Normally, the big driver for sectoral attractiveness post budget used to be shifts in indirect taxes. With most indirect taxes subsumed under GST, there is little scope for tinkering. Hence the focus will be more on broad macro stories and specific focus areas of the government. Let us look at 6 such sectors that could benefit from Union Budget 2018…
Also read: Union Budget
The previous budget was all about low cost housing and it got a big boost through its new found infrastructure status. However, the regular housing sector is still facing a plethora of constraints. The forthcoming budget is expected to address many of them. It is expected that Section 24 limit could be enhanced from Rs.2 lakhs. Last year, the Budget restricted the admissible loss for rental properties to Rs. 2 lakhs per annum. Obviously, rental incomes will not be sufficient to carry forward these losses for 8 years and hence we expect the restoration of status quo. Additionally, the pre-construction interest is still amortized within the Section 80C limit. That may be given as an additional rebate. In the previous budget the government introduced special incentives for first-time home buyers. That may be extended this year too. The specific stories to benefit from these trends will be realty companies with low debt and housing finance companies with robust NIMs.
The demand for these products is directly related to spending power. On the one hand, GST has helped consumer goods companies to realign their logistics networks along competitive lines. The 0.50% spillage in fiscal deficit this year is likely to add to the purchasing power. Additionally, we also expect the government to provide bigger exemptions and lower tax rates. FMCG companies normally pay high rates of effective taxes compared to industrials. The proposal to reduce rates of corporate tax will also benefit these companies.
Also read: Highlights of Union Budget 2019
This is not exactly a sector but a plethora of sectors that will benefit from higher rural spending. The budget is likely to see greater allocation to rural infrastructure, rural employment generation and improving the agricultural infrastructure. Apart from rural consumption stories, the other big beneficiary will be sectors that directly benefit from spending on agriculture and agri support services. This includes fertilizers, agro-chemicals, hybrid seeds, tractors, farm equipment, drip irrigation systems and post harvest infrastructure.
The government has initiated aggressive reforms on the banking NPA front. Banks have been reeling under stressed assets to the tune of $217 billion. The Insolvency and Bankruptcy Code (IBC) will impel the banks and borrowers to reach a workable solution within a time-bound schedule. With most of the losses already provided for, banks may end up with cleaner balance sheets once the IBC exercise is completed. The next step will be expanding their loan books which will be assisted by the capital infusion and the issue of recapitalization bonds. This budget may actually put the PSU banks in an extremely sweet spot, almost giving them a launch-pad to expand their loan books without worrying about stressed assets.
The budget could announce special tax incentives for investing in stressed infrastructure assets. That could lead to cleaning up of the balance sheets of infrastructure companies helping them to focus more on project execution. Also a lot of realignments and buyouts are possible in the aftermath of the current budget. The IIP and PMI numbers have been hinting at the first signals of a revival in the capital investment cycle. This could be the right time for infrastructure companies to again emerge as veritable investment options in the market. ,/p>
To be fair, this is not an entire industry but a sub-industry for a host of large corporates. Reputed companies could see their defence business contributing a bigger share to revenues and profits. The government is also keen to create a local back-up to outsourcing of defence needs. Apart from the government owned defence players, private players could also benefit from higher order flows post the budget. The Union budget could also see higher outlay for defence in the light of the emerging scenario in South and West Asia.
The big macro themes in this Union Budget will be consumption and rural spending. Irrespective of the budget thrust, these two spaces are likely to enjoy good days ahead!
Also read: Union Budget 2019 vs. 2018
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