KNM Rao, Co-Founder & CEO, Quick Ride on the budget announcement made earlier in the day.
“The new government has come out with a well-defined budget keeping a 10-year vision in mind to promote India’s digital economy. We appreciate the Finance Minister’s proposal to start a new TV channel exclusively for Startups on Doordarshan which will serve as a platform for startups like us to disseminate information to the industry. In addition the holistic set of tax benefits will be an added advantage and a major boost to thousands of startups in India. Other key initiatives such as no service fees on the digital payment, reduction in the tax rate of electric vehicles and special forum for collecting funds for social enterprises are welcome moves.”
Hitesh. D. Gajaria, Partner and Head of Tax, KPMG in India
Hon’ble Finance Minister Sitharaman’s maiden budget and policy statement is a sincere attempt to put India on the Growth Path to become a USD 5 Trillion Economy.
Key Policy Announcements include overhauling India’s antiquated and numerous labour laws and consolidating them into just four new codes, recapitalization of Public Sector Banks with INR 70,000 Crs in the current fiscal, thrust to the rural economy with ambitious plan increases to affordable housing, upgradation of roads and solid waste management, rebooting Public Private Partnership in Railways and other sub-sectors and an overarching amount of INR 100 Lakh Crores to be invested in Infrastructure Sectors over the next 5 years.
Direct Tax proposals did not see any material changes. Extension of lower Corporate Tax rate of 25% to companies with turnover up to INR 400 Crs, extending few sops to Start-ups and levying a sharply increased surcharge for those earning incomes in excess of INR 2 Crs and 5 Crs were highlights. There was however a clear push towards electronic interface between the Tax Department and the taxpayer, with even an electronic pre-filed Tax Return proposed by Govt. using the vast amounts of data at its disposal. On the Customs side, there was a slant towards protectionism, with rates seeing a hike for many commodities. There was also an announcement of a Scheme to resolve legacy disputes under the pre-GST regime.
Fiscally though the intent is to reduce the Fiscal Deficit to 3.3% of GDP, this is predicated on high disinvestment revenues and continued buoyant tax collections. The key to success will be diligent implementation of the good intentions
Sai Venkateshwaran, Partner and Head- CFO Advisory, KPMG in India
Minimum public shareholding from 25% to 35%
Indian listed companies have always had a significant concentration of ownership in the hands of the promoters, unlike other global capital markets where the ownership is much more widely spread.
The government’s proposal to explore increasing the threshold for minimum public shareholding from 25% to 35% is certainly a step in the right direction, but one that will need to be implemented in stages and timed with other measures to increase inflows towards capital markets. Further, before the government embarks on meeting the 35% threshold, it should take efforts to get all the listed PSUs to meet the current threshold of 25%.
The move will certainly increase the depth in Indian capital markets and also provide greater liquidity to investors, while also helping with better price discovery. The increase in institutional shareholding coupled with reduction in promoter shareholdings, could also have a positive impact on the standards of corporate governance in these companies.
The government’s proposals on enhancing public ownership and bringing greater commercial and market orientation of the listed PSUs is a much needed step, and in line with the recommendations of the Kotak Committee on Corporate Governance. Currently, there is a significant market discount being placed on PSUs as compared to their private sector peers, due to the multiple and diverse objectives that these entities seek to serve in line with their broader social welfare objectives. Bringing a commercial and market orientation and clarity on their objectives, including transparently stating any non-commercial objectives will allow investors to take informed decisions while investing in these companies.
The government should also consider further divestment or future disinvestments only after bringing this commercial and market orientation, and also enhancing corporate governance standards, starting with full compliance of all SEBI listing regulations by these PSUs. This can help reduce the discount on these stocks and help the government realise significantly greater value.
The government’s proposed realignment of the holdings in CSPEs should also take into account the Kotak Committee recommendation on setting up independent holding company structure under which all government holdings can be consolidated. This can help provide greater independence and create a more autonomous environment for these PSUs to operate in.
