Budget 2017 and It's Impact on Investing

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.

Expectations for 2018:

• 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

Welcome measures:

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:

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

Happy Investing!

Ishan