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-KRChoksey Team Date29th Feb, 2016

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Budget for real India

Finance Minister Arun Jaitley in his budget 2016 speech stressed on Indian economy's resilience amidst the

current global economic turmoil. He believedGlobaleconomy is in a serious crisisand financial markets

have been battered but Indian economy has held its ground firmly.

The current budget is continuation of good work done by government in earlier budgets and which has

been supported by strong macrossupported by lower commodity prices.

The growth of GDP has now accelerated to 7.6%. This was possible notwithstanding the contraction of

global exports by 4.4% compared to 7.7% growth in world exports during the last three years of the

previous Government. CPI inflation was at 9.4% during the last three years of the previous Government.

Under our Government, CPI inflation has come down to 5.4%, providing big relief to the public. This was

accomplished despite two consecutive years of monsoon shortfall of 13%, compared to normal rainfall in

the last three years of the previous Government.

The FM has set a target of bringing fiscal deficit down to 3.5% of GDP in 2016-17 and it retains FY16 fiscal

deficit target at 3.9% of GDP. Gradual reduction in deficit will ensure that economy will not be deprived of

planned expenditure for growth. Expected upgrades from rating agencies will aid bringing in foreign

investments.

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9 Pillars to transform India growth

1) Agriculture and farmer welfare with an aim to double farmers' income in the next five years

2) Rural sector

3) Social sector including healthcare

4) Educational skills and job creation to make India a knowledge based and productive economy

5) Infrastructure investment to enhance quality of life

6) Financial sector reforms

7) Governance reforms and ease of doing business

8) Prudent management of government finances

9) Tax reforms to reduce compliance burden

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Road Map going ahead

1. Transform India to have a significant impact on economy and lives of people.

2. Government focus will be on Ensuring macro-economic stability and prudent fiscal management. Boosting on domestic demand Continuing with the pace of economic reforms and policy initiatives to change the lives of our people for

the better. Enhancing expenditure in priority areas Government to focus on enhancing its expenditure in priority areas like farm and rural sector, social

sector, infrastructure sector employment generation and recapitalization of the banks. The governmentfocus on rural and semi rural focus was clear on 94% higher allocation specially in insurance andirrigation segment.

Budget acknowledge the situation in rural areas are not so great and support rural consumption with schemeslike NREGA and interest subvention schemes.

The allocation on non NREGA schemes was clear although NREGA also has increased by 11 % to INR38,500Crs. Focus on Vulnerable sections through Pradhan Mantri Fasal Bima Yojana New health insurance scheme to protect against hospitalization expenditure Facility of cooking gas connection for BPL families

Major reform to be passed: Government to continue with the ongoing reform programme and ensure

passage of the Goods and Service Tax bill (GST) and Insolvency and Bankruptcy law

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Cont

Will push for clearance of reforms like

Government to continue with the ongoing reform programme and ensure passage of the Goods andService Tax bill (GST) and Insolvency and Bankruptcy law.

Giving a statutory backing to AADHAR platform to ensure benefits reach the deserving.

Freeing the transport sector from constraints and restrictions

Incentivizing gas discovery and exploration by providing calibrated marketing freedom

Enactment of a comprehensive law to deal with resolution of financial firms

Provide legal framework for dispute resolution and re-negotiations in PPP projects and public utilitycontracts

Undertake important banking sector reforms and public listing of general insurance companiesundertake significant changes in FDI policy

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Benefits to MSME and small businesses

Government will pay contribution of 8.33% for of all new employees enrolling in EPFO for the firstthree years of their employment. Budget provision of INR 1000 crore for this scheme.

Increase the turnover limit under Presumptive taxation scheme under section 44AD of the Income TaxAct to INR 2 crores to bring big relief to a large number of assesses in the MSME category.

Extend the presumptive taxation scheme with profit deemed to be 50%, to professionals with grossreceipts up to INR 50lakh.

