Although Budget 2020 has not be able to meet market expectations, but it is positive for some sectors of the market, especially sectors that are related to consumption, agriculture, cement, roads, highways and IT.
Market participants were hoping for some stimulus support from the government to boost growth in Asia’s third-largest economy, which is likely to grow at 5 percent in FY20, its slowest pace in 11 years.
The Union Budget has fallen short of expectations in terms of a fiscal stimulus to boost domestic consumer demand, no revision has been done for long-term capital gains (LTCG) tax and lastly, the government seems to have increased the tax burden on the rich (including non-resident Indians operating out of tax havens), suggest experts.
Abolition of DDT or Dividend Distribution Tax is a positive move for large companies but it would still get taxed in the hands of recipients. “Abolishing of dividend distribution tax (DDT) and taxing it in the hands of the recipient will result in higher tax outgo for many retail investors,” Gaurav Dua, Sr VP, Head – Capital Market & Investments, Sharekhan by BNP Paribas told Moneycontrol.
“Currently, the effective DDT rate stands at 20.35% (including surcharge and cess) this will substantially increase the tax outgo for retail investors in higher tax slab of 20% (and more) and accordingly taken negatively by the equity markets,” he said.
Dua further added that even the holding companies could be adversely impacted on the tax outgo for the dividends received from their subsidiaries or investee companies.
Sectors that are likely to benefit the most from the Budget 2020 are electric manufacturing companies, footwear companies, companies operating in natural gas, water pumps, transport infrastructure, IT companies, Agri-related companies, companies under data science, analytics, and related fields.
We have collated a list of stocks from various experts that are likely to benefit the most from the Budget 2020:
Expert: Gaurav Garg, Head of Research, CapitalVia Global Research Relaxo, Bata India, Bajaj Electricals, Whirlpool of India, Symphony, Blue Star:
Due to the hike in customs duties on small appliances, footwear, food processing, fan and other items, domestic companies which will get a competitive edge.
Apollo Hospital, Biocon, Ajanta Pharma, Dr Lal PathLab:
The government provided Rs. 69,000 crore for the healthcare sector for FY2021 (including the Rs. 6,400 crores for Pradhan Mantri Jan Aarogya Yojana).
The Budget also proposed to set up a Viability Gap funding window for setting up hospitals in the PPP mode. In the first phase, those Aspirational Districts will be covered, where presently there are no Ayushman Bharat empanelled hospitals.
Adani Ports and Special Economic Zone Ltd, GMR Infrastructure Ltd, Larsen & Toubro:
National Infrastructure Pipeline receives Rs. 22,000 crore equity support for infrastructure financing. The outlay for MoRTH (Ministry of Road Transport & Highways) up by 10.6% at Rs. 91,823 crore; Pradhan Mantri Gram Sadak Yojana outlay for FY2021 stands at Rs. 19,500 crore, up by 38.6% as against FY20RE.
Accelerated development of highways including 2,500 km of access control highways, 9,000 km of economic corridors, 2,000 km of coastal and land port roads and 2,000 km of strategic highways.
Work on the ChennaiBengaluru Expressway would also be started soon. Monetisation of twelve lots of highway bundles of over 6,000 km before 2024.
Brokerage Firm: Sharekhan
Ratnamani Metals & Tubes:
The Budget allocated Rs 22,000 crore for National Infrastructure Pipeline and provided 100% tax exemption on sovereign wealth funds' infrastructure investments. Dixon Technologies and Amber Enterprise:
To provide incentive scheme to boost domestic electronic manufacturing and increased import duty on printed circuit boards (PCB) of mobile phones to 20 percent from 10 percent.
Replacement of existing conventional electricity meters with prepaid smart ones in the next three years. Kaveri seeds, Insecticides (India), PI Industries, Aarti Industries
The Budget allocated Rs. 2,83,000 crore for farm, irrigation and rural development and agri-credit target for FY21 set at Rs. 15 lakh crore. Also, to expand integrated farming systems in rain-fed areas are some of the provisions which could help the chemical and Fertiliser sector. TCS, Infosys, Wipro, Tech Mahindra, Persistent Systems:
IT sectors is known for giving rich dividends to its shareholders. TCS, Infosys Wipro, and Tech Mahindra usually return the hefty amount to the shareholders through a buyback and/or dividend.
For instance, TCS has paid around Rs. 4200 crore as dividend distribution tax YTD in FY20E. With the abolition of DDT, this amount could also be paid to investors. This would be a benefit to cash-rich Midcap companies like Persistent Systems, Mphasis, etc. might choose to pay a higher dividend.
It is also positive for large companies like Colgate Palmolive India, ITC, HUL, GSK Consumers and Nestle India.
UltraTech, The Ramco Cements, JK Lakshmi Cement:
Higher allocation to MoRTH (up by 10.6%), Pradhan Mantri Awaas Yojana (up 8.6%), Pradhan Mantri Gram Sadak Yojana (up 38.6%) vis-à-vis FY20RE. Incentives for affordable housing continue with an extension of one year on the additional tax exemption of Rs. 1.5 lakh for individuals and tax holidays for developers.
Allocation for digital India: Rs. 6,000 crore to be allocated for the BharatNet programme in FY2021 to further enhance broadband connectivity in rural areas. The government announced to bring out a policy to enable the private sector to build data centre parks throughout the country.
This step would increase the penetration of smartphones/ internet in smaller towns and rural areas. As one lakh gram panchayats will be connected to the optical fibre programme, it would help the internet and new media companies like Affle India and Info Edge to penetrate into rural and semi-urban markets. TCI Express, Mahindra Logistics, Container Corporation, Gateway Distriparks:
National Logistics Policy to be released soon, clarifying the roles of the Central Government, State Government and key regulators. Single window e-logistics market to be set up.
Railway Capital Outlay remained at an elevated level at Rs. 1.6 lakh crore with a focus on new lines construction (up 52.3% as against FY20RE) will benefit Container Corp, and Gateway Distriparks.
Brokerage Firm: Reliance Securities:
BoB, Canara Bank, PNB, Indian Bank:
The Budget encouraged PSBs to raise funds via capital markets and build a system to check the health of scheduled commercial banks. I-T losses post-merger will be available for off-set for PSBs.
A 6 percent rise in budgetary support for fuel subsidy in FY21 vs. FY20. No subsidy case for ONGC and OIL in FY20 - Budgetary support for cooking fuel (LPG/Kerosene) in the form of subsidy has increased by Rs23.4bn for FY21, while total subsidy for FY20 is upward revised to Rs385.7bn.
“Based on our calculations, FY21 cooking fuel subsidy is budgeted at crude price > US$68/bbl. It is unlikely that the crude prices will average at US$68/bbl in FY21,” said the Reliance Securities report.
“It indicates that the government continues with reform agenda with no subsidy burden for ONGC, OIL and OMCs,” it said.
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