
farmers will continue to reap benefits from 60 day interest waiver under cooperative credit structure as
announced on 31st December, 2016.
• Funds to be set up in NABARD focuses on:
• Long Term Irrigation Fund taking a total corpus of INR 40,000 Crs i.e an addition of INR 20,000
Crs sanctioned in Budget Estimate 2017-2018.
• Micro Irrigation Fund taking an initial corpus of INR 5,000 Crs with an aim of ‘per drop more crop’.
• Dairy Processing and Infrastructure Development Fund for setting up milk processing units with a
corpus of INR 8,000 Crs in a span of 3 years starting with a corpus of INR 2,000 Crs.
• To digitise and integrate 63,000 functional Primary Agriculture Credit Societies with Core Banking
System of District Central Cooperative Banks with a time horizon of 3 years at an estimated outlay
of INR 1,900 Crs. This will ensure timely availability of credit to farmers.
23,694
50,437 53,806
56,992
-
10,000
20,000
30,000
40,000
50,000
60,000
A 2015-2016 BE 2016-2017 RE 2016-2017 BE 2017-2018
Agriculture and Allied Activities Expenditure (INR Crs)
INR 187,223 Crs Proposed to be allocated to Agriculture, Rural and Allied Sectors for FY2017-18
AGRICULTURE
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Source: Ministry of Finance
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KRChoksey THEMES
AGRICULTURE
90,235
1,02,543
1,14,947
1,28,560
-
20,000
40,000
60,000
80,000
1,00,000
1,20,000
1,40,000
A 2015-2016 BE 2016-2017 RE 2016-2017 BE 2017-2018
Rural Development Expenditure (INR Crs) Key measures (continued..)
• The insurance scheme launched by the Government viz. Fasal Bima Yojana is expected to increase its
coverage from the current level of 30% of the cropped area to 40% by FY18 and 50% by FY19 with set
provision of INR 9,000 Crs as against INR 13,240 Crs in Revised Estimate 2016-2017
• Set up of new mini labs in Krishi Vigyan Kendras (KVKs) ensuring 100% coverage of all 648 KVKs in the
country for soil sample testing.
• The coverage of National Agricultural Market will be expanded from current 250 markets to 585
markets. For this, assistance of INR 75 Lakhs will be capped to every market for cleaning, grading and
packing facilities so as to enable farmers to get better prices for their produce.
• Against target of 5 lakh farm ponds under MGNREGA, 10 lakh farm ponds would be completed by
March 2017. During 2017-18, another 5 lakh farm ponds will be taken up under said scheme.
TOP PICKS UPL, Advanta, Emmbi Industries and Jain Irrigation
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Source: Ministry of Finance
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POSITIVE
Recapitalization of banks, resolution of NPAs, boost in infrastructure spending.
Key measures
• National Housing Bank will refinance individual housing loans of about INR 20,000 crs in 2017-18. This will
positively impact the housing finance companies with respect to the governments boost to the
affordable housing for all.
• With the PSU banks under the significant stress of bad loans, the government has announced INR 10,000
Crs in-line with the ‘Indradhanush’ for the recapitalization of the banks to be provided in 2017-18. This will
provide some relief for PSU banks in terms of capital and aid bad loans resolution.
• Further, the government has also increased the allowable provisions for NPA for tax rebate from 7.5% to
8.5% which will reduce the tax liability of the banks.
• Listing and trading of Security Receipts issued by a securitization company or a reconstruction company
under the SARFAESI Act will be permitted in SEBI registered stock exchanges. This will enhance capital
flows into the securitization industry and will particularly be helpful to deal with bank NPAs.
INR 20,000 Crs National Housing Bank will refinance individual housing loans of about INR in 2017-18
1,759
2,395
2,943
5,504
0
1,000
2,000
3,000
4,000
5,000
6,000
2,013 2014 2015 2016
Gross NPAs for banks (INR in bn)
Source: Reserve bank of india
BFSI
KRChoksey THEMES 27
www.krchoksey.com
Contd..
• Lending target under Pradhan Mantri Mudra Yojana has been set at INR 2.44 lakh crs, this will boost small
business credit for banks.
• Government borrowings have come down from INR 4.54 lakh crs to INR in 2015-16 to 3.48 lakh crs. This
will help in reducing interest rates as demand in bond market will reduce.
• The government has received overwhelming response in the recent Further Fund Offering (FFO), they are
further focusing on ETF as a vehicle for further disinvestment of shares.
