Sei sulla pagina 1di 18
Institutional Equity Research February 01, 2018 UNION BUDGET 2018-2019 Research Team rsec.research@rcap.co.in 1
Institutional Equity Research February 01, 2018 UNION BUDGET 2018-2019 Research Team rsec.research@rcap.co.in 1
Institutional Equity Research February 01, 2018 UNION BUDGET 2018-2019 Research Team rsec.research@rcap.co.in 1

Institutional Equity Research

February 01, 2018

UNION BUDGET

2018-2019

Research Team rsec.research@rcap.co.in

Union Budget 2018-19 February 01, 2018 A Prudence Balance between Fiscal Discipline and Economic Growth
Union Budget 2018-19 February 01, 2018 A Prudence Balance between Fiscal Discipline and Economic Growth
Union Budget 2018-19 February 01, 2018 A Prudence Balance between Fiscal Discipline and Economic Growth

Union Budget 2018-19

February 01, 2018

A Prudence Balance between Fiscal Discipline and Economic Growth

Union budget 2018 has tried to do a lot for rural and EWS population and at the same time has tried to maintain the fiscal discipline by keeping fiscal deficit target at 3.5% and 3.3% for FY18E and FY19E, respectively. Notably, revised expenditures for FY18E are estimated to increase moderately by Rs10,000 crore to Rs21.57 lakh crore (net of GST Compensation of ~Rs60,0000 crore to be transferred to States). However, lower than estimated non-tax revenue (mainly impacted by poor dividend from RBI and absence of spectrum revenue) along with dismal tax collection post GST implementation broadly led to hardening of fiscal deficit (at 3.5%) in the current year. However, with the gradual pickup in GST collection in ensuing months along with increased direct tax collection is expected to aid fiscal deficit in FY19E. Budget speech talked about total expenses from all agencies at Rs14 lakh crore towards aiding rural economy / farmers’ income. This will have far reaching impact on growth rates of country and reduction of income gaps in society. On the flip side, visible hardening of oil prices can play a major spoilsport in government’s estimated fiscal target.

Focus on Mass Population

Government has announced a slew of measures and initiatives to give a further flip to rural economy keeping in view of upcoming assembly elections in many states and general election in 2019. Increase in MSP of Kharif to 1.5x of production cost, focus on developing rural road networks, enhancement of Fasal Bima Yojana, etc are likely to aid rural economy’s prospects. We believe that improvement in rural economy may lead to improvement in consumption. Newly introduced National Health Protection Scheme under Ayushman Bharat Programme covering 10 crore families and providing free gas connection to 8 crore poor families might help NDA to win the trust of EWS and rural population once again.

Infrastructure Remains as Key Area of Focus

Budget 2018 continued to put strong focus on infrastructure development, which is in line with the expectations. FM has allocated an extra budgetary support of Rs5.97 lakh crore v/s Rs4.94 lakh crore in last budget for infrastructure sector, which is encouraging as India needs large amount of investment in infrastructure due to growing needs. However, road construction for FY18E is likely

to be ~9000km, which is tad lower as compared to earlier guidance given by the road ministry.

We understand higher allocation in infrastructure segment will essentially expedite infrastructure development in the country, which in turn will aid many industries i.e. metals, cement, building materials, etc leading to higher utilisation and that should logically lead to pickup in private capital expenditure.

LTCG Tax on Equities; a Short Term Dilemma

Govt has also decided to impose 10% tax on Long Term Capital Gains (LTCG) for equity and equity oriented investments for amount exceeding capital gains of Rs1 lakh. The tax will be applicable based on cost prices prevailing on 31st January 2018 for assets held before 31st January 2018, which will prevent any large scale selling in stock markets. While LTCG tax has been imposed, there is no tinkering on Securities Transaction Tax, which makes India as probably only country in the world to have both taxes at the same time. Grandfathering of cost prices for LTCG will prevent any knee jerk reaction in stock prices but imposition of tax is a clear negative for equity markets as far as sentiments are concerned. Imposition of tax is a negative event for equity markets but for investors who would like to treat equity as an asset class, it still offers best inflation adjusted post tax returns. Therefore, over a period of time this tax incidence will be taken in stride and normal life will continue as far as investment in equities is concerned

Outlook & Valuation

To summarise the Budget 2018, we are of the view that amid the challenges from soaring oil prices, dwindling revenue collection led by transitory impact of GST and lack of private capex, FM has managed to balance fiscal prudence and need for spurring economic growth. However, it would be a difficult task for the government to maintain the fiscal prudence in case crude oil price sustains above US$70. Nonetheless, we believe that with the visible sign of improving earnings momentum along with likely pickup in capex (public and private) will essentially bode well for equity markets. Equity market has delivered handsome returns of ~28% since last budget led by huge improvement in domestic liquidity but we expect a moderate return in low to mid teens in FY19E.

