Union Budget FY 2020-21 - Kotak Mutual Fund
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Union Budget FY 2020-21
1
Budget Stands on Three Themes and Two Approaches
Governance Ease of living Financial Sector
Aspirational India Economic Development Caring Society
• PM KUSUM to cover 20 lakh farmers for • Rs 27,300 Crs towards development of • INR 35,600 crs will be provided
stand alone solar pumps and 15 lakh for Industry for FY21 towards Nutritional improvement
grid connected pumps. programme
• Rs. 103 lakh crore National infrastructure
• Agricultural credit target of Rs. 15 lakh Pipeline projects announced across 6500 • INR 85,000crs to be allocated towards
crore for FY21. projects. SC/ ST and Other Backwards
• 162mn mt Cold Storage facility to • Rs 22,000 crs will be allocated towards • Thermal Power Plant which pollution
Mapped and Geo Tagged by NABARD. Renewable Energy in 2020 -21 limiting in excess of the regulatory
should be shut down
• Fish Production Target of 200 lakh tonnes • National Gas Grid to be expanded to 27,000km
by 2022- 23 • INR 4400 crs to be allocated to Clean
• INR 8000 crs will be provided towards
Air
• Rs. 3.6 lakh cr allocated to Jal Jivan National Mission on Quantum Technologies
Scheme
2
Budget Aims To Improve Ease Of Business & Ease Of Living
Measures to Improve Ease of Business & Ease of
Impact On Businesses and Individuals
Living
To ensure fairness to all assesses and to ensure that tax
Institute “Taxpayers Charter” in the Income Tax
officials do not end up harassing citizens in the process
Act
of collecting taxes – positive for removing pressure
Removal of Criminal Liability For Acts That Are
Civil in Nature Incentive to businesses and build trust and confidence
if executed correctly
Strengthening enforcement of Contracts
Implementation is Key
3Infrastructure : High on focus, Execution is the key
National Infrastructure Pipeline is the guiding force
• National Infrastructure Pipeline (NIP) was announced with Rs.103 Tn capex with 6,500 identified projects.
• Rs. 220 Bn support provided to IIFCL & NIIF, which will leverage and provide equity and long term financing for the NIP.
• Accelerated development of highways with 2500 Km access control highways, 9000 Km of economic corridors, 2000 Km of
coastal and land port roads and 2000 Km of strategic highways.
• Gross Budgetary Support to Road sector is at around Rs. 1.6 Tn.
• Railways: Investment target is increased to Rs. 1.6 Tn
%
FY21BE/FY20
INR in Billion FY15 FY16 FY17 FY18 FY19 FY20 RE FY21 BE RE
Roads and Bridges 345 715 1035 1115 1406 1580 1568 -0.8%
Railways 565 975 1210 1020 1389 1537 1630 6.0%
Renewable Energy 85 58 167 141 160 164 195 19.1%
Power 739 783 725 734 888 683 658 -3.8%
Drinking water and sanitation 121 111 165 239 350 254 335 32.2%
Ports & Shipping 16 31 33 58 74 57 55 -2.4%
Water Resources, River development
&Ganga Rejuvenation 9 11 69 84 157 125 140 12.5%
Total 2048 2977 3972 4080 5196 5684 5346 -5.9%
Source: Budget documents 4Budget – Receipts and Expenditures
WHERE RUPEE COMES FROM WHERE RUPEE GOES TO
Borrowngs Central Centrally
Corporation & Other Sector Sponsored
Tax, 18% Liabilities, Scheme, 13% Scheme, 9% Other
20% Expenditure,
10%
Non-Debt
Interest
Capital Pensions, 6%
Payments,
Receipts,
Income-Tax, 18%
6%
17%
States' share
of taxes &
Non-Tax duties, 20%
Defence, 8%
Revenue,
Customs, 4% 10%
Goods &
Union Excise Services Tax, Finance Commission &
Duties, 7% Subsidies, 6%
18% Other Transfers, 10%
Source: Union Budget FY21 Documents 5Fiscal Discipline With Moderate Slippage Despite
Challenges
In % GDP
2018-19 2019-20 2019-20 2020-21 2021-22 2022-23
Actuals Budget Revised Budget
Estimates Estimates Estimates
(Projections)
Fiscal Deficit
3.4 3.3 3.8 3.5 3.3 3.1
Revenue Deficit
2.4 2.3 2.4 2.7 2.3 1.9
Effective Revenue Deficit
1.4 1.3 1.5 1.8 -- --
Primary Deficit
0.4 0.2 0.7 0.4 0.2 0
Fiscal Deficit remains within FRBM slippage target
