Budget Key Highlights

The Union Budget 2021-22, which has come at a time when India’s economy is reeling under
the aftereffects of the Covid-19 induced lockdown, was presented by Union Finance Minister
Nirmala Sitharaman at Parliament on Monday. During her speech, Sitharaman announced a
total spend of around Rs 2 lakh crore on healthcare, Rs 35,000 crore for the Covid-19
vaccine, Rs 1.10 lakh crore outlay for railways and said the government aims to complete
11,000 km of national highway infrastructure this year. The budget for 2021-22, meanwhile,
imposed a Rs 2.5 per litre agri infra cess on petrol and Rs 4 on diesel.

Sitharaman also scrapped income tax for senior citizens under certain conditions and said
new rules will be notified for removal of double taxation for NRIs, and also announced a
reduction in the time period of tax assessments among other measures.

During her Budget speech, Sitharaman said that the government is committed to farmers’
welfare, adding that the MSP regime has undergone a “sea change” to assure price at least 1.5
times of production cost with sharp increase in procurement of foodgrains and payment to
farmers. She also said the procurement of crops like paddy, wheat, pulses and cotton has
jumped manifold in the last six years.

Sitharaman quoted Tagore during the Budget presentation. “Today, India has two vaccines
and is not only comforting citizens of her own country, but those of neighbouring nations
too,” Sitharaman said as she highlighted the Covid-19 pandemic related efforts of the
government. Quoting Tagore, Sitharaman said, “Faith is the bird that feels the light when the
dawn is still dark,” adding that this moment in history is the dawn of a new era, where India
is well-poised to be the land of promise and hope”. She also remembered the Indian cricket
team victory’s in Australia.

Sitharaman said the budget for 2021-22 rests on six pillars – from healthcare to infrastructure.
She has also announced a total spend of around Rs 2 lakh crore on healthcare.

The budget proposals of Part A will strengthen the ‘Sankalp of Aatmanirbhar Bharat’. The
focus, Sitharaman said, will be on 6 pillars, which include Health & well-being, Physical &
financial capital & infrastructure, Inclusive development for aspirational India,
Reinvigorating human capital, Innovation & R&D and Minimum Govt & Maximum
Governance.

She announced PM Aatmanirbhar Swastha Bharat, which will be launched with an outlay of
64,180 cr over 6 years. “Intend to focus on reduction of single-use plastic, air pollution and
segregation of waste,” she added. Sitharaman also said that the government will launch
Mission Poshan 2.0 and Jal Jeevan Mission Urban with an outlay of over Rs 1.4 lakh crore.

Impact of different sectors of the economy

Information Technology: The impact of the union budget on industries like information
technology could be positive. There has been an allocation of Rs. 8,000 crore for a National
Mission on Quantum Computing and Technology. Internet connectivity to 100,000+ Gram
Panchayats

Infrastructure: The impact of the union budget on infrastructure could also be a good one.
The Finance Ministry announced that it would extend the gas grid by 11,000 km, giving a
boost to gas stocks. New Power generation companies will have to pay only 15 per cent
corporate tax, which should help meet growing power needs. 100 new airports are to be
developed by 2025 under the UDAN scheme

Agriculture: In the agriculture sector, farmers may have some reason to cheer. Among the
budget announcements for this sector was the setting up of Kisan Rail through the PPP model
to transport perishable goods quickly. The government also plans to expand the PM KUSUM
scheme for solar pumps to cover 2 million farmers. Farmers will be incentivized for going
solar !

Renewable Energy: The renewable energy sector also got a boost with a budget
announcement of Rs. 20,000 crore.

Finance:

A single investment clearance window will make the lives of entrepreneurs easier.

Bank deposits would be happy to note that deposit insurance has been increased to Rs. 5 lakh
from Rs. 1 lakh earlier.

Dividend distribution tax (DDT) removed. Dividends will have to be taxed based on the
recipient’s income tax slab

The Additional Rs. 1.5 Lakh tax deduction on interest paid for affordable housing loans has
been extended to March 2021. This would give some relief to those who are planning to buy
a new homes

Individual income taxpayers will be happy with the reduction in rates. However, you will
have to give up your existing exemptions and deductions to take advantage of the lower rates.

Travel and Tourism: The tourism sector should benefit from an infusion of Rs. 2,500 crore.

Stocks that will benefit from this Budget

The Union Budget, the focus was on agriculture credit, irrigation, and marketing of
agriculture produce. The government also revised fertiliser subsidy allocation to Rs 1,339
billion for FY21 as against Rs 811 billion in FY20.

"Urea companies such as Chambal Fertilisers, National Fertilizers Limited, and Rashtriya
Chemicals & Fertilizers are expected to benefit the most due to a larger share of pending
subsidies," said brokerage Phillip Capital.
Meanwhile, analysts at Prabhudas Lilladher are betting on stocks of Chambal Fertiliser and
Bayer Cropscience. They believe Coromandel International and Gujarat State Fertilizers and
Chemicals will be among losers.

Automobile | Outlook: Neutral

The government announced a voluntary scrapping policy in which vehicles. "This move will
likely incentivize replacement growth for passenger vehicles and medium and heavy
commercial vehicles, but the impact would be limited," said analysts at Elara Capital in a
note.