Exhibit 1: Budget at a glance Union Budget 2018-19 February 01, 2018   YoY Growth
Exhibit 1: Budget at a glance Union Budget 2018-19 February 01, 2018   YoY Growth
Exhibit 1: Budget at a glance Union Budget 2018-19 February 01, 2018   YoY Growth

Exhibit 1: Budget at a glance

Union Budget 2018-19

February 01, 2018

 

YoY Growth (%)

As % Of GDP

(Rs crs)

FY16

FY17

FY18 RE

FY19 BE

FY18 RE

FY19 BE

 

Revenue Receipts

1,195,025

1,374,203

1,505,428

1,725,738

9.5

14.6

9.0

9.2

Tax Revenue

943,765

1,101,372

1,269,454

1,480,649

15.3

16.6

7.6

7.9

Non-Tax Revenue

251,260

272,831

235,974

245,089

(13.5 )

3.9

1.4

1.3

Capital Receipts

595,758

600,991

712,322

716,475

18.5

0.6

4.2

3.8

Recoveries of Loans

20,835

17,630

17,473

12,199

(0.9 )

(30.2 )

0.1

0.1

Other Receipts

42,132

47,743

100,000

80,000

109.5

(20.0 )

0.6

0.4

Borrowing and Other Liabilities

532,791

535,618

594,849

624,276

11.1

4.9

3.5

3.3

Total Receipts

1,790,783

1,975,194

2,217,750

2,442,213

12.3

10.1

13.2

13.0

Scheme Expenditure

725,114

-

-

-

 

-

-

On Revenue Account

545,619

 

-

-

On Capital Account

179,495

 

-

-

Expenditure on Other than Schemes

1,065,669

1,975,194

2,217,750

2,442,213

12.3

10.1

13.2

13.0

On Revenue Account

992,142

1,690,584

1,944,305

2,141,772

15.0

10.2

11.6

11.4

of which, Interest Payments

441,659

480,714

530,843

575,795

10.4

8.5

3.2

3.1

On Capital Account

73,527

284,610

273,445

300,441

(3.9 )

9.9

1.6

1.6

Total Expenditure

1,790,783

1,975,194

2,217,750

2,442,213

12.3

10.1

13.2

13.0

On Revenue Account

1,537,761

1,690,584

1,944,305

2,141,772

15.0

10.2

11.6

11.4

Of which, Grants in Aid for Creation of Capital Assets

131,754

165,733

189,245

195,345

14.2

3.2

1.1

1.0

On Capital Account

253,022

 

-

-

Revenue Deficit

342,736

316,381

438,877

416,034

38.7

(5.2 )

2.6

2.2

Effective Revenue Deficit

210,982

150,648

249,632

220,689

65.7

(11.6 )

1.5

1.2

Fiscal Deficit

532,791

535,618

594,849

624,276

11.1

4.9

3.5

3.3

Primary Deficit

91,132

54,904

64,006

48,481

16.6

(24.3 )

0.4

0.3

Union Budget 2018-19 February 01, 2018 Fiscal Deficit Remains at Comfort Zone; Targeted fiscal deficit
Union Budget 2018-19 February 01, 2018 Fiscal Deficit Remains at Comfort Zone; Targeted fiscal deficit
Union Budget 2018-19 February 01, 2018 Fiscal Deficit Remains at Comfort Zone; Targeted fiscal deficit

Union Budget 2018-19

February 01, 2018

Fiscal Deficit Remains at Comfort Zone; Targeted fiscal deficit at 3.3% in FY18E

On the macro front, the Government has maintained its stance on fiscal deficit despite uncertainly over non tax revenue. It aims to maintain the same at 3.5% for FY18E and 3.3% in FY19E.

Further, it aims to achieve fiscal consolidation mainly through ~17% rise in tax revenue to Rs1,481bn in FY19E.

Exhibit 2: Key Economic Indicators

5.6

4.8

4.0

3.2

2.4

1.6

0.8

-

5.8 5.2 4.9 4.8 4.5 4.5 4.4 3.6 3.5 3.5 3.3 3.2 3.2 3.1 3.1
5.8
5.2
4.9
4.8
4.5
4.5
4.4
3.6
3.5
3.5
3.3
3.2
3.2
3.1
3.1
3.0
2.7
2.6
2.6
2.2
2.1
1.8
1.8
1.8
1.6
1.1
0.4
0.4
0.3
0.1
FY09
FY10
FY11
FY12
FY13
FY14
FY17
FY18 RE
FY19 BE
FY20 P
FY21 P
Fiscal Deficit
Primary Deficit
Revenue Deficit

Source: Budget document, RSec Research

Exhibit 3: Revenue Trend 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 - FY12 FY13
Exhibit 3: Revenue Trend
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
-
FY12
FY13
FY14
FY15
FY16
FY17
FY18 RE
FY19 BE
Corporation Tax
Taxes on Income
Customs
Union Excise Duties
Service Tax
Centre’s Net Tax Revenue

Source: Budget document, RSec Research

Exhibit 4: Non Tax Revenue trend

(Rs bn)

FY14

FY15

FY16

FY17

FY18 RE

FY19 BE

Non-Tax Revenue

1,989

1,979

2,513

2,728

2,360

2,451

Interest receipts

219

238

254

162

136

152

Dividend and Profits

904

898

1,121

1,230

1,064

1,073

External Grants

-

-

19

13

37

27

Other Non Tax Revenue

851

829

1,103

1,305

1,104

1,179

Receipts of Union Territories

15

14

15

18

19

21

Source: Budget document, RSec Research

Union Budget 2018-19 February 01, 2018 Exhibit 5: Expenditure of Government of India (Rs cr)
Union Budget 2018-19 February 01, 2018 Exhibit 5: Expenditure of Government of India (Rs cr)
Union Budget 2018-19 February 01, 2018 Exhibit 5: Expenditure of Government of India (Rs cr)

