Budget 2021: A Dream Budget?

“Yesterday a dear friend asked me a sector to bet on for the coming years, I replied with a smile, “bet on India, I guarantee You won’t loose”

This is the level of confidence that I have in the Indian economy and the government as an investor.

Undoubtedly, this has been the dream budget for everyone, investors too have cheered the budget with the market up 9% in just four trading sessions. This is the first time in a decade when the benchmark index Nifty has rallied 5% on the budget day.

The government has taken a bold approach this time, with this approach govt. is not scared of a high fiscal deficit target of 6.8% of the GDP for the FY 21–22 (being the highest budgeted estimate in the last decade), rather its complete focus is on high expenditure to aid economic revival. The point to note here is that the target of 6.8% is after a 9.5% deficit in the pandemic year 20–21 which requires a lot of courage & conviction.

In spite of the huge income shortfall/ fiscal deficit, the government has not hiked any taxes for the FY 21–22 in order to leave citizens with extra money in their hands & thus creating demand to boost economic recovery.

The revised government collection of the taxes is only 19 lakh crore for the FY 20–21 which is much less when compared to the budgeted figure of INR 24.32 lakh crore.

The pandemic-induced lockdown hampered the production and the demand thus creating a shortfall in the estimates. The government has set up a target of INR 22 lakh crore for the FY 21–22, betting on the sharp economic revival & better compliances by the taxpayers.

The government has budgeted an expenditure of INR 34.8 lakh crore for the FY 21–22 which is quite high with respect to the expected government income, the difference will be funded by borrowing & monetization of the government assets including PSU’s, unproductive govt. lands, etc.

The government has set an optimistic disinvestment target of INR 1.75 lakh crore which it plans to achieve by the privatization of 2 public sector banks & a general insurance company (names are not disclosed yet) apart from the sale of stake in IDBI Bank & listing LIC on the exchanges.

Overall, the high capital expenditure, growth measures & reforms are the key mantra of this budget to bring back the economy on track which was struggling even before the pandemic struck.

Sector-wise impact of the budget

Banks & Finance

The government has planned to set up an ARC, taking over the bad loans/NPA’s of the banks so that they can focus on their core business of lending and thus contributing to the economic growth.

Setting up a bad bank is a very positive step, especially for the PSB’s (Public sector banks) which are bleeding NPA’s for the last several years.

Also, this will enhance PSB’s valuations which will help the government in achieving their disinvestment target for FY 21–22.

The government has also set aside INR 20,000 crore towards bank recapitalization which was much needed for meeting current capital requirements.

All these steps have been very positive for this sector, especially for the PSB’s like SBI, Bank of Baroda, etc. which have rallied significantly after the budget.

Insurance

The government hiked the FDI limit in the insurance sector from 49% to 74% (earlier it was enhanced from 24% to 49% in 2012), this will help the sector to raise additional funds from foreign which is a positive for this sector.

But at the same time, the government rolled back the tax exemption on maturity proceeds available to ULIPs under section 10(10D) of the Income-tax Act, 1961 if the annual premium payable for any year during the term of the policy exceeds Rs 250,000 in relation to ULIPs bought on or after 1 February 2021, this is a big negative announcement for the life insurance companies.

Overall, the impact was neutral for this sector.

Auto

The government has planned to roll out the vehicle scrappage policy for commercial & private vehicles.

Initially, this will be more of a voluntary policy rather than being mandatory & the government plans to implement it by providing various financial incentives for scrapping old vehicles & imposing penalties on non-compliances related to maintaining old vehicles.

It’s a piece of positive news for the automobile & ancillary industries which were suffering for quite a long time now.

Also, the government has set aside INR 18,000 crores for procuring 20,000 buses to promote public transport in different cities.

Strengthening the Highway Infrastructure in various states will eventually increase the demand for commercial vehicles in the country.

Beneficiary companies are Ashok Leyland, Tata Motors & M&M who majorly deal in the commercial vehicle segment & Maruti Suzuki in the private vehicle domain. The weightage of this news can be anticipated from the recent rally in all these stocks.

This will also benefit the ancillary sectors such as tyre manufacturing companies like JK Tyres, MRF, etc., and also the transport finance companies like Shri Ram Transport finance, cholamandalam, etc.

Infrastructure

There is a lot for the infra sector in this budget, first being the increase of 35% in the capital expenditure at 5.54 lakh crore for the FY 21–22, second being setting up a National Bank for financing development (NaBFID) to help in the process of infrastructure finance in the country and several other measures to boost construction activities all over the country.

Investment in Infra provide support to several ancillary industries and creates numerous job opportunities apart from benefiting the primary construction sector, thus creating a demand & a multiplier effect in the economy.

This is a major positive for the construction companies like Larsen & Turbo, PNC infra & cement companies like ACC, Ambuja, Ultratech cements etc. The fireworks can be anticipated from the S&P BSE India Infrastructure Index which has rallied strongly after the budget.

Conclusion

Overall, the budget is better than the expectations of the investors which has successfully addressed all the key aspects.

But the execution still remains a major challenge and we hope that the government will “walk the talk” & make India a 5 trillion-dollar economy in the coming times 😍

Disclaimer: This is just an analysis of the Budget by CA Saksham Agarwal, Managing Director (MD) of Jobaaj.com & Jobaaj Learnings & not a recommendation to invest in any stock/sector.