Lower the corporate tax rate for the next financial year for relatively small enterprises i.e companies

with turnover not exceeding INR5cr (in FY15) to 29% plus surcharge and cess. New manufacturing companies incorporated on or after 1.3.2016 to be given an option to be taxed at

25% + surcharge and cess provided they do not claim profit linked or investment linked deductions anddo not avail of investment allowance and accelerated depreciation.

Monetary limit for deciding an appeal by a single member Bench of ITAT enhanced from INR 15lakhs toINR 50lakhs.

New Dispute Resolution Scheme to be introduced. No penalty in respect of cases with disputed tax upto INR 10lakh. Cases with disputed tax exceeding INR 10lakh to be subjected to 25% of the minimumof the imposable penalty. Any pending appeal against a penalty order can also be settled by paying25% of the minimum of the imposable penalty and tax interest on quantum addition.

Mandatory for the assessing officer to grant stay of demand once the assesse pays 15% of thedisputed demand, while the appeal is pending before Commissioner of Income-tax (Appeals).

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Government Finance

INR in CrActual Revised Budgeted

2015 Y-o-Y 2016RE Y-o-Y 2017BE Y-o-Y

Revenue receipts 1,126,294 11.0% 1,206,084 7.1% 1,377,023 14.2%

Gross tax revenue 1,251,391 9.9% 1,459,611 16.6% 1,630,889 11.7%

Direct taxes 705,628 10.5% 744,623 5.5% 839,700 12.8%

Corporation tax 426,079 8.0% 452,970 6.3% 493,924 9.0%

Income tax 278,599 14.7% 291,653 4.7% 345,776 18.6%

Indirect taxes 542,325 9.1% 702,853 29.6% 778,860 10.8%

Customs duty 188,713 9.7% 209,500 11.0% 230,000 9.8%

Excise duty 185,480 9.0% 283,353 52.8% 317,860 12.2%

Service tax 168,132 8.6% 210,000 24.9% 231,000 10.0%

Transfers to States, UTs andNational funds

342,928 6.2% 512,103 49.3% 576,787 12.6%

Net tax revenue 908,463 11.4% 947,508 4.3% 1,054,102 11.2%

Non-tax revenue 217,831 9.5% 258,576 18.7% 322,921 24.9%

Non-debt capital receipts 42,236 0.9% 44,217 4.7% 67,134

Recovery of loans 10,886 -12.9% 18,905 73.7% 10,634

Other receipts(Disinvestments)

31,350 6.7% 25,313 -19.3% 56,500

Total receipts 1,168,530 10.6% 1,250,301 7.0% 1,444,157 15.5%

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Contd

INR in crsActual Revised Budgeted

2015 Y-o-Y 2016RE Y-o-Y 2017BE Y-o-Y

Non-plan expenditure 1,213,224 9.7% 1,308,194 8.2% 1,428,050 9.2%

Interest payments 411,354 9.9% 442,620 10.9% 492,670 11.3%

Subsidies 266,692 4.7% 257,801 -8.6% 250,433 -2.9%

Others 535,178 12.1% 607,773 14.4% 684,947 12.7%

Plan expenditure 467,934 3.2% 477,197 -0.6% 550,010 15.3%

Total expenditure 1,681,158 7.8% 1,785,391 5.7% 1,978,060 10.8%

Primary deficit 101,274 -21.3% 92,470 -1.7% 41,233 -55.4%

Gross fiscal deficit 512,628 1.9% 535,090 8.4% 533,903 -0.2%

Gross borrowings 586,922 -3.6% 580,608 1.6% 565,181 -2.7%

Net market borrowing(dated securities)

446,922 -4.7% 440,608 2.1% 425,181 -3.5%

Nominal GDP at marketprices

12,653,762 11.5% 13,615,448 11.5% 15,223,552 10.7%

Primary deficit / GDP(%)

0.8% 30 bps 0.7% 10 bps 0.3% 40 bps

Fiscal deficit / GDP(%)

4.1% 40 bps 3.9% 20 bps 3.5% 40 bps

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Revenue Trends

Indirect Tax - Contribution from Custom, Excise & Services Taxes

Gross Tax Revenue

Gross Tax Revenue is projected to grow 11.7% in

FY16-17 supported by strong growth in indirect taxcollection . The over all subsidy bill is expected tofall to 1.66% against 1.90% in current financialyear.Direct Tax Revenue will be mainly driven byhigher level of investments, higher growth & more

jobs. Indirect tax revenue to expand on account of

higherexcise duty & service tax.