Union Budget 2018-19

February 01, 2018

Exhibit 5: Expenditure of Government of India

(Rs cr)

FY16

FY17

FY18 RE

FY19 BE

Centre’s Expenditure

Establishment Expenditure of Centre

334,870

423,851

468,914

508,400

Central Sector Schemes/Projects

521,374

589,471

634,318

708,934

Other Central Sector Expenditure

592,909

570,377

638,009

678,017

Statutory and Regulatory Bodies

5,818

Autonomous Bodies

41,939

Public Sector Undertakings

9,696

Public Sector Banks

25,000

Financial Institutions

1,627

Others

508,829

480,714

530,843

575,975

Centrally Sponsored Schemes and other Transfers

 

Centrally Sponsored Schemes

203,741

241,295

285,582

305,517

Finance Commission Grants

84,579

95,550

101,490

109,373

Other Grants/Loans/Transfers

53,310

54,650

89,437

131,972

Grand Total

1,790,783

1,975,194

2,217,750

2,442,213

Source: Budget document, RSec Research

Exhibit 6: Expenditure of Major Items

(Rs cr)

FY16

FY17

FY18 RE

FY19 BE

Pension

96,771

131,401

147,387

168,466

Defence

225,895

251,781

267,108

282,733

Subsidy

Fertiliser

72,415

66,313

64,974

70,080

Food

139,419

110,173

140,282

169,323

Petroleum

29,999

27,539

24,460

24,933

Agriculture and Allied Activities

23,694

50,184

56,589

63,836

Commerce and Industry

16,247

21,364

26,310

27,956

Development of North East

1,987

2,496

2,682

3,000

Education

67,239

72,016

81,869

85,010

Energy

21,123

30,964

41,682

41,104

External Affairs

14,518

12,753

13,690

15,012

Finance

71,213

41,549

29,449

20,342

Health

34,131

39,005

53,198

54,667

Home Affairs

67,821

78,360

88,143

93,450

Interest

441,659

480,714

530,843

575,795

IT and Telecom

15,079

17,985

17,802

22,380

Others

46,008

63,667

69,515

72,845

Planning and Statistics

5,959

4,494

5,063

5,199

Rural Development

90,235

113,877

135,604

138,097

Scientific Departments

17,432

19,493

22,370

24,906

Social Welfare

31,691

31,812

38,624

44,220

Tax Administration

26,011

22,146

77,747

105,541

Transfer to States

114,802

132,704

120,265

142,858

Transport

87,413

102,200

107,092

134,572

Union Territories

11,843

13,258

14,248

14,123

Urban Development

20,180

36,946

40,754

41,765

Grand Total

1,790,783

1,975,194

2,217,750

2,442,213

Source: Budget document, RSec Research

41,765 Grand Total 1,790,783 1,975,194 2,217,750 2,442,213 Source: Budget document, RSec Research 5

5

41,765 Grand Total 1,790,783 1,975,194 2,217,750 2,442,213 Source: Budget document, RSec Research 5
Union Budget 2018-19 February 01, 2018 Sectoral Impact 6
Union Budget 2018-19 February 01, 2018 Sectoral Impact 6
Union Budget 2018-19 February 01, 2018 Sectoral Impact 6

Union Budget 2018-19

February 01, 2018

Sectoral Impact

Banking Union Budget 2018-19 February 01, 2018 Budget Proposal   Impact   Our View  
Banking Union Budget 2018-19 February 01, 2018 Budget Proposal   Impact   Our View  
Banking Union Budget 2018-19 February 01, 2018 Budget Proposal   Impact   Our View  

Banking

Union Budget 2018-19

February 01, 2018

Budget Proposal

 

Impact

 

Our View

 

Stocks affected

f

Fiscal deficit target of 3.3% along with net market borrowing of Rs4.62 lakh crore in FY19 vs. Rs4.59 lakh crore in FY18.

f

Negative

f

The Government has failed to adhere to its fiscal deficit target of 3.2% for FY18 along with much higher market borrowings, which negatively impacted the bond market.

f

Negative for public sector banks as they have little scope for treasury gains from bond portfolio along with higher MTM loss on excess SLR portfolio.

   

f

Net market borrowing remaining elevated at Rs4.62 lakh crore for FY19 and tighter liquidity condition may keep the bond yield at elevated level in coming period.

f

Negative for all NBFC as their cost of fund will increase over the FY18 level.

f

Increase allowable provision for Non- Performing Assets from 7.5% to 8.5% of the total income.

f

Positive

f

This will help the banks to strengthen the balance sheet and reduce their tax liability.

f

Positive for the banks with higher stressed assets on balance sheet i.e. Axis Bank, ICICI Bank, PNB, SBI, UBI, Canara Bank & Bank of Baroda.

f

Target of Rs11 lakh crore of agricultural credit during FY19 vs. Rs10 lakh crore in

f

Positive

f

Agriculture credit target is in line with the current growth in the segment.

f

Positive for the banking players as the agriculture sector is expected to revive due to good monsoon last year and increased governmental thrust on rural segment.