• The government has announced various measures for infrastructure and rural development which will
boost credit growth for the banks and the NBFC’s.
• With affordable housing is been given as infrastructure status, housing finance companies will be
impacted positively. The government has already revealed their focus by the interest rate subvention
scheme for affordable housing.
INR 2.44 lakh crs Lending target under Pradhan Mantri Mudra Yojana has been set to boost small business credit for banks.
4547 4418
3658 3502
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
2015-16 2016-17(BE) 2016-17(RE) 2017-18
Government borrowings (in bn)
Government borrowings (in bn)
Source: Ministry of finance
Top picks: SBI, Yes bank, PNB housing finance
BFSI
KRChoksey THEMES 28
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Digitalization
Key measures
•Government laid major emphasis on transforming the economy through digitalization across all sections of the society. Moreover, the Budget 2017-18 targets to address & resolve
economic issues and drive growth through digitalization. The finance minister laid immense focus on the role of digital payments/transactions through this budget, which was
evidenced by the adoptions of BHIM app (1.25 Cr) and the expected launch of Aadhar Pay shortly. Further more, Government will promote Digital Payments through two schemes,
namely Referral Bonus Scheme for Users and Cash-Back Scheme for merchants.
•For people who cannot access various channels of Digital Payment technology, the Government will soon launch Aadhar enabled payment system – Aadhar Pay. In this regard, banks
will be encouraged to introduce 20 lac Aadhar based POS terminals by September 2017. This will provide further boost to the formal banking system and financial inclusion.
•The government has targeted to achieve 2,500 Cr transactions under various Digital Payments initiatives for 2017-18.
•In order to facilitate the Digital Payment drive, all duties (BCD, CVD and SAD) on miniaturized Point of Sale (mPOS) card readers and components of mPOS have been abolished.
•In a drive to instil digitalization across the political landscape, political parties will now be entitled to receive donations by digital mode. Political parties can receive only INR 2000 in
cash from 1 person, in excess of that will be funded through banking channel only.
•Through this Union Budget, the Government has proposed to amend the RBI act and allow issuance of Electoral Bonds as an additional channel to raise funds. In line with Digital
Initiatives, donors will be allowed to purchase these bonds only though cheque or digital modes.
KRChoksey THEMES 29
BFSI
www.krchoksey.com
KRChoksey THEMES
POSITIVE
Major focus on plans of affordable housing and “Housing for All” schemes to drive growth in the Housing
sector.
Key measures
• Government proposes to construct 1 Crs houses by 2019 for the houseless and those living in kutcha
houses. The total outlay for Pradhan Mantri Awaas Yojana- Gramin has surged from INR 15,000 Crs in BE
2016-17 to INR 23,000 Crs in 2017-18 which will lead to a significant off-take in housing sector. Further,
affordable housing has now been given infrastructure status which will enable these projects to avail the
associated benefits leading to higher investment in affordable housing sector by the private players.
• Additionally, the announcements by PM Mr. Narendra Modi in the New Year speech, particularly, with
respect to interest rate rebate of 3% for INR 12 lakh housing loans should boost demand for real estate
market in the tier II and tier III cities.
• The National Housing Bank will refinance individual housing loans of about INR 20,000 Crs in 2017-18. The
Banks have already started reducing their lending rates, including those for housing on the back of
surplus liquidity created by demonetisation.
The budget 2017-18 stands extremely positive for the Housing sector with enhanced thrust on affordable
housing.
TOP PICKS Ashiana Housing
INR 23,000 Crs Budget outlay for Pradhan Mantri Awaas Yojana- Gramin
HOUSING
Housing shortage PAN India
Source: KRChoksey Research
30
www.krchoksey.com
KRChoksey THEMES
POSITIVE
Major focus on development of roads, railways and inland waterways expected to give a significant boost to
the infrastructure sector.
Key measures
• The pace of construction of Pradhan Mantri Gram Sadak Yojana (PMGSY) roads has accelerated to reach
133 km roads per day in 2016-17, as against an average of 73 km during the period 2011-2014 and a further
outlay of INR 27000 crs is planned for PMGSY in 2017-18 which will boost the rural road construction
project of the Government.
• On the other hand, the budget allocation for construction of national highways has been increased from
INR 57,976 crs in BE2016-17 to INR 64,900 crs in 2017-18 which will result in better connectivity between
states and major cities. Additionally, 2000kms of coastal roads have been identified for construction and
development in-order to provide better connectivity between ports and remote villages.