Source: Union Budget FY21 Documents 6Govt Borrowing in Line With Market Expectations In
FY21BE
Gilt yields now a function of RBI Policy and Macros
• Effectively there has been no extra borrowing this year. This is a
2019-20 2019-20 2020-21 positive for the bond market. We could expect the yields to
(Rs. Bn) BE RE BE soften in the near-term
• The gross borrowing for FY21 is in line with market expectations
Fiscal Deficit 3.30% 3.80% 3.50%
• Higher planned switches for next year at Rs. 2700 Bn is a
negative for duration. However the actual switches may reduce
Gross Borrowing 7100 7100 7800
in case these switches turns out to be disruptive. Hence the
market may not worry about higher switches in the short term
Net Borrowing 4730 4730 5450
• Going ahead, 10 yr Gilt would be influenced largely by RBI policy
T-Bill 250 (growth and inflation dynamics) and Continuation of RBI
Operation Twist programme. Higher liquidity in the system and
low credit off take are also positive for Gilt Market and Bond
Switches 500 1650 2700
Market
• We expect 10 yr Gilt to trade in the band of 6.25-6.75% yield for
next 3 months.
Source: Union Budget FY21 Documents 7Reviving Growth Needs Credit; Reviving Credit Needs Capital –
And Budget is working towards that
Key Budget Proposals for Capital
Impact Results
Markets
Incremental Rs. 2.11 tn of Corporate Bond FPI
There is enough space currently so demand pickup needs
limits (going up from 9% of outstanding to 15% of Positive
to be seen.
outstanding)
Opening up of specific Government Bond limits
freely for Non-Resident Investors. Roadmap being Positive Positive for Bonds
developed
Will increase retail participation alongside being an
ETF on Government Securities Positive attractive investment for pension funds and long-term
investors.
Proposed to formulate legislation for laying down
mechanism for netting off of financial contracts Positive This will help in deepening of corporate bond market
for development of Credit Default Swap market.
Disinvestment in LIC IPO, BPCL, Air India, CONCOR Gives fiscal headroom, improves overall economic
Positive
and IDBI have been identified besides the ETFs productivity and reduce subsidisation burden
8Key Budget Proposals for Capital Markets
Proposals Impact Results
“Withholding tax” exemption of 5% on
investment in bonds for NRI’s extended for
Positive Provides tax certainty on tax on coupon
3year period to June 2023 from current expiry
of June 2020.
SWFs (Sovereign wealth funds) to not pay any
Will increase attractiveness of India as an asset class for
tax on dividend/interest for their investment in Positive
SWFs.
Infrastructure companies.
Deposit Insurance amount increased from Rs. 1
Positive High protection for retail investors
lakh to Rs. 5 lakh
This will widen the window for NBFCs to tap liquidity
NBFCs – the current partial credit guarantee through this route
Positive
scheme would be revised and extended
9Choice of lower income tax rate for individuals who forego
incentives
(Old Slabs stay for those who want to continue to claim deductions)
Income Tax Slabs of Individual below 60 years of age • New tax slabs have been introduced as
EXISTING TAX RATE NEW TAX SLABS below if individuals do not claim any
Income Slab
(INCOME Rs) (INCOME Rs) deduction or exemption (optional for the
Upto Rs 2.5 Lakhs 0% 0% taxpayer)
Rs 2.5 Lakh to 5 Lakhs 5% 5% • Dividends received shall be taxed in the
Rs 5 Lakhs to Rs 7.5 Lakhs 20% 10% hands of recipients at their applicable
tax rate
Rs 7.5 Lakhs to Rs 10 Lakhs 20% 15%
• Levy of perquisite tax on salaried
Rs 10 Lakhs to Rs 12.5 Lakhs 30% 20% employees if the contribution to EPF,
Rs 12.5 Lakhs to Rs 15 Lakhs 30% 25% NPS, Superannuation together is higher
than Rs. 7.5 lakhs per year
Above 15 Lakhs 30% 30%
Since this is optional people need to carefully evaluate which is more beneficial based on the level of incentives and
deductions which they earlier used to claim.