FY18.

   

f

Increasing credit target under Pradhan Mantri Mudra Yojana (PMMY) to Rs3 lakh crore in FY19 from Rs2.4 lakh crore in

f

Positive

f

It will help to revive the credit growth in MSME segment.

f

All banks and NBFC.

FY18.

     

f

Issue of Rs65,000 crore of additional PSB recapitalisation bonds to Public Sector Banks.

f

Negative

f

Additional recapitalisation bonds for PSBs are in line with earlier announcement.

f

Positive for all public sector banks.

 

f

To provide much-needed growth capital to the PSBs post cleaning of balance sheet over next two quarters.

 
Banking Union Budget 2018-19 February 01, 2018 Budget Proposal   Impact   Our View  
Banking Union Budget 2018-19 February 01, 2018 Budget Proposal   Impact   Our View  
Banking Union Budget 2018-19 February 01, 2018 Budget Proposal   Impact   Our View  

Banking

Union Budget 2018-19

February 01, 2018

Budget Proposal

 

Impact

 

Our View

 

Stocks affected

f Increased thrust for digital transactions.

f

Positive

f

It will help the banking sector in medium to long-term.

f

All banks

f Measures for deepening corporate bond market: (a) mandate to take 25% total borrowing of corporate from capital market and; (b) relaxation of norms related to investment in corporate bond to from current ‘AA’ to ‘A’ grade ratings.

f

Positive

f

It will facilitate comprehensive development of corporate bond market and reduce concentration risk related to corporate credit segment.

f

All banks

 

f

However, it will erode some incremental business from banks to corporate bond market.

 

Sector Outlook

We believe that incremental deterioration in asset quality has been aptly addressed in last few quarters along with substantial progress in resolution of existing NPAs. Further, credit growth has revived after touching an all-time low in 1HFY18. We expect major part of incremental credit growth may flow into private banks helping them to improve their operating performance. The sector also got negatively impacted by sharp rise in bond yield due to deteriorating conditions on fiscal deficit front both at centre and state level. Resultantly, the benchmark G-Sec bond yield jumped to 7.60% compared to 6.66% as of 2QFY18-end. Increase in G-Sec yield will result in MTM loss on non-HTM investment portfolio of the banks as well as lead to sharp decline in treasury income especially for the PSBs. Hence, we continue to prefer private banks having higher exposure to consumer and business banking loans.

Capital Goods Union Budget 2018-19 February 01, 2018 Budget Proposal   Impact   Our View
Capital Goods Union Budget 2018-19 February 01, 2018 Budget Proposal   Impact   Our View
Capital Goods Union Budget 2018-19 February 01, 2018 Budget Proposal   Impact   Our View

Capital Goods

Union Budget 2018-19

February 01, 2018

Budget Proposal

 

Impact

 

Our View

 

Stocks affected

f

NIL Basic Custom Duty from earlier 5% on solar tempered glass used to manufacture solar cells/panels/modules.

f

Positive

f

It will reduce cost of manufacturing of solar plants.

f

ABB.

f

Printed Circuit Board Assembly (PCBA) of charger/adapter and moulded plastics of charger/adapter of cellular mobile phones.

f

Positive

f

Positive for domestic PCBA manufacturers.

f

Dixon Tech and ABB etc.

f

Propose extra-budgetary expenditure of Rs5.97lakh crore on infrastructure.

f

Positive

f

Positive for Capital Goods companies.

f

KEC International and Kalpataru Power Transmission etc.

f

Focus on completion of rural electrification.

     

f

Allocation of Rs2.04lakh crore for Smart City Mission.

f

Positive

f

Positive for household electrical appliance and equipment manufacturers.

f

Crompton Greaves Consumer Electricals and ABB etc.

f

Capital Expenditure of Indian Railways is earmarked at Rs1.5 lakh crore for FY19 (14% YoY) and up-gradation of railway lines.

f

Positive

f

Augmentation of rail infrastructure will result in healthy order inflows for Capital Goods companies.

f

ABB and KEC International etc.

Sector Outlook

 

We believe ordering activities have improved on transmission and railways electrification front. Looking ahead, we expect further up-tick in ordering activities led by schemes i.e. UDAY, DDUGJY, IPDS, Housing for All and SAUBHAGYA etc. These schemes are expected to result in better cash flows and new investments in state T&D networks and Independent Power Producers (IPPs), going forward.

Cement Union Budget 2018-19 February 01, 2018 Budget Proposal Impact   Our View   Stocks
Cement Union Budget 2018-19 February 01, 2018 Budget Proposal Impact   Our View   Stocks
Cement Union Budget 2018-19 February 01, 2018 Budget Proposal Impact   Our View   Stocks

Cement

Union Budget 2018-19

February 01, 2018

Budget Proposal

Impact

 

Our View

 

Stocks affected

f

Impetus to improve rural economy by means of increased allocation towards MGNREGA (+28% YoY), Fasal Bima Yojana (target to cover up to ~40% in FY18E), increased allocation to rural (+24% yoy) sector and increase in long-term (up to Rs200.0bn) and micro irrigation fund (up to Rs50.0bn) etc.

