Quoted from ICRA on different sector by Shubham Jain Group Head, Corporate Sector ratings ICRA Ltd

New Delhi, February 02, 2018:

Impact: Marginally Positive

The capital outlay for roads, railways, and metro projects have been budgeted to increase by between 12 to 19% in 2019-20 over the 2018-19 revised estimates (RE). The increased capital outlay is proposed to be supported by higher budgetary allocations in railways, and metro projects, while for roads it is primarily by way of higher NHAI’s internal and extra-budgetary resources (IEBR, which is largely through debt raised by NHAI). This would make the funding availability dependent on NHAI’s ability to increase IEBR significantly.

Capital outlay towards some key schemes related to infrastructure sector has also been projected to increase in 2019-20 BE.  The capital outlay towards Pradhan Mantri Gram Sadak Yojna (PMGSY) is being increased by 22.6% to Rs. 19,000 crore, Pradhan Mantri Krishi Sinchai Yojna (PMKSY) by 15.3% to Rs. 9,516 crore, AMRUT and Smart Cities Mission (Urban Rejuvenation) by 10.6% to Rs. 13,900 crore in 2019-20 BE over 2018-19 RE.

On the other hand, budgetary allocation towards National Investment and Infrastructure Fund (NIIF) remains modest at Rs. 1000 crore. NIIF, India’s sovereign wealth fund, which was proposed to have a corpus of Rs. 40,000 crore in FY2015 has gradually started gaining traction. Given the huge capital requirement for the infrastructure sector, NIIF can play a vital role in augmenting capital available for infrastructure sector. A higher allocation would have provided more visibility to NIIF for making investments in infrastructure in the country.

By- K. Ravichandran

Group Head, Corporate Sector Ratings

ICRA Ltd

The Government’s focus on the inland waterways sector and the SagarMala project continues, which is a positive for the shipping sector, with the potential to boost coastal as well as inland shipping in the medium term. The budgetary allocation, however, remains low in comparison to the overall requirement for these projects. Although the allocation for assistance to shipbuilding, research and development has increased compared to the previous year, it remains at a moderate level. In the absence of any major specific announcement for the shipping and shipbuilding sector, the impact on this sector is expected to be Neutral.

Gold Jewellery Retail Industry – Mr. K Srikumar, Vice President and Co-Head, Corporate Ratings

Impact – Neutral

With gold being one of the preferred savings vehicles, the announcement of full tax rebate for middle-class segment apart from increase in standard deduction limit is a positive for the gold jewellery retail industry. Demand for gold jewellery, which has been subdued in the current year due to higher gold prices, lesser number of auspicious days, floods in Kerala and tightened credit to the sector, is expected to recover in FY2020. ICRA expects gold jewellery demand to grow by 6-8% in FY2020 supported by demand recovery in both rural and urban segments with improvement in consumer sentiments, higher disposable income and better purchasing power. Formulation of Comprehensive Gold policy, which was announced in the last Union budget, is yet to be implemented.

FMCG  –  Mr. Subrata Ray,
Senior Group Vice President, ICRA 

Impact- Positive
Increased outlay for farm and rural sector will boost consumption demand, especially in rural segment. Moreover, direct income support of Rs 6,000 per year to marginal farmers augurs well for rural consumption demand. Tax sops for middle-class tax payers with annual taxable income under Rs 5 lakh and abortion of income tax on notional rent on second home will also boost consumer sentiments and consumption demand. Overall, the announcement made in budget will boost consumption demand and it is positive for the FMCG industry.

Pharmaceuticals  – Mr. Gaurav Jain,  Vice President – Corporate Ratings
Impact- Marginally Positive

The Pharmaceutical sector will benefit from cascading effect of scale up in schemes such as Ayushman Bharat programme targeting health coverage for 50 crore citizens. The insurance scheme has benefitted 10 lakh people in last one year and the coverage/beneficiaries are expected to scale up going forward. This along with plans of universal healthcare coverage by 2030 augurs well for the Pharmaceutical sector in the longer run. Higher disposable income owing to tax rebates will allow higher spending on Pharmaceuticals in the near term.

