The Interim Budget 2019 was partly about politics, but has also thrown open investment opportunities across multiple themes. The budget has made a clear attempt to cater to the needs of farmers and the neo middle class. Slippage on the fiscal deficit was also restricted to just 10 bps in the current fiscal though it increases to 30 bps in the next fiscal. However, we believe that slippage of 30 bps for FY20 is a much-needed fiscal stimulus for the economy and would actually go a long way in addressing the current rural distress and stimulating growth without stoking inflation.
The interim budget was focused on addressing agri distress, which was on expected lines given recent losses by the incumbent government in some of the key states. For the first time an income support scheme was introduced. Under the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) scheme, the government will transfer Rs 6,000 per year to small & marginal farmers in three equal instalments. The Interim Budget 2019-20 has thrown up some interesting investment themes. Here they go:
1) Consumption to be the big theme for next few years
We believe that FMCG companies would be one of the biggest beneficiaries of various schemes announced by the government. Income support scheme, increased allocation to MGNREGA (Rs. 60000 cr.) will be positive for stocks like Hindustan Unilever, Dabur and Marico. The demand for FMCG will be driven by an all round increase in both rural and urban consumption. Urban & semi urban demand will benefit from the higher standard deduction and the tax bigger exemption limit. Apart from the FMCG space, the consumer discretionary space is also a major beneficiary of the budget. Amongst other things, a 33% increase in gas connections next year will be a boost for kitchen appliance companies like TTK Prestige and Hawkins. Similarly, the proposal to live up to the commitment of electricity power connectivity by March 2019 will be positive for companies like Havells, V-Guard, Bajaj Appliances etc.
2) Rural-focused companies to benefit
Under the PM-KISAN scheme, the government has allocated Rs 20,000 crore for FY19 and the first tranche of Rs 2000 crore would be paid out by March. Allocation for FY20 is Rs.75,000 cr, of which the first instalment would be paid out in the beginning of the next fiscal year. This puts additional money of Rs 95,000 cr in the hands of people with the highest propensity to consume which will increase demand for two wheelers, tractors, agro chemicals, hybrid seeds etc. In addition, the interest subvention for farmers hit by natural calamities and for prompt repayment of loans will also be a positive. We broadly expect stocks like Maruti and Mahindra & Mahindra to benefit from this theme.
3) Realty and allied sectors to benefit
The Interim Budget has given reasons for both home buyers and real estate developers to celebrate. If you own a second property, you will be exempted from notional rent, making it a lot more tax-efficient. There is an added Section 54 kicker for individuals. Capital gains on property will be exempt even if proceeds are reinvested in two different properties. This will boost property demand in the suburbs of major metro cities where demand has been muted for the past few years. Even realtors on the supply side have reasons to celebrate as they can now hold their inventories for 2 years instead of 1 year without having to pay tax on notional rent. Extension of the Section 80IBA benefits for low cost housing will be a boost for realtors in smaller towns as well as to HFCs. Post budget, one can focus on realty stocks with low debt and HFCs with limited maturity mismatch. Stocks like Sobha Developers, Sunteck Realty, Oberoi Realty and Godrej Properties are likely to benefit from the changes announced.
4) Infrastructure and Power Two capital themes from the Budget
The enhanced allocation of Rs19,000 crore for the Pradhan Mantri Gram Sadak Yojna will be positive for cement companies like ACC, Shree Cements, Star Cements and Dalmia Bharat. Companies like L&T and BEML involved in mass rapid transport systems will also benefit from 23% increase in metro project allocations to Rs.19,152 crore. The 10% increase in defence outlay will be positive for companies like BEL, L&T and Bharat Forge.
The government has also reiterated in the budget its target of universal household electrification by March 2019 and that is likely to be positive for power generators like NTPC.
5) Budget changes the game for tax-saving investments
This is an interesting point that most of us need to understand. A lot of the demand for tax-saving instruments under Section 80C comes from smaller tax payers. With the enhanced tax exemption limit, there is a much greater incentive to fully utilize the Section 80C limit and NPS limit to pull yourself into the no-tax bracket. The budget has made net income up to Rs 5 lakh free of tax by offering a maximum rebate of Rs 12,500. Let us look at the case of an executive earning Rs 10.10 lakh and how she can leverage Section 80C investments to pay zero tax.
The higher exemption limit actually incentivizes tax payers to make the most of Section 80C so as to reduce their tax liability to the extent possible. This is a benefit not to be missed out.
(By Vaibhav Agrawal, VP Head of Research and ARQ, Angel Broking)
(Disclaimer: The above opinion is that of author. Readers are advised to consult their financial advisor before making any investment)