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Finance Bureau

The union budget of India for the financial year presented by finance minister Arun Jaitley gave cheer to investors and middle class with some changes in the income tax brackets.

The key stock market index, Sensex jumped 486 points after the Budget.  Though some say it as an offshoot of Jaitley’s reluctance to alter long-term capital gains tax on equity transactions, the budget was able to showcase many takeaways for investors and businesses.

Focus On Infrastructure

The focus on rural India and the agri-economy was clear and boosting consumption in those segments will add a political gain when elections are called in another two years. Hiked capital expenditure in infrastructure will boost the order book of many listed companies. Digital India will also help many companies.

The rural thrust has employment generation as a key plank. The record allocation to rural employment generation MNREGA scheme with thrust on rural housing, road construction, and electrification will ensure money in the hands of rural consumers.

Other measures for farmers include credit, insurance for produce and sale of produce at better prices. Good times are coming for companies such as tractor maker Mahindra & Mahindra and two-wheeler maker Hero MotoCorp as demand will go up after the demonetization blues. Agri input makers as Coromandel International, GSFC and Rallis India are also expecting good demand.

Company Tax Cut

The corporate tax rate was selectively reduced by choosing companies with annual turnover of less that INR 50 crore (USD 7.5 million) from 30 to 25 per cent and left out others. The major change in minimum alternate tax (MAT) was that the FM allowed the MAT credit forward for 15 years instead of the 10 years. This change will help companies with large MAT credits that need set off. The restriction on the interest payment made by Indian companies to an associated company overseas is a measure to address the issue of ‘thin capitalization’ where companies have more debt than capital.

If such interest payments exceed INR 1 crore, it should be 30 percent of the company’s EBITDA or the actual interest paid, whichever is less. This provision could hurt subsidiaries of multi-national companies that are running operations with debt taken from their parent or other group entities. This is aimed at stemming the movement of taxable profit out of India in the form of interest.

Infrastructure Boost

Capital expenditure in the budget has been upped 10.7 percent. The budgetary spending of INR 3,96,135 crore (USD 26 billion) on infrastructure is certain to have a trickle-down effect on other sectors such as cement, capital goods, and steel, besides benefiting road construction companies, real estate companies and suppliers to the railways. The budget for roads will cover highways, rural and coastal roads and may benefit IRB Infrastructure, Ashoka Buildcon, L&T, Sadbhav Engineering, IVRCL, MEP Infrastructure and NCC others.

The high allocation for rail infrastructure will grace Texmaco Rail and Engineering and Titagarh Wagons. Gainers from capital goods companies will be Sanghvi Movers, Engineers India, Cummins India, Larsen & Toubro and Techno Electric.

Cement companies will gain from rural housing demand (30 percent) and infrastructure (20 per cent). There is also the increase in allocation of 39 per cent to Pradhan Mantri Awas Yojana to INR 29,000 crore and increased investment in infrastructure that consumes cement. Cement companies awaiting a windfall are UltraTech Cement and Ambuja Cement. Real estate companies in the listed space catering to the affordable housing such as Mahindra Lifespace Developers and Godrej Properties can benefit from the sops to affordable housing.

With affordable housing set to be accorded infrastructure status, it is easier for developers to raise funding. Digital India program has got a high push. Huge customs duty relief for makers of POS machines, scanners, fingerprint readers, iris scanners and micro-ATMs. TVS Electronics selling POS products and scanners will gain.

The push on digital payments will benefit Rs. Software, which is a partner in the Bharat Bill Payment System. Infosys and TCS will also draw orders from this drive.

Customs Duty Cut

The cut in customs duty on liquefied natural gas (LNG) to 2.5 per cent from 5 per cent will unlock huge demand for natural gas. This is a positive for listed companies and importers such as Petronet LNG, transmitters such as GAIL (India) and city gas distributors such as Indraprastha Gas and Mahanagar Gas.

The proposed sector ‘oil major’ will create a big company to take on large international companies operating in this space. Thanks to the focus on education, listed companies such as Career Point Education and NIIT could get a push.