Tax to GDP ratio

Corporate TaxSource: Budget Document, KRChoksey Research

9.7%

10.2%

9.9%

10.3%

10.0%

9.9%

10.7% 10.7%

9.0%

9.2%

9.4%

9.6%

9.8%

10.0%

10.2%

10.4%

10.6%

10.8%

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16RE 2016-17BE

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 RE 2016-2017BE

Corporate Tax Income Tax

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

RE

2016-2017

BE

Customs Excise Duities Service Tax

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Controlled plan expenditure

Non-plan Expenditure Plan Expenditure

Productive spending to be around 2.75% of GDP against 2.73 in FY16 respectively Planned Expenditure is likely to remain 3.6 % of over all GDP. Non Plan Expenditure growth is budgeted around 8.2% Y-o-Y, at 9.4% of the GDP despite provisions for

seventh pay commission and OROP.

Source: Budget Document, KRChoksey Research

11.2%

10.5%

9.9% 9.9%

9.7%9.6% 9.6%

9.4%

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

11.5%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15RE 2015-16RE 2016-17BE

(%)

(%)

YoY% Non Plan Expenditure/ GDP

4.7%4.9%

4.6%

4.1%4.0%

3.7%3.5% 3.6%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15RE 2015-16RE 2016-17BE

(%)

(%)

YoY% Plan Expenditure / GDP

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Subsidy adequately provided and increase in

divestments targets

Decline in fuel subsidies is due tosteep fallin crude prices and governmentschemes like DBT.

Particulars 2013-14 2014-15RE 2015-16RE 2016-17BE

Food 92,000 122,676 139,419 134,835

Fertiliser Subsidy 67,972 70,967 72,438 70,000

Petroleum Subsidy 85,480 60,270 30,000 26,947

Interest Subsidies 8,175 11,147 13,808 15,523

Other Subsidies 1,890 1,632 2,136 3,128

Total-Subsidies 255,516 266,692 257,801 250,433

As % of GDP 2.3% 2.1% 1.9% 1.6%

We believe governmentslooks

surge inpossibilityspecific

divestment target

achievable given theequity market, higherof tax and sectorreforms.

0.38%

0.29%

0.20%

0.26% 0.3%0.2%

0.2%

0.4%

0.0%

0.1%

0.1%

0.2%

0.2%

0.3%

0.3%

0.4%

0.4%

0

10,000

20,000

30,000

40,000

50,000

60,000

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15RE 2015-16RE 2016-17BE

%

INRCrs

Divestments Divestments / GDP

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Fiscal Consolidation trajectory outlined

The Improvement in tax revenues along with controlled expenditure will help achieve fiscal deficittarget of 3% by FY18 respectively. We believe lower subsidies, aggressive push to divestmentprogram, revenue from TRAI auction and contained expendituremay surpass fiscal deficit target inFY17 respectively.

We believe inflation management, quality fiscal consolidation and in line market borrowings will bodewell for rate easing cycle and downward pressure on bond yields. We expect monetary impetus to be

provided by government by rate cut of at least 50 bps in next 6 months.

Source: Budget Document, KRChoksey Research

Fiscal consolidation roadmap As % of GDP

Y2014-15 4.1%

Y2015-16 3.9%

Y2016-17 3.5%

Y2017-18 3.0%

ource: KRChoksey Research, Finance Ministry

6.5%

4.8%

5.7%

4.9%4.4%

4.1% 3.9%3.5%

0%

1%

2%

3%

4%

5%

6%

7%

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16RE 2016-17BE

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TAX PROPOSALS

Particulars Implications

Measures to boost growth and employment generation

The accelerated depreciation provided under IT Act will belimited to maximum 40% from April 1, 2017.