Providing institutional access to capital for social welfare objectives – setting up of Social stock exchange
At a time when ESG investing and social impact investing are gaining prominence, the government’s efforts to providing an institutional platform for raising capital for social enterprises is a step in the right direction. However, the ecosystem that supports this segment of the market needs to be developed, as this is still an emerging concept. Further, the government will need to focus on investor education as well as put safeguards on the types of investors allowed to invest on these platforms, considering the risks and rewards could be very different as compared to other commercial enterprises. Several of these enterprises may not necessarily be driven by profit or commercial motives; these could social impact investing to pure not for profit ventures.
Channelizing more savings towards financial assets – enabling retail investment in T-Bills and G-Secs
The government’s efforts towards attracting retail investments in treasury bills and government securities will help in its objective of channelizing more savings towards financial assets. There is clearly an appetite for low risk investment options amongst certain classes of investors, and this will provide a good avenue for those investors as an alternative to other debt funds.
Mr. Amar Ambani, President & Research Head, YES Securities
Union Budget FY20: Early Impression
Union Budget FY20 was well detailed and in the right direction in terms of focus of this government. As expected, the FM stayed firm on its fiscal deficit target of 3.3-3.4% of GDP for FY20. Debt market was clearly enthused with 10-year Gsec bond yields dropping to 6.5-6.6%.
Proceeds from dividends from Public owned enterprises, RBI and disinvestment route made it possible to stick with its deficit target. Budget now projects Rs40,000cr more from non-tax revenues, from what it presented in the interim budget in February. The government also has a buffer from 4G and 5G telecom auctions, which don’t seem to have been budgeted. Therefore, meeting the deficit should be manageable.
The Budget has also corrected the over-estimation of tax revenues provided in the interim budget. Personal income tax growth projection down from 17% yoy to 7.6% for FY20. GST tax collection target done from 18% yoy growth to 3% for FY20. The estimates for tax collection now look a lot reasonable.
Excise collections are expected to jump significantly from interim expectations on back of hike in duty on auto fuels. Customs duty also expected to rise materially because of hikes, in an attempt to protect domestic industries.
The Centre has cut its sharing of revenues with states as well in its projections by 100 basis points from FY19 to 32.9% in FY20E. The disinvestment target is also set at Rs105,000cr vis-à-vis Rs80000cr in FY19. It must be noted that it had achieved to generate a similar amount in FY18 though. Achievement will depend on capital market remaining conducive.
It has largely maintained its expenditure projection as per interim estimates, with 13.4% yoy growth for FY20E. The big incremental rise has been to agriculture on account of the Direct Farm Income scheme with Rs750bn allocation. Although the budget speech talked about pension for shopkeepers, the budget provision is only showing 4.6% yoy rise for FY20E.
Liquidity situation was partly addressed by ear-marked capital infusion of Rs700bn in Public Sector Banks during FY20. An attempt was also made to help NBFCs by allowing securititsation upto Rs1000bn with a government assurance for the initial 10% stress.
Indian equities fell during the day, due to a possible liquidity squeeze in secondary market on account of proposed higher public shareholding and PSU disinvestment increasing the supply of paper. Higher tax on UHNIs also reduces their investible surplus in stocks directly, through MFs and PMSes, especially in the midcap space.
Capital expenditure through internal and extra budgetary resources for projects besides railways has been significantly reduced for FY20E; drop of 15.8% yoy vs a rise before.
No allocation to turnaround plan for Air India in FY20E vs Rs40bn in FY19.
Adequately provisioned for payment to Food and Public Distribution (Rs1,917bn in FY20E vs 1,766bn in FY19)
Many MNCs may consider delisting route if increased public shareholding norms go through. We also think that it may be better to allow a higher promoter holding in midcaps and small caps, so as to ensure that they have more skin in the game. Indian capital market is still in developing state.