• Selected airports in tier 2 cities will be taken up for operation and maintenance in the PPP mode. Airport
Authority of India Act will be amended to enable effective monetisation of land assets which will be
utilised for airport up-gradation.
• At least 25 railway stations are expected to be awarded during 2017-18 for redevelopment.
Overall, the total allocation for infrastructure development stands at INR 3,96,135 crs and the sector
continues to be one of key focus of the Government
TOP PICKS NBCC india, KNR Constructions, Dilip Buildcon, Ashoka Buildcon, PNC Infratech
INR 64,900 Crs Budget allocation for construction of national highways
INFRASTRUCTURE
90235
102543
114947
128560
2015-16 2016-17(BE) 2016-17(RE) 2017-18
Rural development outlay (INR crs)
31
Source: Ministry of Finance
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KRChoksey THEMES
Integration of all Oil & Gas PSU into one large unit to take on global players Companies to be integrated: ONGC, Oil India, IOCL, BPCL, HPCL
Key Measures
• Govt. thought plan of integration of all OIL PSU’s into one integrated unit will make one huge behemoth to take on global players like BP,
Chevron, Exxon Mobil, Shell, Saudi Aramco, Sinopec and PetroChina etc. Indian companies lag behind the global firms in bagging major
exploration licenses because of size constraint and technology integration. All the major global players are present in all the three segments i.e.
Upstream, Midstream and Downstream segments. Creation of one large entity will create a company that is present in all the three verticals. In
turn it will have size, technology as well as integration advantage over other global peers
• Custom duty cut to 2.5% from 5% on LNG import duty will be positive for companies that import LNG. It will boost setting up LNG terminals or
increasing LNG capacity. Positive for Petronet and GAIL
• For strengthening the sector, Government has decided to set up Strategic Crude Oil Reserves at Chandikhole in Odisha and Bikaner in Rajasthan
which will increase the strategic reserve capacity to 15.33mmt.
NEGATIVE
Integration of 5 major Oil & Gas companies into one entity will have its own challenges and will require lot of approvals from various ministries.
However if implemented it will be very positive for Indian Oil & Gas landscape
TOP PICKS Reliance Ind, ONGC, Petronet LNG, BPCL
OIL & GAS Integration of Oil PSU into one behemoth unit
2.5% Custom duty cut to 2.5% from 5% on LNG import duty
32
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KRChoksey THEMES
Oil & Gas Landscape of India
Public PSU refining capacity (mmt)
Current Expansion Total
IOCL 80.7 23.9 104.6
BPCL 30.5 22.5 53.0
HPCL 23.8 34.6 58.4
MRPL 15.0 6.0 21.0
Total 150.0 87.0 237.0
Private Companies refining capacity (mmt)
Current Expansion Total
Reliance 66.0 30.0 96.0
Essar 20.0 20.0
Other's 5.0 5.0
Total 86.0 30.0 121.0
Fuel Retail Outlets
Retail Outlets Current Licensed
IOCL 25627
BPCL 13619
HPCL 13978
Reliance 1400
MRPL 500
Essar 2682
Shell 83 2000
British petroleum 3500
Total 57389 6000
Source: Ministry of Petroleum
OIL & GAS
33
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KRChoksey THEMES
Oil & Gas Landscape of India
OIL production mmt Gas production bcm
ONGC 18.5 ONGC 21.2
Oil India Limited (OIL) 3.2 Oil India Limited (OIL) 2.8
Private / Joint Ventures (JVs) 11.3 Private / Joint Ventures (JVs) 8.2
Total 33.0 32
LNG Import 21.3
Total 53.6
Pipeline Length and capacity ONGC OIL Cairn HMEL IOCL BPCL HPCL Other Total
Crude Oil Length (KM) 1,180 1,193 670 1,017 4,867 937 ‐ ‐ 9,864
Cap (MMTPA) 57.1 8.4 8.7 9 40.4 6 2,957 ‐ 129.6
Products Length (KM) 654 6,739 1,935 31.6 2,687 14,972