Benefits to SEZ companiesThe benefit of section 10AA to new SEZ units will be availableto those units which commence activity before 31.3.2020.

To lower the corporate income tax rate for thenext financial year of relatively small enterprises i.ecompanies with turnover not exceeding 5 crore (in thefinancial year ending FY15 to 29% plus surcharge and cess.

Benefits to small enterprise companies,Manufacturing companies, startups,research firms

Boost Entrepreneurship and easier taxprocedurals for manufacturingcompanies.

Promote E- commerce andentrepreneurship.

Promoting Indian companies to develop

IPRs

The new manufacturing companies which are incorporated onor after 1.3.2016 are to be taxed at 25% + surcharge and cessprovided they do not claim profit or investments

Startups to be 100% deduction of profits for 3 out of 5 yearsset up during April 2016 to March 2019

Special patent regime with 10% rate of taxon income from worldwide exploitation of patents developedand registered

in India.

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TAX PROPOSALS

Particulars Implications

Cont. Measures to boost growth and employment generation

To provide complete pass through of income-tax tosecuritization trusts including trusts of AssetReconstruction Companies (ARCs) and the income to betaxed on investors

Continuation of strong action againstbad debts and NPA recoverymechanism, helping financialinstitutions for better their assetquality.

Non-banking financial companies shall be eligible fordeduction to the extent of 5% of its income in respect ofprovision for bad and doubtful debts.

Positive for NBFCs.

To exempt service tax on services provided under Deen

Dayal Upadhyay Grameen Kaushalya Yojana andservices provided by assessing Bodies empanelled byMinistry of Skill Development & Entrepreneurship.

Boost employment andentrepreneurship in rural areas.

Reduce the basic custom duty of 5% and excise duty onrefrigerated containers from 12.5% to 6%.

To promote use of refrigeratedcontainers

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TAX PROPOSALS

Particulars Implications

Relief to small tax payers

To raise the ceiling of tax rebate under section 87Afrom INR 2000 to INR 5,000 on individuals withincome not exceeding INR 5 lakhs

More disposable income to lower & middleclass salaried people which will boostspending

To increase the limit of deduction in respect of rentpaid under section 80GG from `24,000 per annum to`60,000 per annum

More money is likely to remain withconsumer which will boost spending

To increase the turnover limit under Presumptivetaxation scheme from INR 1cr to INR 2crs

It will bring big relief to a large number ofassesses in the MSME category.

Incentivizing domestic value addition to help Make in India.

Changes in customs and excise duty rates on certaininputs

This helps to reduce costs and improvecompetitiveness of domestic industry in sectorslike Information technology hardware, capitalgoods, defence production, textiles, mineral fuels& mineral oils, chemicals & petrochemicals, paper,paperboard & newsprint,

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TAX PROPOSALS

Particulars Implications

MOVING TOWARDS A PENSIONED SOCIETY

Withdrawal up to 40% of the corpus at the time ofretirement to be tax exempt in the case of NationalPension Scheme (NPS). Annuity fundwhich goes to legal heir will not be taxable.

Slightly negative however promotesavings and money can be withdraw

in case of emergency.

Limit for contribution of employer in recognizedProvident and Superannuation Fund of INR 1.5 lakhper annum for taking tax benefit. Exemption fromservice tax for Annuity services provided by NPS andServices provided by EPFO to employees.

In line with benefits available.

Reduce service tax on Single premium Annuity(Insurance) Policies from 3.5% to 1.4% of thepremium paid in certain cases.

Boost for Insurance sector.