Passenger Vehicle (PV) – Mr. Ashish Modani, Vice President & Co-Head, Corporate Ratings

Impact: Neutral

Government has increased outlay under for rural sector, with special thrust on rural income and improve road connectivity is positive for passenger vehicle industry, especially entry level cars and utility vehicle segment. Full tax rebate for tax payers having annual taxable income under Rs 5 lakh will support demand in entry segment PV segment. Moreover, abolition of income tax on notional rent on second home is also positive for the industry, as it will leave more income in the hand of the customers.

Government’s commitment towards EVs is positive for the industry and recent revision in import duty to support local assembly of EVs augurs well for the industry. However, hybrid vehicles failed to find any favour from the finance minister and will continue to be taxed at higher rate. In absence of any direct benefits such as scrappage scheme for older vehicles or greater direct incentives to promote usage of EVs, the announcements made in Budget 2019-20 would overall be neutral for the sector.

Commercial Vehicles (CVs) – Mr. Shamsher Dewan, Vice President & Sector Head – Corporate Ratings

Impact: Neutral

The Commercial Vehicle (CV) sector will continue to reap benefits of Government’s commitment towards increased allocation towards rural economy and infrastructure sector, especially development of roads & highways. These investments will not only support sales of vehicles used for providing last mile connectivity but will also be positive for tipper sales that constitute approximately 25-30% of M&HCV Truck sales in India and have registered healthy growth during the current fiscal.

Although the Government didn’t announce any direct incentive program (under FAME) for adoption of EVs in public transport segment but recent reduction in import duty levied on auto components used for EVs and commitment towards EVs will be favourable going forward.

Tractors  – Ms. Anupama Arora, Vice President & Sector Head- Corporate Ratings

Impact: Positive

The government’s continued thrust on promoting rural development and farmers welfare in the budget remains a positive for the farm sector. While an enhanced allocation towards various farmer welfare schemes (irrigation, crop insurance etc.) would help in reducing the exposure of agricultural sector to the vagaries of monsoon over a medium term, the announcement of assured income support for small and marginal farmers is likely to aid in timely procurement of key crop inputs (seeds, fertilizers etc.); the supplementary income under the ‘Pradhan Mantri Kisan Samman Nidhi’ scheme on top of the various farmer friendly schemes implemented by various state governments augurs well for farm sentiments.

Two-wheelers – Ms. Anupama Arora, Vice President & Sector Head- Corporate Ratings

Impact: Positive

In line with Government’s mission of doubling farm income by 2022, the introduction of PM-KISAN for direct income support for small and marginal farmers is a key positive as this brings income certainty especially when the crop realisations remain subdued. This income support scheme coupled with initiatives towards higher allocation for crop insurance, rural infrastructure, MGNREGA, higher interest subventions besides various State specific schemes announced in recent past augur well for farm sentiments. Moreover, the tax exemption to small tax payers as well as increased standard deduction results in higher disposable income available supports demand for two wheelers.

Auto Components – Ms. Pavethra Ponniah, Vice President and Sector Head – Corporate Sector Ratings

Impact- Neutral

The Government’s increased outlay for the rural and agrarian segment would lead to higher disposable incomes and demand for automotive sector especially 2W, PV and tractor, which together account for 70% of domestic OE demand. Increased focus on road infrastructure will support demand in commercial vehicle and construction equipment sector, and hence their component suppliers. Announcements made in Budget 2019-20 would be overall neutral for the sector in absence of any direct incentive.

By:

Mr. Harsh Jagnani,

Vice President & Sector Head-Corporate Ratings,

ICRA

Impact- Neutral
The budget emphasised on importance of increasing mobile penetration and digitisation in benefitting the lives of people, be it through access of information, development of e-markets, direct benefit transfer, or digital delivery of services. Government’s continued focus on creating a robust digital infrastructure and increasing connectivity across the country, as well as efforts towards developing artificial intelligence and other technologies would provide greater opportunities to telecom operators and drive higher data offtake. There would also be need for increased optic fibre layout and strengthening of telecommunication infrastructure, which bodes well for equipment manufacturers and assemblers, and optic fiber cable manufacturers.

