Budget 2017: Investment Implications & Economic Outlook

Overall this year’s budget 2017 also remained balanced like the last year.

Finance minister expectation of global environment:

World economy faces uncertainty after major economic and political developments in last year.
US Federal Reserve’s intent to increase rates in 2017, may lead to lower capital inflows and higher outflows from the emerging economies.
Uncertainty around commodity prices (crude) has implications for the fiscal situation of emerging economies.
Signs of retreat from globalisation of goods, services & people, as pressures for protectionism are building up.

Fiscal deficit projected at 3.2% and govt. expect to hit 3% in 2019 – Good for markets
Net market borrowing to Rs 3.48 Lacs Cr 2018 – 20% Lower
Capital spending raised by 25.4% and total expense to be ~Rs. 21.5 T for 2018 – Good for Infra
CPI to remain 2-6% as per RBI range
Agri credit target at Rs. 10 T for 2018
Disinvestment target of Rs. 72,500 Cr 2018
100% electrification by May-18
Lending target under Mudra Yojana is Rs. 2.44 Lac Cr
NHB to provide Rs 20,000 Cr for home loans – Good for HFCs

For Individuals:

Income tax on income bracket of Rs 2.5 – 5 lakh to be 5% from 10% – Benefit of Rs. 12,500
10% surcharge on individuals with taxable income between 50 Lacs to 1 Cr – Higher tax for wealthy
Long-term capital gains tax on immovable property to be levied after 2 years instead of 3 years – Better for real estate
Transaction above Rs. 3 Lac can’t be done in cash and max donation of Rs. 2,000 in cash for political funding

For Companies:

Corporate Tax for MSME with turnover < Rs. 50 Cr reduced to 25% from 30% – Better MSME
FIPB abolished – Faster Foreign Investment
Allowable provision for bad loans in banks to 8.5% from 7.5% – Better for banking
Affordable housing to be given infrastructure status – Better for affordable housing companies and HFC
Halves import tax on LNG to 2.5 percent

Allocations:

Defence: Rs. 2.74 Lac Cr Expenditure and Capital of Rs. 86,488 Cr
Infra: Rs. ~4 Lac Cr – Good for Infra
Transport: Rs. 2.4 Lac Cr – Good for Auto
Rural, Agriculture and allied areas: Rs. 1.87 Lac Cr – Good for FMCG
National and State Roads: Rs. 64,000 Cr – Good for Construction
Railways: Rs. 55,000 Cr and 1 Lac Cr railway safety fund in next 5 years – Good for Rail companies
Rural Jobs: Rs. 48,000 Cr
Irrigation fund: Rs. 40,000 Cr – Good for Construction
Rural Roads: Rs. 19,000 Cr
PSU Banks: Rs. 10,000 Cr equity infusion
Milk processing: Rs. 8,000 Cr over 3 years
Rural Electrification: Rs. 4,800 Cr
Youth training: Rs. 4,000 Cr

Impact of Investment:

Broadly, it looks that budget 2017 is going to benefit three types of companies:

Infra and Construction related companies: You can think of buying an infra mutual fund like Kotak Infrastructure & Economic Reform Fund
Consumption relation companies: You can think of buying consumption oriented mutual fund like Birla Sun Life India GenNext Fund
Medium and Small companies: You can think of buying a small cap mutual fund like DSP BR Micro Cap Fund

Happy Investing!

Ishan