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TAX PROPOSALS

Particulars Implications

PROMOTING AFFORDABLE HOUSING100% deduction for profits to an undertaking in housing projectfor flats up-to 30 sqmts in four metro cities and 60 sqmts inother cities,approved during June 2016 to March 2019 and completed inthree years. MAT to apply.

Augur well for real estate companies

Deduction for additional interest of `50,000 per annum for

loans up to INR 35 lakh sanctioned in 2016-17 for first timehome buyers, wherehouse cost does not exceed INR 50 lakh.

Support housing sector mechanism in nearterm. Tax incentives for home buyers.

Distribution made out of income of SPV to the REITs and INVITshaving specified shareholding will not be subjected to DividendDistributionTax, in respect of dividend distributed after the specified date.

Positive for real estate players looking to listREITs and easier capital access to constructioncompanies.

Exemption from service tax on construction of affordablehouses up to 60sqmts under any scheme of the Central or StateGovernment including PPP Schemes.

Support Affordable housing and governmentinitiative for home for all.

Extend excise duty exemption, presently available to ConcreteMix manufactured at site for use in construction work to Ready

Mix Concrete.

Affordable housing and boost real estate

sector

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RESOURCE MOBILIZATION FOR AGRICULTURE, RURAL ECONOMY AND CLEAN ENVIRONMENT

Additional tax at the rate of 10% of gross amount of dividendwill be payable by the recipients receiving dividend in excess ofINR 10 lakh per Annum

Krishi Kalyan Cess, @ 0.5% on all taxable services, w.e.f. 1June 2016. Proceeds would be exclusively used for financinginitiatives for improvement of agriculture and welfare offarmers. Input tax credit of this cess will be available forpayment of this cess.

Surcharge to be raised from 12% to 15% on persons, other thancompanies, firms and cooperative societies having income aboveINR 1 crore.

Infrastructure cess, of 1% on small petrol, LPG, CNG cars,2.5% on diesel cars of certain capacity and 4% on otherhigher engine capacity vehicles and SUVs. No credit of thiscess will be available nor credit of any other tax or duty be

utilized for paying this cess.

Tax to be deducted at source at the rate of 1 % on purchase ofluxury cars exceeding value of ` ten lakh and purchase of goodsand services incash exceeding ` two lakh.

Excise duty of 1% without input tax credit or 12.5% withinput tax credit on articles of jewellery [excluding silverewellery, other than studded with diamonds and someother precious stones], with a higher exemption andeligibility limits of INR 6crs and INR12 crs respectively.

Excise duties on various tobacco products other than beediraised by about 10% to 15%.

Assignment of right to use the spectrum and its transfershas been deducted as a service leviable to service tax andnot sale of intangible goods.

Securities Transaction tax in case of Options is proposed to beincreased from .017% to .05%.

Excise on readymade garments with retail price of 1000 ormore raised to 2% without input tax credit or 12.5% withinput tax credit.

Equalization levy of 6% of gross amount for payment made tononresidents exceeding INR 1 lakh a year in case of B2Btransactions.

Clean Energy Cess levied on coal, lignite and peat renamedto Clean Environment Cess and rate increased from `200per tonne to `400 per tonne.

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Black MoneyDomestic taxpayers can declare undisclosed income or such income represented in the form of any asset bypaying total tax of around 45% of undisclosed amount

Surcharge levied at 7.5% of undisclosed income will be called Krishi Kalyan surcharge to be used foragriculture and rural economy.

New Dispute Resolution Scheme which provides no penalty in respect with disputed tax up to INR 10 lakhbut 25% if disputed tax exceeding INR 10 lakh.

Penalty rates to be 50% of tax in case of underreporting of income and 200% of tax where there ismisreporting of facts.

Monetary limit for deciding an appeal by a single member Bench of ITAT enhanced from INR15 lakhs to INR50 lakhs.

11 new benches of Customs, Excise and Service Tax Appellate Tribunal (CESTAT).

Mandatory for the assessing officer to grant stay of demand if assesse pays 15% of the disputed demandwhile the appeal is pending

High Level Committee chaired by Revenue Secretary to oversee fresh cases where assessing officer appliesthe retrospective amendment.