Effective tax rates for high income group has significantly gone up to 38% and 42% for Rs20mn and Rs50mn income bracket respectively.
Focus on infrastructure, measures to make India FDI friendly, steps taken for Start-ups, speeding roll-out of Electric Vehicles, deduction for Home loans and curbing black money by levying 2% tax on Rs10mn+ cash withdrawals from bank in a year are noteworthy measures.
Empowering women will help penetrate rural market
Mandar Agashe,Founder and Vice chairman Sarvatra Technologies , "One of the main aspects of the NDA government has been the long-term focus on financial inclusion, and digital literacy is one of the main pillars of this goal. Only through the proliferation of digitisation across regions, gender and social strata will India will able to achieve wholesome progress. More than one crore people have been made digitally literate already through several government schemes and educational programs – which is a commendable feat, but the Digital India agenda can further be driven to instill confidence within customers in payment systems to leverage the full potential of digital investments and propagate a less-cash economy.
Moreover, the concrete implementation of the National Common Mobility Card launched by the Prime Minister will strengthen digitization by enabling people to pay multiple transport charges across various mediums like bus travel, toll taxes, parking charges and retail shopping. This endorses the cash-in cash-out points proposed by the Nandan Nikelani committee and is a brilliant step in boosting the digital infrastructure in the country. Deploying this across the country will deeply amplify the digital economy agenda.
Lastly, the initiative of empowering women through various schemes such as MUDRA, Stand UP India and the Self Help Group (SHG) movement is a great step by the government. Every verified women’s in self-help group having a Jan Dhan Bank Account will be allowed an overdraft of 5,000 rupees as an incentive to activate their debit card or account along with one woman in every SHG made eligible for a loan up to 1 lakh which will further inculcate a sense of financial independence through their various local modes of earning a living. This is an ingenious move to penetrate the rural markets and kick start the process of digitization, especially through the women who are very active participants in the economy in these areas creating a generational paradigm shift towards digital payments.
This budget will elevate the role of women and their entrepreneur spirit further encouraging them to participate in India’s growth story.
Technical View from Pritesh Mehta:
It seems Bulls have been left bruised and battered by Friday’s event. No wonder, Nifty marked a low of 10,798 in today’s session. Inability to sustain above four-digit gann number of 1191(0) has brought volatility to the fore again.
Lack of broad-based participation, profit booking, presence of gann supply zone and lucas series number (i.e. 11,961) have together caused the current quandary. Clearly, few select stocks had led the markets higher in last few sessions.
Following Thursday’s narrow range trade, price volatility picked up on the ‘budget-day’. Decline of 183 points from the day high, erased gains of prior three sessions. During recent Nifty’s up move, its daily RSI remained beneath levels of 60; thereby suggesting lack of momentum on the upside. Also, an appearance of a large bearish candle represents immediate hurdle near 12k. Presence of previous top & three-digit gann number of 121(00) has created a confluence of hurdle zone between 12,000-12,100. Follow-up action (i.e. sustenance below 11,800) could keep near term outlook negative.
View from Prayesh Jain
EV Focus: Prudent steps, more needs to be done
While the incentives provided (IT deduction for individuals on interest on loans taken for purchase of EV, lowering import duties on parts) in the budget for purchase of EVs along with FAME 2 measures would narrow down the cost difference between EVs and ICE vehicles, the key impediments for EV proliferation is the lack of charging infrastructure and availability of products with adequate charging range at affordable prices. We still believe that EV story in India is for the longer term.
Nilaya Varma, Partner and Leader Markets Enablement, KPMG in India
“With the government focused on initiatives such as Bharatmala, Sagarmala and Udaan which are aimed on bridging rural urban divide and improving our transport infrastructure, infrastructure will get a major impetus. Restructuring of National Highways Programme will ensure creation of a national highways grid of desirable capacity.”
