Investment Shastra

INTERIM BUDGET 2019

INTERIM BUDGET 2019

Since this was an interim Budget we must not assume all the announcements to materialize in exact form.

This budget, also labelled as election campaign, was to woo vote bank and reduce stress in real estate and SMEs.

Rural/Agri: Though Agriculture and allied contributes 17% to GDP, it employs 42% of the population directly and indirectly. Budget announced Rs. 6,000/year in minimum income scheme to marginal farmers (less than 2 hectares). Rather than considering this as free lunch, if farmers use it effectively to generate income from these funds can create ripple effects in long run. But we are sceptical if enough awareness will be created. From investors’ point of view, one must look at quantum of the package. Its whopping Rs. 70,000 Cr added in hands of rural population every year. This will reduce the severity of rural distress which India faces from time to time due to poor monsoon and food deflation.

While this may not materially add to consumption immediately, it removes a lot of uncertainty in minds of farmers and they would live and spend more freely going forward. We may see them increasing spends on education, healthcare, good farming equipment and fertilizers, etc as food and shelter would be taken care by minimum income plan. Positive for: Rural based companies like farm equipment, fertilizers and consumer staples.

SME: Exemptions in GST, attractive rebate on loans, reduction in frequency of GST filing for those upto Rs. 5 Cr sales are some of the positives. SMEs have been under stress due to i) slow growing economy, ii) Demonetization, iii) GST implementation and current liquidity crunch. The government has still not done enough to get SMEs out of pain. Many SMEs evading taxes deserve this pain but it has caused some contagion effects across the board. SMEs are not very strong to afford advance GST payments, accounting consultancy, etc. And bankers have turn risk averse to lend them temporary overdraft. Only economic uptick can get many SMEs out of their problems. Positive for: Banks with exposure to SMEs.

Individuals: No tax deducted at source on fixed income interest upto 40,000 and no taxes for salaries up to Rs. 6.5 Lac per annum are some of the positives. After seeing fall in savings rate from 9% in 2008-09 to just 7% in 2018, this will definitely add to consumption basket of individuals. In our opinion, the government could have increased exemption under 80C which would have encouraged more saving culture. Positive for: Consumer discretionary.

Real estate: The obvious victim of demonetization and liquid tightening is Real Estate. Although this sector is run by many shady operators, it employs a lot of population and accounts for bulk of nation’s wealth. Current relief on taxes on notional rent of unsold inventories, allowing to buy 2 properties from capital gains on 1 property and no tax on second self-occupied home are positives for real estate demand. We are hopeful that with current drive of affordable housing along with some tax relief could provide some fillip to prospects of real estate. Stability in real estate sector is very important for growth of economy as real estate value gives comfort to individuals and helps corporates to draw loans for business expansion. Positive for: Housing Finance NBFCs, select Real Estate companies.

There was no major announcement on our areas of interest – corporates and equity market. Overall, this budget may have improved NDA’s prospects for upcoming elections.

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