Disclaimer: No tax saving has been assumed to highlight the basic tax liability. This is only to illustrate the tax impact is not a tax advise. Please consult your tax consultant for tax purpose 10DDT Gone. Tax on Income from Dividend is Now ON.
Companies will not be required to pay DDT Mutual funds’ perspective: DDT has also been
(Dividend Distribution Tax). The dividend shall abolished for MF as well. Flows should get
be taxed only in the hands of the recipients at diverted to growth funds over dividend funds
their applicable rate. given LTCG/STCG tax is lower than marginal tax
rate at which dividend will be taxed
Dividend received by the holding company is
allowed for deduction in order to avoid Improves attractiveness of or the Dividend
cascading effect. As far as individual Paying Companies for minority shareholders
promoters are concerned, the better option
would be through the buy-back route rather
than dividend route.
Note: 10% TDS on dividends paid by companies, MFs etc. Dividends upto Rs 5000 per year to be exempt from tax liability.
11
Disclaimer: No tax saving has been assumed to highlight the basic tax liability. This is only to illustrate the tax impact is not a tax advise. Please consult your tax consultant for tax purposeUnion Budget FY21 – Sectoral
Outlook
12Summary of Sectoral Outlook
Sector Outlook
Agriculture Positive
Capital Goods Neutral
Telecom Negative
Media Positive
Cement & Building Materials Positive
FMCG Positive
Auto Positive
Infrastructure Positive
Real Estate Positive
Oil & Gas Neutral
Metals & Mining Neutral
Pharma Neutral
13Union Budget FY21: Sectoral Impact
Agriculture: Positive
Sector Budget Proposal Nature of Impact Comments
“Pradhan Mantri KIsan SAmman Nidhi (PM-KISAN)” - To provide an assured income Positive Can help improve demand for agricultural inputs
support to the small and marginal farmers. Under this programme, vulnerable
landholding farmer families, having cultivable land upto 2 hectares, will be provided
direct income support at the rate of INR 6,000 per year. FY21BE at INR 750bn is 38%
higher than FY20RE
Fertilizer subsidy - Total fertilizer subsidy allocated is INR 713bn (INR 478bn for urea + Negative Subsidy to Fertilizer companies will be pending at
INR 235bn for complex fertilizers) vs INR 800bn in FY20 RE (INR 536bn for urea + INR the end of the year FY21
264bn for complex fertilizers). This amount will not be sufficient to take care of the back
log pending if raw material prices remain at current levels.
Agriculture
National Rural Drinking Water Mission - Has been increased by 15% in FY21BE vs Positive Can help improve demand for agricultural inputs
FY20RE to INR 100bn .
Crop Insurance - Pradhan Mantri Fasal Bima Yojna (PMFBY) budget provision of INR Positive Can help improve demand for agricultural inputs
157bn in FY21 vs revised estimate of INR 136bn in FY20.
