New Delhi: With the formation of a stable government at the centre the focus must shift to the economy and infrastructure building.

The newly appointed Finance Minister Nirmala Sitharaman will present her first full fledge Union Budget for 2019-20 on 5th July 2019. The Economic Survey will also be presented a day ahead of the budget, which will reveal the government's assessment of the economy and policies they wish to pursue. While the importance of the budget has progressively declined, especially after the GST regime, it also serves as a platform for the government to articulate their vision and to fund their vision. It is expected that the full Budget 2019 will also give a firm shape to several initiatives announced in the interim budget presented in February this year.

As the preparations for Budget 2019 have already started, the new government has a tough task in their hands in order to reverse the economic slowdown. Declining industrial and manufacturing output growth, slowing car and two-wheeler sales are also a major worry which needs to be addressed. The government and the banking regulator should also need to address the ongoing liquidity crunch which is showing its impact on other major sectors also. In order to boost consumption, additional sops to individual taxpayers and MSME may be provided. 

On the corporate tax side, the threshold for the 25% tax may be increased. Currently, 25% tax is applicable to firms with revenue less than Rs 250 crore, this may be hiked to Rs 500 crore. While the government has recently provided some relief to start-ups from rules of Angel Tax, the industry feels it is inadequate and further relief may be granted in the budget. 

I believe that a rethink is needed on the Long Term Capital Gains Tax (LTCG) introduced last year. India needs long term equity capital to grow and its high household savings rate can finance much of the capital needed. Generally, most of the capital borrowed by companies is in the form of debt, whereas growth capital needs to be more long term in nature. Companies can finance via Equity, Debt or Hybrid instruments. I feel that the equity culture in the country needs to be fostered by tweaking the LTCG in a smart way.

Markets tend to provide a lot of opportunities for the investors in the budget period to select quality sector and stocks for long term investment perspective. Here is the transcript on the other sector-specific front and the related companies which may benefit from the budget.

Agriculture:

The farm sector needs structural reforms to boost agricultural growth, but that would take time to have an impact. However, more steps to alleviate stress in the near term are likely to be announced. An income support scheme was announced in the interim budget, which has now been extended to all farmers. In the budget some other measures are possible, such as changes in crop insurance scheme. Also, we expect an increase in agricultural credit flow as well as increase in spending on rural infrastructure and irrigation. Spending on cold chain and steps to boost food processing industry are likely. Collectively such reforms could boost farmer sentiment and the overall agricultural sector in a positive manner. Stocks which may be the key beneficiaries will be UPL, KRBL, LT Foods, Jain Irrigation, Apex Frozen and BAYER Crop Science.

Infrastructure:

We believe that the government may increase their focus on flagship initiatives like Bharatmala, Sagarmala, affordable housing, sanitation and water needs. Also, we expect railway allocation to focus on modernization like the planned electrification of tracks and passenger safety. Rationalization of inverted duty structure in the capital goods sector is needed to provide level playing field to the domestic industry. Infra developers like Ashoka Buildcon, KNR constructions, HG Infra, Dilip Buildcon, PNC infra may witness order book additions as a result of new project awarding by NHAI. Higher allocation towards railways may aid stocks like Timken India & SKF India, which have exposure towards railways through their high speed bearing products. 

Auto and Auto Ancillary:

As the Indian Auto industry is going through one of the longest sales slowdowns, while the GST council has not acceded to the auto industry demand for reduction of GST on all vehicles to 18% from the current rate of 28%, the union government could bring in a few steps. With an aim to support local manufacturing, a customs duty on fully imported commercial vehicles (CV) may be increased to 40 % from 25%.

An incentive-based vehicle scrappage scheme (NITI Aayog and Transport Ministry are working on a proposal) could be announced to get polluting, unsafe and old vehicles off the road. Furthermore, there could be a budget allocation for electric vehicle promotion. Companies which plan to manufacture electric vehicles such as TATA Motors can be the major beneficiaries. Investment for road infrastructure will boost commercial vehicle sales and is expected to benefit companies like Ashok Leyland, TATA Motors, Mahindra & Mahindra and Eicher Motors.

Healthcare:

Ayushman Bharat, the flagship scheme of the Modi government, is likely to remain a key focus in the government’s second term as well. It may propose to introduce and increase health budget to upgrade Ayushman Bharat or the Pradhan Mantri Jan Arogya Yojana.  With the urgent need to add bed capacity for the nation, the deduction under section 35AD may be increased from 100% to 150% of capital expenditure incurred by institutions engaged in building and operating a hospital with at least 100 beds.  These developments may be positive for the companies like Thyrocare, Dr. LalPathlabs, Apollo Hospitals and Narayana  Hrudayalaya.

Defence:

We expect a higher budgetary allocation to capital acquisitions, particularly higher share for new acquisition programs. Special additional investment allowance can be announced for exclusive defence manufacturing and assembly facilities towards manufacturing of tanks, armoured fighting vehicles, defence aircrafts, spacecraft, warships, arms and ammunition of all kind and all other parts and accessories of use thereof. The key beneficiaries will be BEL and Premier Explosives.

Published On : 24-06-2019

Source : Timesnow News