The revised estimate (RE) of non-tax revenues from communication services for FY2019 stands at Rs. 39,245 crore which is 19% lower than the budget estimate (BE) of 48,661 crore, and closer to our earlier estimates. The reduction in RE is primarily on account of lower than projected revenues generated by telecom sector resulting in lower share to Government. The BE for FY2020 stands at Rs. 41,520 crore, 6% higher than RE for FY2019. This does not factor in any spectrum auctions in FY2020.

By: Mr. Sabyasachi Majumdar, 

Senior Vice President & Group Head – Corporate Ratings,

ICRA

Impact: Positive
The continued focus on the housing sector and rural economy in the Union Budget for 2019-20 is likely to have a positive impact on cement industry demand. Housing accounts for 60-65% of the total cement demand in the country. Improved rural incomes is likely to boost rural demand, including demand for rural housing. This in turn will have a positive impact on cement demand as rural housing demand is a significant contributor to the overall cement demand mix. The steps taken in respect of home buyers is expected to incentivize second home purchases, whether for self-occupation or investment purposes. In addition, the income tax rebate for income less than Rs. 5 lakh will improve affordability for home buyers in the lower and middle-income groups. On the infrastructure side, the continued thrust on the road and railway sectors is likely to push cement demand.

By: Mr. Sabyasachi Majumdar, 

Senior Vice President & Group Head – Corporate Ratings,

ICRA

Power Sector

Impact : Positive
The higher budgetary allocation in FY 2019-20 on schemes such as DUGJY& IPDS are a positive for distribution utilities, as it would enable them to reduce distribution losses in their license areas. The continued thrust towards ensuring electricity access to all rural households under “Saubhagya” scheme is likely to improve energy demand in the country, which is a positive for generating companies/ IPPs. The budgetary allocation towards renewable energy sector has remained similar in FY 2019-20 and thus provides continued policy support towards meeting funding requirements for the renewable energy segment, including that for building a green energy transmission corridor.

Capital Goods

Impact : Positive
Higher budgetary allocation in schemes namely DUGJY& IPDS, as well as allocation towards the renewable energy sector are a positive for EPC companies, as it would provide a boost to their order inflows. Further, the increased capex by Railways with its thrust to improve the electrification is a positive for EPC companies as well as solar OEMs domestically, given the stated preference by Government entities for meeting requirements from domestic players.

Mr. K. Ravichandran
Senior Vice President
Group Head-Corporate Ratings, ICRA 

There has been a budgetary allocation of Rs. 550.0 crore (BE 2019-20) for Sagarmala projects vs Rs. 381.1 crore for RE 2018-19. However, around Rs. 200 crore additional funding will be done through Central Road and Infrastructure Fund (CRIF) (Rs. 125 crore funded from CRIF in RE 2018-19). Other proposals include budget allocation of Rs. 214.2 crore for development of ports (RE 2018-19 Rs. 248.7 crore), Grants of Rs. 757 crore to the Inland Water Transport Authority of India (RE 2018-19 Rs. 891.1 crore), plan to scale up the efforts under Sagarmala and speed up the development of Inland Waterways.

The government has reiterated its support towards the plans under the Sagarmala to develop the ports and coastal areas of the country. Further, the announcement to speed up development of other inland waterways (apart from National Waterway 1 which is already under development) is also a positive. However, the allocation to Sagarmala in terms of budgetary support continues to remain low as compared to the cost of planned initiatives under these schemes. The spending under Sagarmala in 2018-19 was lower at only 64% of the budget allocation of Rs 600 crore and the budget allocation for 2019-20 has been reduced to Rs 550 crore. Overall, the impact of the budget is neutral for the sector.

Corporate Comm India(CCI NewsWire)