f

Positive

f

Rural areas account for >50% of total cement consumption in India, which had been going through tough phase over last two years led by consistent deceleration in rural economy. In our view, the Government has tried to strike the right chord to spur the rural economy by targeting to double the income of farmers over the next five years. A higher disposable income in the hands of rural populace will certainly lead to higher cement consumption.

f

Entire sector

f

Infrastructure status to Affordable Housing Segment and increased allocation for Pradhan Mantri Awas Yojana.

f

Positive

f

The Government seems to remain committed to affordable housing and already had announced a number of measures to spur the segment. We foresee infrastructure status to affordable housing segment as the best measure so far done by the NDA Government to accelerate affordable housing development. It will entail all developers in affordable housing segment to get loans at lower rates enabling them to expedite construction activities.

f

Entire sector

f

Continued thrust on infrastructure development.

f

Positive

f

The NDA Government has already undertaken a number of reforms to revive infrastructure activities in the country especially in Roads & Highway, Power, Railway and Irrigation sectors etc, which have already started paying off in terms of increasing contribution of cement consumption from Infrastructure segment. Further, increased allocation to infrastructure segment (up to Rs3,961.0bn) will continue to ensure higher cement consumption, going forward. We foresee cement consumption from infrastructure segment to increase from 30% in FY17E to 35% in FY18E.

f

Entire sector

Sector Outlook

Cement sector had been witnessing subdued consumption in rural areas over last two years due to deficient monsoon and consistent deterioration in rural economy. Further, rural demand was affected by government’s demonetization drive, the effect of which is still prevalent. Budget 2017-2018 will certainly provide a much needed thrust to rural economy, which is of utmost importance, and will lead to improvement in cement demand in rural areas in FY18E.

Consumer Union Budget 2018-19 February 01, 2018 Budget Proposal   Impact   Our View  
Consumer Union Budget 2018-19 February 01, 2018 Budget Proposal   Impact   Our View  
Consumer Union Budget 2018-19 February 01, 2018 Budget Proposal   Impact   Our View  

Consumer

Union Budget 2018-19

February 01, 2018

Budget Proposal

 

Impact

 

Our View

 

Stocks affected

f No increase in tax on cigarettes.

f

Positive

f

Although GST roll-out and compensation cess is levied on cigarettes, there was a concern that the Central Government could levy Excise Duty in addition to these duties. No such levy is a definite positive for the sector.

f

ITC, VST Industries and Godfrey Phillips.

f Increased allocation for rural development.

f

Positive

f

Initiatives i.e. MSP at 1.5x of cost for Kharif crops, increasing allocation for institutional credit for agriculture sector and other similar initiatives will increase disposable income levels in the hands of the consumers, which augurs well for the entire sector.

f

Entire consumer sector.

f Setting up of Fisheries and Aquaculture Infrastructure Development Fund (FAIDF) for fisheries sector.

f

Positive

f

This move demonstrates government’s willingness to create organised structure for the sector, which will benefit the large organised players.

f

Avanti Feeds, Godrej Agrovet, Apex Frozen Foods and Waterbase.

Sector Outlook

The consumer sector had been adversely impacted in past couple of years due to weak consumer demand, demonetisation and trade disruptions post GST roll-out. However, two consecutive good monsoons, higher MSPs of key crops and higher share of organised players post GST roll-out would drive strong double-digit revenue and earnings growth for the sector. Although valuations remain stretched at 41x FY19E earnings Ex-ITC, we believe that the companies with market leadership, strong pricing power and huge under-served market will continue to outperform in coming years.

Infrastructure Union Budget 2018-19 February 01, 2018 Budget Proposal   Impact   Our View  
Infrastructure Union Budget 2018-19 February 01, 2018 Budget Proposal   Impact   Our View  
Infrastructure Union Budget 2018-19 February 01, 2018 Budget Proposal   Impact   Our View  

Infrastructure

Union Budget 2018-19

February 01, 2018

Budget Proposal

 

Impact

 

Our View

 

Stocks affected

f

Budgetary and extra budgetary expenditure on infrastructure increased to Rs5.97 lakh crore for FY19 from Rs4.94 lakh crore in FY18E.

f

Positive

f

A hefty 21% increase in allocation is likely to ensure higher order book for infrastructure companies and also boost employment generation.

f

L&T, NCC, KNR Constructions and J. Kumar Infra, etc.

f

Railway capex has been earmarked at Rs1.49 lakh crore mainly to strengthen network and enhance carrying capacity.

f

Positive

f

Higher capex to aid construction companies involved in EPC works.

f

NCC, Simplex Infra, Escorts etc.

f

Emphasis on rural infrastructure including rural roads through higher allocation to MGNREGA.

f

Positive

f

Allocation of Rs55,000cr for various rural infra projects including 2.6lakh kms rural roads augurs well for small EPC players.

f

All small EPC companies.

f

Roads and highways to remain in focus. 9,000kms to be completed in FY18E.

f

Positive

f

Continued focus on road development to result in higher ordering activities in coming months. Further, improvement in lending ability of the PSBs is positive for road developers.

f

Ashoka Buildcon, NCC, Sadbhav Engineering, J. Kumar Infra etc.

f

51 lakh housing units to be built each in FY18 and FY19E in rural areas and 37 lakh units in urban areas.

f

Positive

f

This may ensure healthy business visibility for civil contractors.

f

Ahluwalia Contracts, NBCC, NCC, Simplex Infra etc.

