2Key Budget Highlights Budget Overview 2014-15 GDP growth estimated between % as per the economic surveyFiscal deficit budgeted at 4.1 % of GDPCurrent account deficit expected at 2.1% of GDPRevenue deficit projected at 2.9% of GDPNet market borrowing to be Rs. 4.6 lakh crores
3Key Tax Proposals Direct Taxes Exemption limit for the general category of individual taxpayers proposed to be enhanced from Rs. 2,00,000 to Rs. 2,50,000No change to the corporate tax rateInvestment limit under section 80C of the Income-tax Act from Rs. 1 lakh to Rs. 1.5 lakhIncrease the deduction limit on account of interest on loan in respect of self occupied house property from Rs. 1.5 lakh to Rs. 2 lakh10 year tax holiday extended to undertakings which begin generation, distribution and transmission by Fiscal 2017A net revenue loss of Rs.22,200 crores estimated as a result of Direct Tax proposalsInvestment allowance at the rate of 15% to manufacturing companies investing more than Rs. 25 crores till March 2017
4Key Tax Proposals Indirect Taxes Excise duty on cigarettes raised from 11% to 72% across different cigarette lengthsLevy of additional duty of excise at 5% on aerated water containing sugarService tax base has been broadened to cover radio, broadcast media, mobile advertisement and radio taxisTax proposal on the indirect tax side are estimated to yield 75.2Bn
5Budget Math and Our View FY14 DeficitThe fiscal deficit for FY14 was finally pegged at 4.5% of GDP v/s budget estimates of 4.8% of GDPSharp cut in planned expenditure key reason (10.8% growth vs BE of 29.4%)Revenues were running below budget estimates due to slowdown in economic activity and shortfall in divestment receiptsFY15 budget math: More realisticThe fiscal arithmetic is based on nominal GDP growth of 13.4%, total revenues rising 15.6% and expenditure rising 10.8%GDP growth assumption moderately optimistic, expect receipts targets to be met on account of non-tax revenuesHigher expenditure budgeted for an investment starved economyUpside risks to fiscal deficit unlikely
6Budget Math and Our View RevenuesGrowth in gross tax collections estimated at 17.7%Excise Duty 11.7%,Customs Duty 15.0%,Service Tax 30.7%,Corporate Tax 14.6%Income tax 26.8%ExpensesExpenditures to rise by 10.9%Plan expenditure 16.8%Non-plan expenditure 9.4%The stated intent to limit subsidies at 2% of GDP implies increase in prices of regulated goods.
8Oil & Gas Budget Impact: Neutral Proposal Impact Promote use of Piped Natural gasIncrease in gas utilization positive for gas utilitiesExcise duty on branded petrol is reduced from Rs7.5/liters to Rs2.35/litersMildly Positive for Downstream companiesReduction in Basic Custom duty for propane, ethane, ethylene and propylene to 2.5% from current 5%Mildly negative for domestic petrochemical sectorImplementation towards Direct Benefit transfer of SubsidiesPositive for upstream and downstream companies due to overall improvement in cash flows
9Banking & Financial Services Budget Impact: PositiveProposalImpactAcknowledgement of large capital requirement at PSU Banks of Rs 240 Lac Crs.Capital infusion in government banks of Rs.11,200 Crs.Intends to give greater autonomy to banks and consider consolidation of banks seriouslyNeutral for PSU Banks, as quantum of infusion is lower than requirements. Further we would like to have clarity on how the remaining capital requirement needs will be metBanks to be permitted to raise long term funds for lending to infrastructure sector with minimum regulatory pre-emption such as CRR, SLR and Priority Sector LendingPositive for Infra-Finance as a segment, bigger beneficiaries are IDFC, PSU Banks and wholesale private banksDeduction on housing loan interest has been increased to Rs 2 Lac (from Rs 1.5 Lac) and also deduction for principal payments (under 80C) has been increased to Rs 1.5 Lac (from Rs 1 Lac)Positive for banks and housing finance companiesProposed to increase foreign ownership limit in the insurance sector from 26% to 49% through the FIPB route – with Indian management and controlPositive for insurance companies to raise FundingHelp domestic financial institutions to monetize their stake9
10Banking & Financial Services Budget Impact: PositiveProposalImpactAgriculture Credit:Continuation of interest subvention scheme for timely repayment.Higher agriculture lending target of Rs 8 lac crores (up 14.3% YoY)Positive for agriculture sector asset quality for banks.Negative for PSU banks, as weak monsoon pose risk for NPLsRs 4,000 Crs for to increase the flow of cheaper credit for affordable housing to the urban poor/EWS/LIG segment and enhanced allocations of Rs 8,000 Crs under Rural Housing FundPositive for Housing Finance CompaniesFinancial inclusion roadmap by August-14Could be negative for PSU Banks as government stressing on aggressive financial inclusion plans and unsecured credit to marginal depositors.To open 6 Debt Recovery Tribunals in 6 citiesThis will facilitate faster recovery process for banks10
