Budget 2016 India: Bullish on auto, cement, cap goods: ICICIdirect

Budget 2016-17 reflects the government’s firm commitment to substantially boost investment in agriculture, social sector, infrastructure and employment generation, on the one hand, and sticking to the fiscal consolidation path, on the other. This is substantiated by a huge 15.3 percent jump in Plan outlay and 9 percent increase in non Plan outlay in FY17BE over FY16RE while simultaneously conforming to the fiscal deficit target of 3.5 percent. Besides additional allocation to meet the obligations of Seventh Pay Commission recommendation and implementation of One Rank One Pension (OROP) in defence has also been provided.

The Budget emphasises the “Growth GRID (Governance, Reform, Social Infrastructure & Investments, Fiscal Discipline)” using nine distinct pillars to transform India.

The Budget focuses on good ‘Governance’ through process reforms and usage of technology. Rationalising human resource in government departments to achieve higher productivity. Effective implementation of Aadhaar framework targeted for delivery of financial and other subsidies. Also, implementing DBT for fertilisers subsidy on a pilot basis.

The Budget is also focused on ‘Reforms’ by increasing the tax and its base on high value purchases and has initiated steps for phasing out tax exemptions such as accelerated depreciation, lower tax rates for new manufacturing units and other incentives for employment generation.

The Budget has also ensured social and physical 'Infrastructure' initiatives by addressing rural (10.7 percent Y-o-Y growth in total allocation to Rs 87,765 crore) and agriculture (Rs 35,984 crore, 94 percent Y-o-Y increase) stress through increased allocations and introduction of various agri-based schemes and high allocation in infra segments like Roads and Railways

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Fiscal ’Discipline’ by sticking to fiscal targets to usher in lower interest rates, which, in turn, reduces the cost of the economy and spurs investment and viability. Public investment (15.3 percent Y-o-Y growth over current BE in planned expenditure to Rs 5.5 lakh crore) must do the heavy lifting as private capital is limited in this environment and focus on alleviating pain in rural population will give impetus to consumption

Key measures announced in BudgetOn the tax receipt front, the government is targeting 11.7 percent Y-o-Y growth in gross tax revenues for FY17BE vs.17.2 percent in FY16RE and appears reasonable given the increase in indirect taxesThe gross budgetary allocation for plan expenditure is expected to grow 15.3 percent Y-o-Y to Rs 5.5 lakh crore in FY17E. The major component of plan expenditure is focused on nine key pillars for economic development highlighted by the government such as agriculture and farming welfare, social sector and infrastructure development. We believe the government’s FY17BE fiscal deficit target hinges on its disinvestment target of Rs 56,500 crore and successful collections of spectrum fees of Rs 99000 crore.We are bullish on domestic oriented sectors like automobiles, cement and capital goods. Defensive sectors like FMCG, pharma and IT could perform in line with broader markets. We are negative on banks, metals and oil & gas.