“The government has a clear focus on driving demand in rural India with a slew of schemes initiated to boost investment in the rural sector for upliftment the farmers
Reviving Investments -“Opening up FDI in aviation, insurance, media and animation sectors will pave the way for reviving investments”.
View by Mr. Alok Deora, Vice President – Institutional Research at YES Securities
The higher allocations towards Railways segment at ~Rs.1.6 trn in FY20 (~Rs.1.38 trn in FY19) would provide further boost to the sector. It would lead to more projects being awarded and higher business opportunities for key players like RVNL, Rites Ltd, Ircon International. Similarly the higher allocations towards road segment ~Rs.1.5 trn in FY20 (~Rs.1.3 trn in FY19) would lead to higher awarding in line with the Bharatmala Programme. Some of the key players to benefit include PNC Infratech, KNR Constructions, Sadbhav Engineering, Dilip Buildcon.
View by Mr. Rajiv Mehta, Executive Vice President – Institutional Research at YES Securities
A positive budget for PSU Banks
Government provided for a much higher-than-expected re-capitalization outlay for PSU Banks. We believe this substantial capital reflects government’s emphasis on funding investment and consumption to catalyze the sagging economic activity. Bulk of this capital infusion would be utilized for expanding balance sheet by PSU Banks given most of them have already attained a comfortable PCR. It will also improve the scope for raising equity capital from the market thus putting them in a positive virtuous cycle which typically starts with healthy capital levels and fading NPL accruals. Besides a higher recap, measures such as interest subvention on loans and prompt payments to MSMEs for goods and services supplied can reflect in better portfolio growth and asset quality of PSU Banks
Martin Schwenk, Managing Director & CEO, Mercedes-Benz India:
· “We welcome the Government’s vision of achieving a 3 trillion dollar economy and becoming the 6th largest economy in the world by end of this year. However, the decision to increase the custom duty on automotive parts was not expected and it is not going to help create demand in the industry which already is facing continued strong macro-economic headwinds, resulting in subdued consumer interest. The increase in custom duty coupled with increased input costs due to fuel price hike, could lead to an increase in the price of our model range. Though the budget has given a boost to green mobility, we wished for the inclusion of Plug-In-Hybrids for duty exemption as well, as that would have further given a push to the green mobility efforts.”
Mr. Balaji Rao, Managing Partner – Real Estate, Axis Asset Management Company for your reference.
Quotes on the Budget
This budget has been a reflection of the government’s commitment to supporting affordable housing, by reaffirming its goal of “Housing for All” by 2022. The benefits to the sector can be expected to translate into three broad categories:
· For rental housing, the proposed model tenancy law has the potential to revitalise India’s rental market. A new rental law could also aid in liquidating piled-up inventory by encouraging the purchase of a second house, for rental income.
· Commercial real estate may expect a boost as Foreign Portfolio Investors (‘FPI’s) will be permitted to subscribe to listed debt securities issued by REITs – a move that will help develop the much needed depth in the REIT market as well as encourage an inflow of foreign capital.
· With respect to affordable housing, an extremely laudable step by the government has been the alignment of definitions of ‘affordable housing’ under the GST and Income Tax Acts, which will go a long way towards streamlining processes and increase ease of doing business.
Further, in line with the spirit of the last budget, the government has sought to improve affordability by increasing the tax break offered on interest paid on housing loans. Going forward, it is proposed that an additional deduction of Rs 1.50 lakhs be allowed on interest paid on loans for houses of stamp duty value of Rs 45 lakh or less, encouraging the middle and low income segments of the real estate market. The budget also brings a welcome structural change, in proposing to bring Housing Finance Companies (‘HFC’) under the aegis of the RBI
By mooting to release land parcels held by Public Sector Undertakings (‘PSUs’) for affordable housing developments. By way of this budget, the government has affirmed their commitment to economic growth through supporting the working class and strengthening financial systems, which in turn, should conceivably lead to a revival of the real estate markets.