11Power & Utilities Budget Impact: Positive Proposal Impact Govt. to oversee that all power companies to get adequate coal supplyPositive for entire sectorIncrease in basic custom duty on coal by 0.5% to 2.5% and Increase in clear energy cess to Rs100/tonne from current Rs50/tonneMildly negative for coal importers.Launch of Deen Dayal Upadhyay Gram Jyoti Yojana at cost of Rs5bn for feeder separation in power distributionPositive for transmission companies and cap goods cos in field of T&D reductionPromotion of solar power through set-up of ultra mega solar projects and Reduction in custom duty and excise duty for inputs used in solar power panelsPositive as new business segmentCoal import duty for lower and higher grade coal bought at par at 2%Slightly positive for coal importing companies
12Agri Inputs Budget Impact: Positive Proposal Impact 4% growth in agricultureFarm credit increased to 8 lakh croreSystem for mitigating price volatility in Agriculture produce (500 crs)Set up new agricultural institutes, testing laboratories, agri tech infrastructure fund (100 crs)Drive agri pumps with solar energy (400 crs)Plenty of schemes to improve cash flow in rural segmentsOverall positive to improve farmer income and thereby increase usage of farm inputsSubsidy provision increased to crs from crsMarginal increase to manage increase in raw material prices1000 crore provided to assure irrigation in Pradhan Mantri Krishi Sinchayee YojanaPositive for irrigation companies
1313 Infrastructure / Capital Goods Budget Impact: Positive Proposal Investment allowance of 15% in plant and machinery extended to all investments made above Rs250mn as compared to Rs1bn earlier for a period of 3 years. Earlier scheme ending in Mar'15 will continue to run parallelPositive for all capital goods companies as it will help spur investments in medium and small enterprisesPower – New Feeder separation scheme to improve sub T&D infra & reduce lossesFeeder line separation to reduce T&D losses and lead to investment opportunityCut in excise duty (to 6%) on food processing equipment and packaged machinery equipment suppliersPositive for select cap goods nameComposite cap on FDI in defense sector increased to 49% vs 24% earlier under FIPB route. Ownership control to be retained with India entityPositive for Defense companies which can act as technology partnerDefense capex allocation increased to Rs94.6bn, up by Rs50bn over interim budget targetPositive for defense equipment providers13
1414 Infrastructure / Capital Goods Budget Impact: Positive Proposal Road Development - Allocation of Rs. 37,850 Cr for roads (NHAI and state roads)- NHAI to target 8,000 km of road developmentPositive for all Road developersSMART CITIES - Allocation of Rs Cr for smart citiesPositive for the sector- and Automation companiesREITS- Infra investment trusts (on line of REITs) to be set up to securities infra projectsPositive for Asset owner companiesInfra Activity - Rs. 100 Cr for kick starting Metro projects in Lucknow and Ahmedabad & Rs Cr for Low cost Housing under National Housing BankPositive for EPC companies14
15FMCG & Retail Budget Impact: Neutral Proposal Impact Increase in excise duty on cigarettes from 11-72%Companies will likely raise the prices due to which demand may be affected in the short-runFootwear Industry: Excise reduction on Rs500-Rs1000 from 12% to 6%Companies operating in this price point of the segment will benefitCustom duty cut on crude palm fatty acid (key raw materials in soaps) from 7.5% to 0%Companies operating in soap segment will benefitPersonal tax proposals would result in lower tax outgo for individual
16Real Estate Budget Impact: Positive Proposal Impact Interest payments on housing loans under Sector 24b to Rs 2lakh from 1.5 lakhPositive for affordable housingREITs :To provide the necessary incentives and a conducive tax regime for REITs to in accordance with SEBI regulationsPositive for asset ownersForeign Direct Investment in realty :Requirement of area has been reduced from 50,000 sq. mts. to 20,000 sq. mts. and from USD 10 mn to USD 5 mnPositive for all developers
17Metals Budget Impact: Neutral Proposal Impact Royalty on minerals expected to increase-ve for All companies with minesExtension of sunset date for tax holiday for power plants under sec 80IA to March 2017Positive for select companies implementing power projectsImport duty on stainless flat rolled steel from 5% to 7.5%Positive for Stainless Steel makersIncreased export duty on bauxite from 10% to 20%Positive for aluminum producers without captive bauxiteDuty structure on coal of various types is rationalized at 2.5% BCD and 2% CVD.BCD on Coking coal -> from NIL to 2.5%Steam coal and bituminous coal - >from 2% to 2.5%Marginal negative for steel companies.Imposed import duty of 2.5% on coke, in line with coalAll large steel producers have captive coke. So, no impact.Investment to manufacturing companies that invest more than INR250mn in plant & machinery.Positive for all cos. As sector is capital intensive oneThe rate of Clean Energy Cess levied on coal, lignite and peat is being increased from Rs.50/t to Rs. 100/tMarginally –ve for all coal mining companiesBasic Customs Duty on coal tar pitch is being reduced from 10% to 5%Small positive for Aluminium producers
18Automobiles & Auto Ancillaries CementBudget Impact: NeutralProposalImpactFocus on urbanisation, urban infrastructure, urban development, asset creation through MNREGA and thrust on infrastructure projectsPositive for cement demandDuty structure on coal of various types is rationalized at 2.5% BCD and 2% CVD. BCD Anthracite coal and other coal - >from 5% to 2.5% . CVD on Anthracite coal, Coking coal and other Coal is being reduced from 6% to 2%Marginal positive for cement companies importing coalAutomobiles & Auto AncillariesBudget Impact: NeutralProposalImpactExcise duty cut benefits as announced few days back will continue till Dec’14This is encouraging as the extension of cut in excise duties should continue to support consumer sentiment