Pradhan Mantri Kisan Urja Suraksha evem Utthan Mahabhiyan (PM KUSUM) Scheme Positive Can help improve demand for agricultural inputs
to be expanded to provide 20 lakh farmers for setting up stand-alone solar pumps. In
addition, the government shall help another 15 lakh farmers solarise their grid-
connected pump sets. In addition, a scheme to enable farmers to set up solar power
generation capacity on their fallow/barren lands and to sell it to the grid would be
operationalized
Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) allocation Negative Will decrease rural income opportunities
has been reduced by 13% to INR 615bn in FY21BE from INR 710bn in FY20RE
The names of select companies have been mentioned in this slide for illustration purposes only. There is no guarantee that the budgetary proposals will have a positive impact on these companies as actual performance
will depend on various other parameters including quality of management, etc. 14Union Budget FY21: Sectoral Impact
Capital Goods: Neutral; Telecom: Negative; Media: Positive
Sector Budget Proposal Nature of Impact Comments
Defence capital acquisition outlay of INR 1137bn against INR Neutral Growth of about 4% is along the trend for past few years
1104bn for FY20 BE
Railway capex increased by 3% to INR 1.61tn from INR 1.56 Neutral Growth in the outlay is slightly soft compared to last few years
Capital Goods tn in FY20RE
Outlay for roads, Metro and rural roads increased from INR Positive Increase of 18.8% over last year provides scope for EPC and equipment
801bn in FY20RE to INR 952bn companies to grow
Increase in customs duty on compressors for AC for 10% to Positive This would encourage manufacturing of these components in India. Not
12.5%; On fans from 7.5% to 20%; on PCB for mobile likely to impact players dependent on imports as source can be shifted
phones to 10% from 0% quickly.
Sector Budget Proposal Nature of Impact Comments
Communications receipt has been estimated at INR 1,330 Negative Government has given moratorium of two years on EMI, so technically,
bn for FY21 nil revenue from deferred spectrum liability. The difference of INR 1,129
Telecom
bn is unexplained. This could include upfront payment for upcoming
spectrum auction & AGR payment.
Sector Budget Proposal Nature of Impact Comments
Basic Customs Duty on Newsprint down from 10% to 5% Positive Lower Raw Material cost for Print sector
for importers that are registered with the Register of
Media Newspapers
Basic Customs Duty on Light-weighed coating paper Positive Lower Raw Material cost for Print sector
imported for printing of magazines reduced from 10% to
5%
The names of select companies have been mentioned in this slide for illustration purposes only. There is no guarantee that the budgetary proposals will have a positive impact on these companies as actual
performance will depend on various other parameters including quality of management, etc. 15Union Budget FY21: Sectoral Impact
Cement and Building Materials: Positive
Sector Budget proposals Nature of impact Comments
Time line for additional deduction under income tax of up to INR 0.15 mn for Positive Housing and real estate sector accounts for
interest paid on loan taken for purchase of an affordable house and tax holiday ~65% of overall cement consumption in India
period for developers of affordable housing project is extended by one more year i.e. and this will increase the overall cement
up to 31st March 2021. demand. Housing demand will have spillover
effect on building materials demand as well
Overall PMAY allocation increased 8.6% to INR 275 bn in FY21 BE.
Allocation to PMAY (Urban) in FY21 BE increased by 16.7% to INR 80 bn vs INR 68 bn
in FY20 RE.
Cement and building PMAY (rural) allocation has been increased by 5.5% to INR 195 bn in FY21 BE vs INR
material 185 bn in FY20 RE
Pradhan Mantri Gram Sadak Yojna allocation increased 38.6% to INR 195 bn in FY21
BE from INR 140 bn in FY20 RE
Allocation to NHAI increased by 11% to INR 913 bn in FY21 BE
Increased customs duty on furniture from 20% to 25% that should help MDF
manufacturer
Penalty on fake invoices under GST to curb rampant practice of fraudulent ITC claim.
Allocation to Swach Bharat Mission budget increased by 28% to INR 122 bn in FY21
BE
The names of select companies have been mentioned in this slide for illustration purposes only. There is no guarantee that the budgetary proposals will have a positive impact on these companies as actual
performance will depend on various other parameters including quality of management, etc. 16Union Budget FY21: Sectoral Impact
FMCG & Auto: Positive
Sector Budget Proposal Nature of Impact Comments
Various initiative to increase rural income Positive Increases rural consumption benefiting companies having higher
rural salience
Reduction in tax rate upto INR 1.5mn Positive Higher disposable income especially with millenials to boost
Consumer consumption. QSR's , apparels, multiplexes etc to benefit. Positive
for names like Emami, Lux
Hike in NCCD tax rate on cigarettes Negative Impede the profitability of the cigarette companies like ITC
Custom duty increased on footwear from 25% to 35% and on Negative Cost for shoes especially sports shoes should increase as majority
parts of footwear from 15% to 20% are imported. This will be negative for organised players as
unorganised share in footwear is very high
Sector Budget Proposal Nature of Impact Comments
Various initiative to increase rural income Positive Positive for farm equipment, two wheelers, utility Vehicle
manufacturers
Increase in duties for CBUs of CVs Positive Positive for commercial vehicle players
Auto Reduction in tax rate upto INR 1.5 mn Positive Positive for two wheelers and passenger car manufacturers
Basic Customs Duty on catalytic converters increased from Negative Increased cost for Auto OEM's
10% to 15% and on noble metal solutions and compounds
used in catalytic converters from 5% to 10% and parts and
other specified inputs for manufacture of catalytic converters
from 5% to 7.5%
The names of select companies have been mentioned in this slide for illustration purposes only. There is no guarantee that the budgetary proposals will have a positive impact on these companies as actual
performance will depend on various other parameters including quality of management, etc. 17Union Budget FY21: Sectoral Impact
Infra, Real Estate, Industrials: Positive
Sector Budget Proposal Nature of Impact Comments
Roads sector outlay though flat at INR 1.6 tn is positive Positive Positive for both developer and construction companies.