Sector Outlook

In addition to emphasis on reviving rural economy, the Union Budget continued to focus on boosting infrastructure activities in the country. India cannot achieve desired growth without focussing on infrastructure development. Roads & Highway, Railways, Urban Infrastructure projects have already witnessed a decent traction over last two years. Thus, we believe that renewed focus on overall infrastructure segment, irrigation, airports, metro projects, affordable housing may see sound traction in FY19E along with other segments as well. We maintain our positive view on the sector from long-term perspective and recommend looking at the companies, which are least exposed to developmental business. We prefer the companies, which are least leveraged and having sizeable order book.

Information Technology Union Budget 2018-19 February 01, 2018 Budget Proposal   Impact   Our View
Information Technology Union Budget 2018-19 February 01, 2018 Budget Proposal   Impact   Our View
Information Technology Union Budget 2018-19 February 01, 2018 Budget Proposal   Impact   Our View

Information Technology

Union Budget 2018-19

February 01, 2018

Budget Proposal

 

Impact

 

Our View

 

Stocks affected

f

Allocation for Digital India raised to Rs3,073cr from Rs1,426cr.

f

Positive

f

Expected to create opportunities for Indian IT companies to work with the government.

f

TCS, Infosys, Wipro and other quasi- IT firms like BLS International and Vakrangee.

   

f

It is a small incrementally positive development for IT sector/companies, which work with the government.

f

Exploring use of Block Chain technology proactively for ushering in digital economy.

f

Positive

f

Opportunities for IT firms to work with the Government in creating Indian version of distributed digital ledger technology.

f

TCS, Infosys and Wipro.

 

f

Negative for CDSL in case SEBI uses Blockchain in depository operations.

 

f

Indian IT firms to get more opportunities to work with the Government on an emerging technology.

 

f

Proposal to increase digital intensity in education, to gradually replace ‘‘Black Board’’ with ‘‘Digital Board’’.

f

Positive

f

Expected to create opportunities in field of digital education, opportunities for niche players

f

CL Educate, Navneet Education and S. Chand & Co.

f

Technology-driven up-gradation of teachers’ skills through recently launched digital portal ‘‘DIKSHA’’.

     

Sector Outlook

We are positive on the near and medium-term prospects of Indian IT firms, given the improving global economy, better visibility for global IT budgets and strong growth in digital services. Key macroeconomic risks including BREXIT and election of Donald Trump as the US President seem to have noticeably ebbed. Despite a strong stock performance of late, we believe that valuations of IT companies are still reasonable. With improving growth, high cash flow generation, increasing buy-backs as a measure of cash return to shareholders and good management quality, we expect IT stocks to perform well, going forward.

Pharmaceuticals Union Budget 2018-19 February 01, 2018 Budget Proposal Impact Our View   Stocks affected
Pharmaceuticals Union Budget 2018-19 February 01, 2018 Budget Proposal Impact Our View   Stocks affected
Pharmaceuticals Union Budget 2018-19 February 01, 2018 Budget Proposal Impact Our View   Stocks affected

Pharmaceuticals

Union Budget 2018-19

February 01, 2018

Budget Proposal

Impact

Our View

 

Stocks affected

f Formation of National Health Insurance Scheme to benefit 10 crore poor families (~50 crore beneficiaries) who will be having an annual medi-claim benefit of Rs5 lakh per family for secondary/tertiary hospital care.

f Positive

f We expect significant expansion in health insurance coverage.

f

Apollo Hospitals, Narayana Hrudayalaya, Shalby, Fortis Healthcare, Thyrocare and Dr. Lal PathLabs.

Sector Outlook

Following years of market outperformance in the US market, the growth for most Indian generics manufacturers has slowed down in past 18-24 months mainly owing to increased scrutiny of Indian facilities, which led to more cGMP-related observations (Lupin, Sun Pharma and Dr. Reddy’s). The effect has been compounded in terms of slower US FDA approvals for which a significant part of the value of near-term pipeline has either been eroded or delayed. And, additionally, the US generics industry has seen significant consolidation and increased pressure on pricing led by faster approvals (GDUFA). However, Indian pharma companies have been focussing on developing complex generics and specialty products (high margin; limited competition), which will support their earnings growth in the medium-term.

We expect the Indian pharma companies to revert to their historical growth trajectories from 1HFY19E as the GST and demonetization led disruptions seem to have ebbed. We believe Indian pharma market an attractive structural growth story led by increasing lifestyle diseases, improvement in healthcare accessibility, higher per capita income and expanding insurance penetration.

We continue to remain bullish on Indian pharmaceutical sector from medium to long-term perspectives.