Cap (MMTPA) 1.7 40.2 14.9 9.3 97.7
Petrochemical Capacity
Companies Capacity (mmtpa)
GAIL 0.81
Haldia Petrochemicals 0.35
IOC 2.1
Reliance Industries 24.0
Dhunseri Petrochem Ltd 0.41
Supreme Petrochem Ltd 0.27
Total 27.9
Source: Ministry of Petroleum
OIL & GAS
34
www.krchoksey.com
KRChoksey THEMES
Financial Landscape of Indian & Global Oil & Gas companies
USD million Indian Domestic PSU Indian Private Player Global Peers
IOCL BPCL HPCL ONGC Oil India Reliance Industries BP Chevron Exxon Mobil
Shell Sinopec Petrochina
Market Capitilisation 1207.02 664.46 361.71 1701.88 164.29 2254.38 116724.3 210203.1 344574.5 225288.5 42.39 1003.64
Sales 2347.8 1248.1 1236.8 855.9 61.6 1831.7 222894.0 103310.0 205004.0 264960.0 44.4 1142.8
PAT 74.2 52.3 32.5 93.4 13.2 182.8 -6482.0 -497.0 7840.0 1939.0 2.1 23.2
Debt 348.5 125.9 183.5 179.5 2.2 865.2 26288.0 27260.0 34982.0 26627.0 0.7 308.7
Cash 11.3 25.8 17.9 80.2 62.9 70.2 26389.0 11022.0 3705.0 31752.0 6.6 47.7
Equity Capital 918.8 386.9 349.8 1611.8 216.6 2840.0 151555.0 192478.0 215497.0 222500.0 14.6 1248.1
ROE 15.5 31.6 31.5 7.7 9.1 12.0 -3.8 -1.0 5.2 2.3 23.2 0.6
ROCE 9.4 16.6 10.6 5.3 6.7 7.5 0.0 0.0 3.3 0.0 23.3 2.2
Source: KRChoksey Research
OIL & GAS
35
www.krchoksey.com
KRChoksey THEMES
POSITIVE
The Union Budget 2017-18 stands positive for the railway sector with focus on surge in commissioning of
railway lines and road line. Railway has always been and continues to be the most important source of
transportation for freight.
Key measures
• For passenger safety, a Rashtriya Rail Sanraksha Kosh will be created with a corpus of INR 1 lakh Crs over a
period of five years.
• In the next three years, the throughout is proposed to be enhanced by 10%. This will be done through
modernization and upgradation of identified corridors.
• Railway lines of 3,500 kms will be commissioned in 2017-18 as against 2,800 kms in 2016-17. During 2017-18, at
least 25 stations are expected to be awarded for station redevelopment.
• Tariffs of railways would be fixed, taking into consideration costs, quality of service and competition from
other forms of transport.
• Railway tickets booked online through Indian Railways’ IRCTC portal will get marginally cheaper as they will
no longer attract a service charge. Currently, sleeper class tickets booked on IRCTC website are issued
against a service charge of INR 20 per transaction, while AC class tickets for INR 40 approximately.
TOP PICKS Titagarh Wagons Ltd, Kalindee Rail Nirman (Engineers) Ltd
3,500 kms Railway lines will be commissioned in 2017-18
RAILWAYS
744.6 804.1 836.6 892.2 926.4 975.2 1014.2 1058.8 1101.3 1107.0
2165.0
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY20E
Freight traffic (million tonnes)
9.1 11.5 11.2 12
13.3 14.5 15.4 15.2
17.7 16.9
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
Earnings from freight (in USD billion)
3.8 4.9 4.7 4.9
5.6 6.0 5.8 6.1 7.1 6.9
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
Passenger earnings (in USD billion)
36
Source: Ministry of Railways, IBEF
Source: Ministry of Railways, IBEF
Source: Ministry of Railways, IBEF
www.krchoksey.com
POSITIVE
Impetus to broadband connectivity through increased fund allocation to BharatNet Program
Key measures
•1,55,000 km of Optical Fibre Cables (OFC) laid out under the BharatNet Project.
•Allocation to BharatNet Project increased to INR 10,000 Cr for 2017-18.
•High speed broadband connectivity to be available to 1,50,000 Gram Panchayats by FY18
•WiFi Hotspots to be provided at Gram Panchayat level.
•Plan to leverage broadband connectivity under ‘DigiGaon’ to provide tele-medicine services, education and
skill development
.