Ashok Leyland, M&M, Maruti Suzuki among OEMs and Motherson Sumi and Endurance
among auto ancillaries are some of the top bets of analysts at Prabhudas Lilladher. "We
expect OEMs like Ashok Leyland, HMCL, Maruti and M&M will also be prime beneficiaries
of high government focus on rural, agriculture and infrastructure spend," they said.

Banks | Outlook: Positive

Under the Budget, the government proposed setting up of ARC to buy bad loans of state-
owned banks, announced capital infusion of Rs 200 billion for state-run banks and
privatisation of two state banks and one general insurance company.

According to Phillip Capital increased allocation for capital expenditure will bode well for
large banks, namely ICICI Bank, Axis Bank, HDFC Bank and State Bank of India.

Elara Capital believe mid-sized public sector banks will be beneficiaries of divestment and
recapitalisation.

Meanwhile, ICICI Bank, HDFC Bank, Axis Bank and mid-sized PSBs are the top picks of
analysts at Prabhudas Lilladher.

NBFCs & HFCs | Outlook: Positive

The government announced that tax exemption of Rs 1,50,000 on purchase of an affordable

house will continue for another year. Amid this backdrop, HDFC remains a top pick of the
brokerages. Prabhudas Lilladher believes LIC Housing Finance and Can Fin Homes will be
among other beneficiaries of the scheme.

Infrastructure | Outlook: Positive

In the Budget, the total expenditure towards road and highways construction, shipping, metro
projects, smart cities and 'Jal Shakti' Abhiyan increased significantly. The government also
proposed 100% railway electrification by December 2023.

PNC Infratech, KNR Construction, Dilip Buildcon, Ashoka Buildcon, Sadbhav Engineering,
HG Infra Engineering and IRB Infrastructure will be key beneficiaries from measures related
to the construction of roads, said analysts at Elara Capital. Meanwhile, rail infrastructure
companies like Rail Vikas Nigam, IRCON International and RITES would also benefit, they
said.

L&T, Kalpataru Power & Transmission, Voltamp Transformers, PNCL and HG

Infrastructure are among top bets of Prabhudas Lilladher.

Cement | Outlook: Positive

Government's continued and improved thrust on infrastructure spends – specific

announcements of infrastructure projects in eastern states bodes well for the entire sector,
according to Phillip Capital.

UltraTech Cement, Shree Cement, Birla Corporation, JK Cement and Ambuja Cements will
be key beneficiaries, according to Elara Capital. While Ultratech Cement, Dalmia Bharat and
JK Lakshmi are the top picks of analysts at Prabhudas Lilladher.

FMCG | Outlook: Neutral

A reduction in basic customs duty from 12.5 per cent to 7.5 per cent will be partially offset
via the imposition of 2.5 per cent agriculture infra and development cess on gold prices, said
Phillip Capital in a note, adding that such a move is positive for Titan as this will lead to a net
reduction of up to 2.5 per cent in gold prices and shore up demand. Meanwhile, no hike in
cess on cigarette and tobacco products also bodes well for ITC.

Insurance | Outlook: Positive

The government has proposed to increase foreign direct investment limit in the insurance
companies to 74 per cent from 49 per cent earlier. While it would benefit all insurance
players, SBI Life is the top pick of brokerage Prabhudas Lilladher.

Elara Capital said that this move will be positive for ICICI Lombard as ICICI Bank needs to
sell 30 per cent stake in the next 3 years.

Advantages & Disadvantages of The Budget 2021

One of the positive points are- focus on capital investment to push growth, re-introduction of
developmental financial institutions, allocation for COVID vaccination, industry and sector-
specific interventions offers hope if matched with allocation, bold decision to expand fiscal
deficit to provide growth impetus and a medium and long-term vision for self-reliant India

Increase in fiscal deficit in the current fiscal year to 9.5% of GDP and target of 6.8% for
FY22 was a surprise. This, along with the extended fiscal consolidation roadmap indicate that
the bond market will face heavy supply pressure not just in this year but over many years.
State governments may also pursue similar expansionary fiscal policy.

Increased government spending for extended period will create inflationary impulse over
medium term. Government’s tax proposals particularly related to introduction of new cess
and import duties on various products could also cause inflation to rise. The RBI may find it
difficult to support the government’s borrowing program if inflation comes back.

My Opinion on Budget

This has been an ideal Budget given the context of a challenging pandemic and the need for
growth revival.

The FM has pushed all the right buttons i.e. – multi-year fiscal expansion with a glide-path
of fiscal deficit towards 4.5 percent by FY26; a boost for CAPEX and infra spending to
revive the investment cycle, several structural initiatives like setting up of DFI, ARC, Asset
monetisation plan, FDI hike in insurance; credible fiscal maths with realistic
revenue/expenditure assumptions; not imposing additional taxation measures on any segment
of taxpayers; the well-laid plan of privatisation of multiple PSU entities; and most
importantly, the transparency in the numbers. Also, the pragmatic proposals to strengthen
bank balance sheets, aggressive privatisation, and asset monetisation to raise the required
resources to fund the capital expenditure over the next few years will bode well for the
market.