One-time scheme of Dispute Resolution for ongoing cases under retrospective amendment.

Disallowance will be limited to 1% of the average monthly value of investments yielding exempt income, butnot exceeding the actual expenditure claimed under rule 8D of Section 14A of Income Tax Act.

Time limit of one year for disposing petitions of the tax payers seeking waiver of interest and penalty.

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Sector Summary

Sector Impact Key Measure

Auto Negative Higher cess 1 to 4% likely to impact negatively in short term

BanksPositive Re-capitalization of PSBs, stressed asset resolution, listing of general

insurance companies

FMCG PositiveImplementation of GST, push in agricultural related schemes and ruraldevelopment will act as catalyst for growth in FMCG sector, minimumimplementation of excise duty on cigarettes and tobacco products

Infrastructure PositiveTotal outlay for infrastructure INR 221246 Crs which will boostinfrastructure

Insurance Positive Approval of FDI in insurance company via automatic route up-to 49%

Oil & GasNegative onrise in crudeprice

Cess changed to ad valorem basis @20% as compared to INR4500/tonne

Health Care Neutral Higher allocation for government social scheme

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Auto

Balkrishna, Bajaj auto, Minda Industries, Allicon

Higher cess 1 to 4% likely to impact negatively in short term

TOP PICKS

Negative

Key measures

Infrastructure cess, of 1% on small petrol, LPG, CNG cars

2.5% on diesel cars of certain capacity

4% on other higher engine capacity vehicles and SUVs.No credit of this cess will be available nor credit of any other tax or duty be utilized for paying this cess.

No changes in 2 wheeler.

Changes in tax structure at lower & mid level and rural likely to boost demand in 2wheeler segment

Higher focus on rural will boost rural spending will spur rural demand in automobile sector.

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Banking & Financial Services

Re-capitalization of PSBs, stressed asset resolution, listing of general insurance companies

Key measures Re-capitalisation of Public Sector Banks: The Government announced a capital infusion plan of INR 25,000 crs, which

is nearly half of what state-run banks require. That said, the government stands committed to futher enhance the capitalrequirements if the need be. Therefore, not a major negative for state-owned banks.

Necessary amendments in the SARFAESI Act, 2002:Amendments will be made that will enable the sponsor of anARC to hold up to 100% stake in the ARC and permit non-institutional investors to invest in Securitization Receipts.

Implementation of Bankruptcy Code: The government shall introduce comprehensive Code on Resolution ofFinancial Firms which will provide a specialized resolution mechanism to deal with bankruptcy situations in banks, insurance

companies and financial sector entities. This should facilitate ease of doing business and enable the speedy recovery ofbad debts in turn proving positive for the entire financial system.

Stressed asset resolution: The Banks will be encouraged to put special efforts to effect recoveries, with a focus onreviving stalled projects For speedier resolution of stressed assets, the Debt Recovery Tribunals will be strengthened withfocus on improving the existing infrastructure, including computerized processing of court cases, to support reduction in thenumber of hearings and faster disposal of cases Comprehensive Plan For Revamping of Public Sector Banks,INDRADHANUSH, is also under implementation. These measures should boost the recovery process especially in the benefitof state-owned banks.

Increase in allocation under Pradhan Mantri Mudra Yojana (PMMY) to INR 1,80,000 crore: This should bepositive for small and medium entrepreneurs and in turn boost the SME portfolios of banks and NBFCs and NBFC-MFIs.

Massive nationwide rollout of ATMs and Micro ATMs: To encourage rural banking and this in turn should boost ruralcredit translating into improvement in credit for banks and NBFCs.

Roadmap for consolidation of Public Sector Banks: This is a welcoming move and quite positive especially in terms ofbuilding up a healthy banking system competing the global standards.