TOP PICKS Sterlite Technologies, D-Link India
1,55,000km Optical Fibre Cables (OFC) laid out under the BharatNet Project
Telecom
KRChoksey THEMES 37
www.krchoksey.com
KRChoksey THEMES
POSITIVE
No major incentive for the auto sector as the Government leaves the excise duty unchanged. Greater
emphasis on rural, road development should kick-start volumes recovery for the industry
Key measures
• Total allocation for Rural, Agriculture and Allied sectors in Budget 2017-18 stands at INR 187,223 Crs
• MGNREGA allocation to be the highest ever at Rs. 48,000 Crs in 2017-18.
• Pace of construction of PMGSY roads accelerated to 133 km roads per day in 2016-17, against an avg. of 73
km during 2011-2014.
• Budget allocation for highways increased from INR 57,976 Crs in BE 2016-17 to INR 64,900 Crs in 2017-18.
• Over and above construction of Highways 2,000 kms of coastal connectivity roads have been identified
for construction and development
TOP PICKS Bajaj auto, Hero Motorcorp, Tata Motors and Maruti Suzuki
133 km roads per day Pace of construction of PMGSY roads accelerated in 2016-17
AUTO
38
Source: Ministry of Finance
87,413
1,07,098 1,03,508
1,24,375
-
20,000
40,000
60,000
80,000
1,00,000
1,20,000
1,40,000
A 2015-2016 BE 2016-2017 RE 2016-2017 BE 2017-2018
Transport Expenditure (INR crs)
www.krchoksey.com
KRChoksey THEMES
POSITIVE
Improved procurement of Dairy Products and lowest hike on Tobacco products in the last 5 Union Budgets
Key measures
• Government plans to boost farmers’ incomes through sale of Dairy products and in that regard, plans to
either upgrade or install new milk processing units. This will largely be carried out through Dairy
Processing & Infrastructure Fund in NABARD with a corpus of INR 8,000 Cr over next 3 years and an initial
fund of INR 2,000 Cr.
• Increase in the excise duty on cigarettes between 2.5% to 6.0% which is on a lower side as compared to
last 5 year in union budget.
• Government support for Rural Development- Support through MGNREGA will help rural consumer to
develop standard of living. Also initiative to support double income to farmers is supported and resolve
through it.
TOP PICKS ITC, HUL, Heritage, Hatsun.
INR 8,000 Crs Dairy Processing & Infrastructure Fund in NABARD
FMCG
116 122
128 132
140 146
153 160
167 175
183 191
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY20E FY21E
Production of Milk in India
20%
18%
21% 20%
10%
6%
FY12 FY13 FY14 FY15 FY16 FY17
Excise duty Hikes
39
Source: Ministry of Finance
Source: IBEF
www.krchoksey.com
KRChoksey THEMES
POSITIVE
The centre of focus for the Budget 2017-18 is the infrastructure space with major thrust on affordable
housing, “Housing for All”, construction of rural roads and national highways, redevelopment of railway
stations and consequently will lead to a significant benefit to the cement sector.
Key measures
• Government proposes to construct 1 Crs houses by 2019 for the houseless and those living in kutcha
houses. The total outlay for Pradhan Mantri Awaas Yojana- Gramin has surged from INR 15,000 Crs in BE
2016-17 to INR 23,000 Crs in 2017-18 which will lead to a significant off-take in housing sector. Further,
affordable housing has now been given infrastructure status which will enable these projects to avail the
associated benefits leading to higher investment in affordable housing sector by the private players.
• Additionally, the announcements by PM Mr. Narendra Modi in the New Year speech, particularly, with
respect to interest rate rebate of 3% for INR 12 lakh housing loans should boost demand for real estate
market in the tier II and tier III cities.
• The National Housing Bank will refinance individual housing loans of about INR 20,000 Crs in 2017-18. The
Banks have already started reducing their lending rates, including those for housing on the back of
surplus liquidity created by demonetisation.
INR 20,000 Crs Refinancing of individual housing loans by The National Housing Bank
CEMENT
285
297
322
349
376
411
420
433
46
0
478
69% 71% 74% 76% 79%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
100
200
300
400
500
600
FY16 FY17E FY18E FY19E FY20E
M T
P A
Cement Production Capacity Capacity Utilization
Source: KRChoksey Research
CEMENT
40
www.krchoksey.com
KRChoksey THEMES
CEMENT
Key measures (continued..)
• The pace of construction of Pradhan Mantri Gram Sadak Yojana (PMGSY) roads has accelerated to
reach 133 km roads per day in 2016-17, as against an average of 73 km during the period 2011-2014 and
a further outlay of INR 27000 crs is planned for PMGSY in 2017-18 which will boost the rural road
construction project of the Government.