as Government support is up while borrowing are
down
Infrastructure Railways Capex up 6% to INR 1.6 tn Positive Positive for contractors like L&T, RVNL, KEC and Kalpataru
100% Tax exemption to foreign Sovereign Wealth Funds Positive Positive for both developer and construction companies.
(SWFs) on interest/dividend or Capital Gains, on
investments made in priority sectors by March 2024
(min lock-in of 3 years).
Continued focus on Affordable housing with tax Positive RE sector focus contractors like JMC Project, NCC, Simplex,etc could be
exemption to developers, buyer beneficiary.
Sector Budget Proposal Nature of Impact Comments
Benefits under section 80-IBA extended till March 2021 Positive Developers looking to launch more affordable housing projects get an
(no tax for developer working on affordable housing) extension.
Real Estate
Additional deduction of INR 0.15mn on affordable Positive Offtake for affordable housing units will continue to see strong demand,
housing loan extended for March 2021 positive for developers like Brigade/Markets like Bangalore. Will also benefit
companies like APL Apollo.
Sector Budget Proposal Nature of Impact Comments
Focus on promoting Made-in-India and growing Positive This would encourage domestic manufacturers and market leaders with large
manufacturing; Raises customs duty on small inhouse/backward integration in India like Polycab India and Finolex cables.
Industrials
appliances from 10% to 20%; on refrigerator and AC
compressors increased from 10% to 12.5%
The names of select companies have been mentioned in this slide for illustration purposes only. There is no guarantee that the budgetary proposals will have a positive impact on these companies as actual
performance will depend on various other parameters including quality of management, etc. 18Union Budget FY21: Sectoral Impact
Oil & Gas, Metals & Mining, Water: Neutral to Positive
Sector Budget Proposals Nature of Impact Comments
Petroleum subsidy allocation of INR 388bn Neutral At US$ 65/bbl, we est. gross under-recovery at INR 315bn for FY21E.
Allocation of INR 388bn to be utilized for carry forward from FY20 and
Oil & Gas FY21 gross under-recovery with carry forward of Q4 subsidy into next
year.
Removal of anti-dumping duty on PTA Neutral Negative impact of ~1% on EPS for RIL, IOC
Customs duty on very low sulphur fuel oil (VLSFO) cut Neutral Negligible negative impact on GRM for refineries
from 10% to nil
Budget Proposals Nature of Impact
Customs duty on calcined petroleum coke reduced from Positive Marginal positive for aluminium producers like Hindalco, NALCO, Vedanta
Metals & Mining
10% to 7.5%
Sector Budget Proposal Nature of Impact Comments
Budgeted Rs103 trn towards National infrastructure Positive Piped Water supply initiative will benefit Large Dia Pipe
Pipeline projects. Jal Jeevan Mission being a key project manufacturer/suppliers like Welspun Corp
to provide piped water supply to all households (Rs 3.6
Water
trn has been approved). Cities with a population of
over a million will be encouraged to meet this objective
during the current year itself. A budget of Rs115bn has
been allocated for FY21
The names of select companies have been mentioned in this slide for illustration purposes only. There is no guarantee that the budgetary proposals will have a positive impact on these companies as
actual performance will depend on various other parameters including quality of management, etc.