Power Union Budget 2018-19 February 01, 2018 Budget Proposal   Impact   Our View  
Power Union Budget 2018-19 February 01, 2018 Budget Proposal   Impact   Our View  
Power Union Budget 2018-19 February 01, 2018 Budget Proposal   Impact   Our View  

Power

Union Budget 2018-19

February 01, 2018

Budget Proposal

 

Impact

 

Our View

 

Stocks affected

f Allocation of Rs16,000crore for SAUBHAGYA scheme, which was launched earlier to provide free electricity connection to 4 crore households.

f

Positive

f

Improvement in policy environment and higher infrastructure spend will aid in reviving demand scenario of power sector.

f

All power generation and T&D equipment manufacturing companies.

f Focus on completion of rural electrification.

f

Positive

f

It will encourage investments in T&D space.

f

Power Grid Corp.

f Necessary measures to encourage the state governments to put in place a mechanism to ensure that their surplus solar power is purchased by DISCOMs or licensees at reasonably remunerative rates.

f

Positive

f

It will encourage private investments in solar energy.

f

Tata Power and Adani Power etc.

 

f

It would increase IRR of solar power producers.

 

Sector Outlook

Domestic power sector continues to face problems relating to poor system demand, low PPAs, and poor financials of the DISCOMs. However, recently launched UDAY scheme witnessed positive response from the DISCOMs, which should eventually lead to improvement in their financial health and ability to draw more power. We believe that improvement in policy environment and infrastructure spend coupled with manufacturing activities will aid in reviving demand environment of the power sector. In our view, implementation of UDAY scheme is expected to improve power demand in FY19E, while increase in coal output would provide a much-needed fillip to the sector.

Tyres Union Budget 2018-19 February 01, 2018 Budget Proposal Impact   Our View Stocks affected
Tyres Union Budget 2018-19 February 01, 2018 Budget Proposal Impact   Our View Stocks affected
Tyres Union Budget 2018-19 February 01, 2018 Budget Proposal Impact   Our View Stocks affected

Tyres

Union Budget 2018-19

February 01, 2018

Budget Proposal

Impact

 

Our View

Stocks affected

f

Custom Duty on Truck & Bus Radial Tyres increased to 15% from 10%.

f Positive

f

An increase in duty will make domestic TBR comparable with imported tyres and aid domestic companies to witness higher volume.

f JK Tyres, Apollo Tyres, CEAT etc.

Sector Outlook

We expect the sector to witness a healthy traction, going forward on the back of improving outlook of domestic OEM industry, increasing road connectivity across the country and rising aspiration of middle class population. Further, with benign raw material prices, likely benefits from imposition of Anti Dumping Duty on Chinese TBRs and increase in Custom Duty on TBR, we expect Indian tyre manufacturers to report better numbers, going ahead.

Top Picks Union Budget 2018-19 February 01, 2018 Company CMP* Reco Target Price   P/E
Top Picks Union Budget 2018-19 February 01, 2018 Company CMP* Reco Target Price   P/E
Top Picks Union Budget 2018-19 February 01, 2018 Company CMP* Reco Target Price   P/E

Top Picks

Union Budget 2018-19

February 01, 2018

Company

CMP*

Reco

Target Price

 

P/E (x)

 

P/B (x)

 

EV/EBIDTA (x)

(Rs)

(Rs)

FY17

FY18E

FY19E

FY17

FY18E

FY19E

FY17

FY18E

FY19E

Banking

HDFC Bank

1,991

BUY

2,285

35.1

30.3

25.3

5.7

4.3

3.7

-

-

-

Federal Bank

98

BUY

150

20.2

18.0

14.2

1.9

1.6

1.5

-

-

-

Capital Goods

Crompton Greaves

252

BUY

305

54.1

43.6

35.6

29

21.2

14.7

33.3

27.3

22.9

consumer Electricals

Skipper ltd

238

BUY

289

21.8

18.8

14.0

4.9

4.0

3.2

11.9

10.2

8.2

Cement

UltraTech Cement

4,391

BUY

5,100

46.2

55.6

41.3

5.0

4.7

4.2

25.4

24.0

16.5

Sagar Cement

1,006

BUY

1,200

 

66.6

23.3

2.8

2.7

2.4

22.0

16.6

10.6

Consumer

Dabur India

350

BUY

404

48.3

44.7

37.8

12.6

10.8

9.3

38.6

35.2

29.5

ITC

275

BUY

320

32.9

30.3

27

7.4

6.9

6.7

21.5

19.6

17.5

Infrastructure

NBCC

229

BUY

300

58.7

48.8

34.6

12.3

11.0

9.1

57.0

45.1

29.8

KNR Constructions

305

BUY

UR

28.6

20.5

18.1

4.9

4.0

3.3

19.9

15.3

11.8

IT

Persistent Systems

783

BUY

920

20.0

17.7

14.6

3.5

3.1

2.7

12.4

11.1

8.7

Tata Elxsi

1,026

BUY

1265

36.9

27.6

23.3

11.4

8.9

7.1

20.9

17.3

14.4

Pharmaceuticals

Cadila HC

418

BUY

554

28.2

22.1

16.6

6.3

5.1

4.1

24.4

16.6

12.7

Alkem Labs

2,232

BUY

2,610

29.9

34.0

25.3

6.0

5.3

4.6

27.2

24.1

19.7

Power

Power Grid Corp

194

BUY

244

13.5

11.0

8.8

2.0

1.8

1.5

9.3

8.6

7.3

NTPC

169

BUY

192

14.8

12.5

11.0

1.4

1.3

1.2

11.0

10.4

9.6

Source: RSec Research; Note: *CMP as on February 01, 2018

Union Budget 2018-19 February 01, 2018 Reliance Securities Limited (RSL), the broking arm of Reliance
Union Budget 2018-19 February 01, 2018 Reliance Securities Limited (RSL), the broking arm of Reliance
Union Budget 2018-19 February 01, 2018 Reliance Securities Limited (RSL), the broking arm of Reliance