• On the other hand, the budget allocation for construction of national highways has been increased
from INR 57,976 crs in BE2016-17 to INR 64,900 crs in 2017-18 which will result in better connectivity
between states and major cities.
TOP PICKS Dalmia Bharat, India Cements, Ramco Cements
41
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KRChoksey THEMES
Positive
In a major boost to India’s IT sector, Government laid huge emphasis on India’s transformation through a
Digital Economy.
Key measures
• In a major push to the Digital India initiative, the finance minister presented ‘Digital Economy’ as one of
the 10 distinct themes of the Budget. Emphasis on ‘Digital Economy’ was largely laid to improve
efficiency, accountability and transparency in the country.
• We expect that considerable focus will be laid on e-Governance in the upcoming financial year to facilitate
the Digital India initiative. In that regard, we expect several B2B and B2C platforms to be initiated and
implemented. Expect a major boost to digital platforms such as Apps and Portals to facilitate transactions
and business between PSUs, PSUs and Consumers and PSUs and Private Companies.
• We expect this to be a key positive for Platform Developers, System Integrators and Digital ecosystem
implementers.
• For example, development of GST frame work and technology was given to Infosys and Passport Seva
was developed by CMC Ltd. (now part of TCS)
TOP PICKS Tier-I IT Companies, Persistent Systems, Kellton Tech and Infibeam Incorporation
IT
42
www.krchoksey.com
NEUTRAL TO POSITIVE
Village electrification and focus on clean energy to drive growth for the sector.
Key measures
• An increased allocation of INR 4,814 Crs has been proposed under the Deendayal Upadhyaya Gram Jyoti
Yojana in 2017-18 and Government is well on its path of achieving 100% village electrification by 1st
May,2018.
• It is proposed to feed about 7,000 stations with solar power in the medium term giving a boost to
renewable energy. A beginning has already been made in 300 stations. Additionally, plans have been put
in place to take up 2,000 railway stations as part of 1000 MW solar mission.
Overall the budget 2017-18 stands neutral to positive for the power sector with focus on electrification of
rural areas and increased adoption of renewable energy.
TOP PICKS GE T&D,Schneider Electric Infrastructure Ltd
INR 4,814 Crs Increased in allocation proposed under the Deendayal Upadhyaya Gram Jyoti Yojana for achieving 100% village electrification.
POWER
21123
29493 30065
36718
2015-16 2016-17(BE) 2016-17(RE) 2017-18
Energy Outlay (INR crs)
43
Source: Ministry of Finance
KRChoksey THEMES
www.krchoksey.com
DISCLAIMER
ANALYST CERTIFICATION: We, Vaibhav Chowdhry (B.Com, MBA), research analyst, Nirvi Ashar (B.com, MBA), research analyst, Hemanshu Srivastava (B.Tech, MBA), research analyst, Ankit Merchant (M Com, BMS), research analyst, Mayank Babla (MCom & BSc Economics & Management) research analyst, Rajendra Bafna (BBA, MBA) research associate, Shweta Koltharkar (BCom, DFM), research associate, Kunal Shah (BE), research associate, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & Conditions and other disclosures: KRChoksey Shares and Securities Pvt. 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It is confirmed that, Vaibhav Chowdhry (B.Com, MBA), research analyst, Nirvi Ashar (B.com, MBA), research analyst, Hemanshu Srivastava (B.Tech, MBA), research analyst, Ankit Merchant (M Com, BMS), research analyst, Mayank Babla (MCom & BSc Economics & Management) research analyst, Rajendra Bafna (BBA, MBA) research associate, Shweta Koltharkar (BCom, DFM), research associate, Kunal Shah (BE), research associate, author of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific brokerage service transactions. 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It is confirmed that, Vaibhav Chowdhry (B.Com, MBA), research analyst, Nirvi Ashar (B.com, MBA), research analyst, Hemanshu Srivastava (B.Tech, MBA), research analyst, Ankit Merchant (M Com, BMS), research analyst, Mayank Babla (MCom & BSc Economics & Management) research analyst, Rajendra Bafna (BBA, MBA) research associate, Shweta Koltharkar (BCom, DFM), research associate, Kunal Shah (BE), research associate, author, do not serve as an officer, director or employee of the companies mentioned in the report. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject KRCSSPL and affiliates to any registration or licensing requirement within such jurisdiction. 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