19Union Budget FY21: Sectoral Impact
Pharma: Neutral
Sector Budget Proposal Nature of Impact Comments
Healthcare expenditure allocation has been Neutral Despite the 6% increase, healthcare expenditure as a proportion of total budgeted
increased by ~6% YoY to INR 675bn. This includes expenditure remained same YoY at 2.2%
INR 639bn in revenue expenditure and INR 11bn
in capital expenditure.
Pharma Ayushman Bharat allocation has been Neutral Given muted utilization for in FY20, we believe present allocation should cover the
maintained at INR 64bn vs revised estimate of expenditure in FY21.
INR 32bn for FY20.
Customs duty on the imports of medical Positive May encourage global players to invest in India
equipment keeping in view that these goods are
now being made significantly in India. The
proceed from this cess shall be used for creating
infrastructure for health services in the
aspirational districts.
Sector Budget Proposal Nature of Impact Comments
Budget 2020, the company is no longer required Positive We think IT companies like Persistent sys, KPIT tech are likely to increase dividend
IT Services to pay DDT (dividend distribution tax) pay-outs to investors/consider Buybacks thus improving ROEs
Sector Budget Proposal Nature of Impact Comments
a) a simplified direct tax structure without We think this could increase near-term tax rate for Life insurers; and possibly
exemptions and deductions, and b) DDT weigh on EV, particularly for insurers with high ULIPs; however medium-term
Insurance abolished and dividend income of Insurance Marginal Negative impact seems limited with most insurers growing protection biz
companies to be taxed is likely to lead to an
increase in effective tax rate (ETR).
The names of select companies have been mentioned in this slide for illustration purposes only. There is no guarantee that the budgetary proposals will have a positive impact on these companies as
actual performance will depend on various other parameters including quality of management, etc.
20Disclaimers & Risk Factors
Investments in securities are subject to market risk and there is no assurance or guarantee of the objectives of the Portfolio being achieved or safety
of corpus. Past performance does not guarantee future performance. Investors must keep in mind that the aforementioned statements/presentation
cannot disclose all the risks and characteristics. Investors are requested to read and understand the investment strategy, and take into consideration
all the risk factors including their financial condition, suitability to risk return profile, and the like and take professional advice before investing. Opinions
expressed are our current opinions as of the date appearing on this material only.
These materials are not intended for distribution to or use by any person in any jurisdiction where such distribution would be contrary to local law or
regulation. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into
possession of this document are required to inform themselves about, and to observe, any such restrictions
We have reviewed the document though its accuracy or completeness cannot be guaranteed. Neither the company, nor any person connected
with it, accepts any liability arising from the use of this document. The recipients of this material should rely on their own investigations and take their
own independent professional advice. While we endeavor to update on a reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing so. Investors and others are cautioned that any forward - looking statements are
not predictions and may be subject to change without notice.
Note:
Benchmark of following strategies of Portfolio Management Services being provided by Kotak Mahindra Asset Management Company Ltd, with
effect from July 29, 2019, were revised as follows:
· In respect of Special Situations Value Portfolio, the Benchmark was revised from CNX 500 Index to India Value Index.
All other terms and conditions of the aforesaid Strategies remain unchanged. This forms part of Disclosure Document of Portfolio Management
Services being provided by Kotak Mahindra Asset Management Company Ltd, as amended from time to time.
Statutory Details: Portfolio Manager: Kotak Mahindra Asset Management Company Ltd. SEBI Reg No: INP000000837- Registered Office: 27 BKC, C-27, G Block,
Bandra Kurla Complex, Bandra (E), Mumbai - 400 051, Principal Place of Business: 2nd Floor, 12 BKC, Plot No. C-12, ‘G’ Block, Bandra Kurla Complex, Bandra East,
Mumbai – 400 051,India. Address of correspondence:6th Floor Kotak Towers, Building No 21 Infinity Park, Off W. E. Highway, Gen A K. Vaidya Marg, Malad (E),
Mumbai 400097. - Contact details:02266056825
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