Positive

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ContdKey measures

Listing of Government owned general insurance companies: This measure should unlock value for

insurance companies and also for banks with insurance arms. This should also bring transparency andaccountability in operations. Particularly, positive for SBI and private banks with insurance arms such as ICICI

Bank and the liked of Bajaj Finserv should also benefit.

Promotion of Affordable Housing concept: In order to boost affordable housing segment and provide

housing credit, the government has proposed to give deduction for additional interest of INR 50,000 per

annum for loans up to INR 35 lakh sanctioned during the next financial year, provided the value of the house

does not exceed INR 50 lakh. This should largely benefit housing finance companies such as HDFC Ltd, LIC

HFC, Indiabulls Housing Finance, DHFL, Can Fin Homes, etc.

Boost to farm credit: In order to ensure adequate and timely flow of credit to the farmers, the

government has allocated an all-time high amount to the tune of INR 9 lakh crores To reduce the burden of

loan repayment on farmers, a provision of INR 15,000 crore has been made towards interest subvention. This

should provide boost to the agri credit portfolio of banks.

Proposed stimulus for agri and rural segment and infrastructure spend: The government has

earmarked INR 120000 crores for agri and rural economy spend and INR 221500 crores for infra spend

which will spur credit demand which in turn should augur well for some banks and financial institutions.

Fiscal deficit target to be maintained at 3.5% of GDP: This should invariably benefit the bankin scetor

as this would call for rate cuts from the RBI resulting into lower interest rates. This should automatically push

the much required banking system credit growth and would prove positive for the entire banking system;

especially PSBs who have reported decline in credit in recent periods. .

TOP PICKS

ICICI Bank, Bank of Baroda, State Bank of India, LIC HFC, Manappuram Finance Ltd.

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FMCG

Positive Implementation of GST, push in agricultural related schemes and rural development will act as catalystfor growth in FMCG sector, minimum implementation of excise duty on cigarettes and tobacco products

ITC, Britannia, HUL

Key measures Increase the specific excise duty on cigarettes: Excise duty on various tobacco products other than beedi raised by

about 10 to 15%. Negative impact on Cigarettes companies like ITC, as minimum amount of tax has been implemented

Full exemption on goods: Government has proposed full exemption on Agarbattis (Nil excise duty)

100% FDI for food processing.

No change in service tax so positive for F&B sector

Basic custom and excise duty on refrigerated containers reduced to 5% and 6%. Implementation of GST: GST will put in place a state-of-the-art indirect tax system

Excise duty of1% without input tax credit or 12.5% with input tax crediton articles of jewellery [excluding silver jewellery,

other than studded with diamonds and some other precious stones], with a higher exemption and eligibility limits of INR 6crs

and INR12 crs respectively.

Excise on readymade garments with retail price of ` 1000 or more raised to 2% without input tax credit or 12.5% with input

tax credit.

Government support for Rural Development: Government intends to double the income of farmers by 2022 and has

allocated INR 35984 Cr for the same. Overall around INR 87,765 crs is allocated for rural development. The Government has

launched two important schemes one is the Parmparagat Krishi Vikas Yojanaand the second one is a value chain based

organic farming scheme called Organic Value Chain Development in North East Region. Othe schemes like MGNREGS

(INR38,500crs), Pradhan Mantri Krishi Sinchaii Yojna, Deen Dayal Antyodaya Mission, Swachh Bharat Mission to improve

sanitation in rural India.

TOP PICKS

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Infrastructure

TOP PICKS

L&T, APSEZ, Skipper, GMR infra, KNR construction

Total outlay for infrastructureINR 221246 Crs which will boost infrastructurePositive

Key measures

Total investment in the road sector, including PMGSY allocation, would be ` 97,000 crore during 2016-

17.

Indiashighest ever kilometres of new highways were awarded in 2015. To approve nearly 10,000 kms

of National Highways in 2016-17.

Allocation of ` 55,000 crore in the Budget for Roads. Additional INR 15,000 crore to be raised by NHAI

through bonds.

