Budget 2019: What It Means For Stocks And Sectors

Prime Minister Narendra Modi-led government’s first budget in the second term stuck to fiscal prudence even as it focused on reviving investments amid a slowing economy.

But Finance Minister Nirmala Sitharaman projected an aggressive tax revenue target for 2019-20, and increased the tax burden on India’s super-rich. The government also proposed to extend the lower corporate tax to more companies, infuse Rs 70,000 crore in state-run banks, move the regulation of non-bank lenders to the Reserve Bank of India and increase the minimum public shareholding threshold, among others.

Here’s what brokerages expect how the budget proposals will impact sectors and stocks:

Here’s a sector-wise analysis of the budget:

Financial Institutions

Proposal

• Infuse Rs 70,000 crore in the state-run banks.
• Provide partial one-time credit guarantee on loan defaults on borrowings by shadow banks.
• Power to regulate housing finance companies has been shifted to the Reserve Bank of India from National Housing Bank.

Stock Impact

• Positive for all state-owned banks. Key beneficiaries include Punjab National Bank, Bank of Baroda and lenders under the RBI’s prompt corrective action framework such as Central Bank, UCO Bank, Indian Overseas Bank, Union Bank of India.
• Non-bank financial companies like HDFC Ltd., Bajaj Finance Ltd., Mahindra & Mahindra Finance Ltd. and L&T Finance Ltd., too, are expected to benefit. Change of the regulator is negative for Dewan Housing Finance Corporation Ltd., PNB Housing Finance Ltd. and Reliance Home Finance Ltd. but only in short term.

Analyst View

• Higher-than-expected recapitalisation for banks to boost credit.
• The government’s proposal to provide partial credit guarantee indicates the willingness to address NBFC concerns, according to ICICI Prudential.

Infrastructure

Proposal

• To invest Rs 100 lakh crore in the infrastructure sector over the next five years, introduce a policy to promote maintenance, repair and overhaul segment and increase in investment in the roads and highways sector to Rs 1.1 lakh crore.
• The railways capital outlay increased 14 percent to Rs 1.59 lakh crore—the bulk of the jump is for wagon acquisition and doubling of tracks.
• Increased allocation for roads will lead to higher demand for cement makers.

Stock Impact

• Higher spend for railways is positive for Ircon International Ltd., Rail Vikas Nigam Ltd. and Rites Ltd.
• Higher investment for roads and highways will be positive for road developers like Dilip Buildcon Ltd., PNC Infratech Ltd. and KNR Construction Ltd.

Analyst View

• Focus on infrastructure is key for the government’s flagship programmes like Housing For All, Electricity For All and Make In India.

Real Estate

Proposal

• Increased allocation to urban rejuvenation mission (Amrut and smart cities mission) to Rs 13,750 crore in FY20 budget estimate from Rs 12,569 crore in FY19 revised estimate.
• Enhanced interest deduction of up to Rs 3.5 lakh for purchase of an affordable house compared with Rs 2 lakh currently.
• Construct 195 lakh houses in the second phase of Pradhan Mantri Awas Yojana.
• FPIs allowed to invest in debt instruments issued by real estate investment trusts.
• Model tenancy law to be introduced to encourage rental housing.

Stock Impact

• Positive for Kolte-Patil Developers Ltd., Ashiana Housing Ltd. and Prestige Estates Ltd.

Analyst View

• Laying down a road map for rental housing is a step in the right direction to align with global trends of co-living spaces, given the changing demographics in the country, according to PwC Budget 2019 report.

Computer Services & IT Consulting

Proposal

• Buybacks to now attract 20 percent tax to remove arbitrage versus dividend tax of 20.5 percent
• Increase minimum public shareholding threshold to 35 percent from 25 percent.

IT services companies have been using buybacks as a more tax-efficient way to return excess cash on balance sheet to shareholders in addition to regular dividends.

Stock Impact

• Negative for Infosys Ltd. as the ongoing buyback, according to Jefferies, is now likely to be subject to 20 percent tax
• Higher minimum public holding threshold negative for Tata Consultancy Services Ltd. (promoter holding at 72 percent), Wipro Ltd. (74 percent), L&T Infotech Ltd. (75 percent) and L&T Technology Services Ltd. (75 percent).

Analyst View

• Negative for the sector as this would increase the cash outflow for IT services providers, Jefferies said. But buybacks still would be preferred as dividend will be taxed in the hands of both the company and shareholders, it said.

Auto Parts Makers, Electric Vehicles

Proposal

• A 2.5-5 percent increase in duties on auto components such as rear-view mirrors, locks, oil filters, air purifiers and other purifying machinery, lighting equipment, horns, wipers and catalytic converters.
• Proposed to slash goods and services tax rate on electric vehicles to 5 percent from 12 percent, and customs duty exemption on certain parts of battery-powered vehicles to boost local manufacturing of lithium-ion batteries and solar electric charging infrastructure.

Stock Impact

• Higher import duty negative for auto parts makers such as Motherson Sumi, Apollo Tyres Ltd. and Exide Industries Ltd. as it will increase inputs costs.
• Positive for Mahindra & Mahindra Ltd. that has an electric vehicle in its fleet called Mahindra e20.

Analyst View

• Locally producing lithium-ion batteries will make India a global manufacturing hub of electric vehicles at affordable prices, according to EY.

Oil Marketers

Proposal

• Hiked excise duty and road and infrastructure cess by Rs 1 each on petrol and diesel.

Stock Impact

• Hike in excise duty is neutral for Indian Oil Corporation Ltd., Hindustan Petroleum Corporation Ltd. and Bharat Petroleum Corporation Ltd. as they passed on the burden to consumers by increasing prices of the retail fuel by Rs 2.4 a litre across the country.

Analyst View

• A hike excise duty will add to the woes of automobiles and will adversely impact inflation, according to a Crisil report.

Aviation

Proposal

• FDI norms for aviation sector to be relaxed. Currently, foreign airlines can buy up to 49 percent stake in Indian airlines.

Stock Impact

• Negative for IndiGo-operator InterGlobe Aviation Ltd., SpiceJet Ltd.
• Some hope for Jet Airways (India) Ltd.

Impact: The relaxation in foreign direct investment norms could help the government to sell stake in Air India. It may also lead to renewed interest by foreign buyers for the grounded Jet Airways.

Consumer Sector

Proposal

• Basic excise duty of 0.5 paisa/stick levied for cigarettes of below 75 millimetre length and 1paise/stick for cigarettes above this length.
• Import duty on palm fatty acid distillate and other fatty acids increased from nil to 7.5 percent.
• Import duty on gold hiked from 10 percent to 12.5 percent.

Stock Impact

• Negligible hike positive for ITC Ltd.
• Negative for soap makers such as Hindustan Unilever Ltd., Godrej Consumer Properties Ltd. as cost for raw materials will rise.
• Import duty hike on gold positive for Titan Ltd. as prices of the yellow metal will increase.

Brokerage View

• Despite fiscal needs, the government desisted from hiking the overall cigarette taxes, said Credit Suisse in a report. This can be seen as a positive on intent of keeping taxes rational.

(Research reports of ICICI Prudential, PwC Budget, Jefferies, HDFC Research, Morgan Stanley, EY, Crisil, Credit Suisse, Edelweiss, ICICI Direct, IIFL and Prabhudas Lilladher have referred.)