Union Budget 2018-19

February 01, 2018

Reliance Securities Limited (RSL), the broking arm of Reliance Capital is one of the India’s leading retail broking houses. Reliance Capital is amongst India’s leading and most valuable financial services companies in the private sector. Reliance Capital has interests in asset management and mutual funds, life and general insurance, commercial finance, equities and commodities broking, wealth management services, distribution of financial products, private equity, asset reconstruction, proprietary investments and other activities in financial services. The list of associates of RSL is available on the website www.reliancecapital.co.in. RSL is registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014

General Disclaimers: This Research Report (hereinafter called ‘Report’) is prepared and distributed by RSL for information purposes only. The recommendations, if any, made herein are expression of views and/or opinions and should not be deemed or construed to be neither advice for the purpose of purchase or sale of any security, derivatives or any other security through RSL nor any solicitation or offering of any investment /trading opportunity on behalf of the issuer(s) of the respective security(ies) referred to herein. These information / opinions / views are not meant to serve as a professional investment guide for the readers. No action is solicited based upon the information provided herein. Recipients of this Report should rely on information/data arising out of their own investigations. Readers are advised to seek independent professional advice and arrive at an informed trading/investment decision before executing any trades or making any investments. This Report has been prepared on the basis of publicly available information, internally developed data and other sources believed by RSL to be reliable. RSL or its directors, employees, affiliates or representatives do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information / opinions / views. While due care has been taken to ensure that the disclosures and opinions given are fair and reasonable, none of the directors, employees, affiliates or representatives of RSL shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way whatsoever from the information / opinions / views contained in this Report.

Risks: Trading and investment in securities are subject to market risks. There are no assurances or guarantees that the objectives of any of trading / investment in securities will be achieved. The trades/ investments referred to herein may not be suitable to all categories of traders/investors. The names of securities mentioned herein do not in any manner indicate their prospects or returns. The value of securities referred to herein may be adversely affected by the performance or otherwise of the respective issuer companies, changes in the market conditions, micro and macro factors and forces affecting capital markets like interest rate risk, credit risk, liquidity risk and reinvestment risk. Derivative products may also be affected by various risks including but not limited to counter party risk, market risk, valuation risk, liquidity risk and other risks. Besides the price of the underlying asset, volatility, tenor and interest rates may affect the pricing of derivatives.

Disclaimers in respect of jurisdiction: The possession, circulation and/or distribution of this Report may be restricted or regulated in certain jurisdictions by appropriate laws. No action has been or will be taken by RSL in any jurisdiction (other than India), where any action for such purpose(s) is required. Accordingly, this Report shall not be possessed, circulated and/or distributed in any such country or jurisdiction unless such action is in compliance with all applicable laws and regulations of such country or jurisdiction. RSL requires such recipient to inform himself about and to observe any restrictions at his own expense, without any liability to RSL. Any dispute arising out of this Report shall be subject to the exclusive jurisdiction of the Courts in India.

Disclosure of Interest: The research analysts who have prepared this Report hereby certify that the views /opinions expressed in this Report are their personal independent views/opinions in respect of the securities and their respective issuers. None of RSL, research analysts, or their relatives had any known direct /indirect material conflict of interest including any long/short position(s) in any specific security on which views/opinions have been made in this Report, during its preparation. RSL’s Associates may have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of research report. RSL, its Associates, the research analysts, or their relatives might have financial interest in the issuer company(ies) of the said securities. RSL or its Associates may have received a compensation from the said issuer company(ies) in last 12 months for the brokerage or non brokerage services. RSL, its Associates, the research analysts or their relatives have not received any compensation or other benefits directly or indirectly from the said issuer company(ies) or any third party in last 12 months in any respect whatsoever for preparation of this report.

The research analysts has served as an officer, director or employee of the said issuer company(ies)?: No

RSL, its Associates, the research analysts or their relatives holds ownership of 1% or more, in respect of the said issuer company(ies).?: No

Copyright: The copyright in this Report belongs exclusively to RSL. This Report shall only be read by those persons to whom it has been delivered. No reprinting, reproduction, copying, distribution of this Report in any manner whatsoever, in whole or in part, is permitted without the prior express written consent of RSL.

RSL’s activities were neither suspended nor have defaulted with any stock exchange with whom RSL is registered. Further, there does not exist any material adverse order/judgments/strictures assessed by any regulatory, government or public authority or agency or any law enforcing agency in last three years. Further, there does not exist any material enquiry of whatsoever nature instituted or pending against RSL as on the date of this Report.

Important These disclaimers, risks and other disclosures must be read in conjunction with the information / opinions / views of which they form part of.

RSL CIN: U65990MH2005PLC154052. SEBI registration no. ( Stock Brokers: NSE - INB / INF / INE 231234833; BSE - INB / INF / INE 011234839, Depository Participants: CDSL IN-DP-257-2016 IN-DP-NSDL-363-2013, Research Analyst: INH000002384); AMFI ARN

No.29889.