Focus to re-vitalise PPPs like Public Utility (Resolution of Disputes) Bill will be introduced during 2016-

17, Guidelines for renegotiation of PPP Concession Agreements will be issued and New credit rating

system for infrastructure projects to be introduced

100% electrification by May 1, 2018

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Insurance

TOP PICKS

Approval of FDI in insurance company via automatic route up-to 49%Positive

Key measures

Allowing listing of General Insurance PSUs

This measure will unlock valuation of insurance companies. A new segment in listed markets of insurancebusiness is very positive for markets.

Many private sector financial companies whose valuations don't reflect valuations of insurance business,

will now reflect positively.

Valuations of company should reflect positively.

SBI, ICICI, Bajaj Finserv's

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Oil & Gas

TOP PICKS

Cess changed to ad valorem basis @20% as compared to INR 4500/tonne

BPCL, ONGC

Neutral

Key measures Cess changed to ad valorem basis: Cess changed to 20% ad valorem basis as compared to fixed cess of

INR 4,500/tonne

Impact on E&P companies:At current crude price 20% ad valorem cess will be INR 3,500/tonne. In the

scenario of low crude prices this cess seems viable and supportive, but as the crude price will rise it will

have a negative impact on E&P companies

Incentivize gas production: incentivize gas production from deep-water, ultra deep-water and highpressure-high temperature areas, which are presently not exploited on account of higher cost and higher

risks. Proposal is under consideration for new discoveries and areas which are yet to commence production,

first, to provide calibrated marketing freedom; and second, to do so at a pre-determined ceiling price to be

discovered on the principle of landed price of alternative fuels

Custom duty not hiked on import of crude oil.

LPG connections for poor: To provide LPG connection in the name of women members of poorhouseholds. I have set aside a sum of INR 2,000 crore in this yearsBudget to meet the initial cost of

providing these LPG connections. This will benefit about 1 crore 50 lakh households below the poverty line

in 2016-17. The Scheme will be continued for at least two more years to cover a total of 5 crore BPL

households. This will ensure universal coverage of cooking gas in the country.

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Healthcare

Superior allocation for social schemeNeutral

Key measures

The government has initiated a new health protection scheme which will provide health cover of up toINR 1 lac/family and for senior citizens an additional top-up package up to INR 30,000 will beprovided.

Government to initiate National Dialysis Services Program under National Health Mission through PPPmode in order to provide dialysis services in all district hospitals. In order to reduce the cost, thegovernment has proposed to exempt certain parts of dialysis equipment from basic custom duty, exciseand SAD.

R&D benefits to be trimmed to 100% from 150% currently and to phase out by 2020 onwards.

SEZ benefits to be allowed if plant commercialization happens only before 31stMarch 2020

10% tax rebate on earnings from global patent filings ( on NCEs and New Technology platforms)

TOP PICKS

Glenmark, Cipla, Aurobindo, Dr. Reddys Lab

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ANALYST CERTIFICATION:

We Vaibhav Chowdhry (B.Com, MBA), Nirvi Ashar (B.com, MBA) and Abhishek Jain (MBA, CFA & PGDM), Shweta Mane-Daptardar (B.Com, MBA), research analyst, author and the name subscribed tothis 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 compensationwas, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

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Accordingly, neitherKRCSSPL nor Research Analysts have any material conflict of i nterest at the time of publication of this report.It is confirmed that Mane-Daptardar (B.Com, MBA), Vaibhav Chowdhry (B.Com, MBA), Nirvi Ashar (B.com, MBA) and Abhishek Jain (MBA, CFA & PGDM), research analyst of this report have notreceived 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 servicetransactions.KRCSSPL or its associates collectively or its research analyst do not hold any financial interest/beneficial ownership of more than 1% (at the end of the month immediately preceding the date ofpublication of the research report) in the company covered by Analyst, and has not been engaged in market making activity of the company covered by research analyst.Since associates of KRCSSPL are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subjectcompany/companies mentioned in this report.

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