19Positive for the tourism economy Travel & LeisureBudget Impact: PositiveProposalImpactFacility of Electronic Travel Authorization (e-Visa) to be introduced in phased manner at nine airports in IndiaPositive for the tourism economyRs. 500 Crs provided for developing 5 tourist circuits around specific themesRs. 100 Crs provided for National Mission on Pilgrimage Rejuvenation and Spiritual Augmentation Drive (PRASAD)Rs. 200 Crs provided for National Heritage City Development and Augmentation Yojana (HRIDAY)Rs Crs provided for Archaeological sites preservationSarnath-Gaya-Varanasi Buddhist circuit to be developed with world class tourist amenities to attract tourists from all over the worldRecognizing the urgent need to develop world class convention facilities, Government will fully support this initiative to develop the facilities in PPP mode through the VGF scheme
20DisclaimersInternal views, estimates, opinions of BSLAMC expressed herein may or may not materialize. These views, estimates, opinions alone are not sufficient and should not be used for the development or implementation of an investment strategy. The portfolio of the scheme is subject to changes within the provisions of the Scheme Information Document(SID) of the scheme. Please refer to the SID for asset allocation, investment strategy and scheme specific risk factors. Forward looking statements are based on internal views and assumptions and subject to known and unknown risks and uncertainties which could materially impact or differ the actual results or performance from those expressed or implied under those statements. This document is strictly confidential and meant for private circulation only and should not at any point of time be construed to be an invitation to the public for subscribing to the units of Birla Sun Life Mutual Fund. Please note that this is not an advertisement. The document is solely for the information and understanding of intended recipients only. If you are not the intended recipient, you are hereby notified that any use, distribution, reproduction or any action taken or omitted to be taken in reliance upon the same is prohibited and may be unlawful. Views expressed herein should not be construed as investment advice to any party and are not necessarily those of Birla Sun Life Asset Management Company Ltd.(BSLAMC) or any of their officers, employees, personnel, directors and BSLAMC and its officers, employees, personnel, directors do not accept responsibility for the editorial content. Wherever possible, all the figures and data given are dated, and the same may or may not be relevant at a future date. Further the opinions expressed and facts referred to in this document are subject to change without notice and BSLAMC is under no obligation to update the same. While utmost care has been exercised, BSLAMC or any of its officers, employees, personnel, directors make no representation or warranty, express or implied, as to the accuracy, completeness or reliability of the content and hereby disclaim any liability with regard to the same. Recipients of this material should exercise due care and read the scheme information document (including if necessary, obtaining the advice of tax/legal/accounting/financial/other professional(s) prior to taking of any decision, acting or omitting to act. Further, the recipient shall not copy/circulate contents of this document, in part or in whole, or in any other manner whatsoever without prior and explicit approval of BSLAMC.
21Statutory Details & Risk Factors Statutory Details: Constitution: Birla Sun Life Mutual Fund (BSLMF) has been set up as a Trust under the Indian Trusts Act, Sponsors: Aditya Birla Financial Services Private Limited and Sun Life (India) AMC Investments Inc. (liability restricted to seed corpus of 1 Lac). Trustee: Birla Sun Life Trustee Company Pvt. Ltd. Investment Manager: Birla Sun Life Asset Management Company Ltd. Risk Factors: Mutual Funds and securities investments are subject to market risks and there can be no assurance or guarantee that the objectives of the Scheme will be achieved. As with any investment in securities, the NAV of the Units issued under the Scheme may go up or down depending on the various factors and forces affecting capital markets and money markets. Past performance of the Sponsor / Investment Manager / Mutual Fund does not indicate the future performance of the Schemes and may not necessarily provide a basis of comparison with other investments. The names of the Schemes do not, in any manner, indicate either the quality of the Schemes or their future prospects or returns. Unitholders in the schemes are not being offered any guaranteed/assured returns. Investors should read the Statement of Additional Information / Scheme Information Document/ Key Information Memorandum available at Investor Service Centers and with distributors carefully before investing. The Material provided in this communication cannot be reproduced or quoted anywhere without express permission from Birla Sun Life Asset Management Company Ltd.