Budget Expectations-2015

Expectations are high from the budget that it should clearly lay down a roadmap on critical issues like GST and reviving the capex cycle by optimum utilisation of surplus PSU cash. Further, clarity on international taxation issues like GAAR, newer initiatives like ‘Make in India’ and ‘Smart Cities’ along with mentioning avenues for raising long-term funds for creating infrastructure and measures to attract/increase financial saving in the economy would be the key things to watch out for in this Budget. This intent/roadmap will provide more clarity on the prerogative of the government and requisite direction to the markets, which, in turn, will raise the confidence of the private sector.

Union budget 2015-16 is due in next few sessions, with following expectations for the economy and particularly commodity markets: The market, like every time, has huge expectations and this time, hopes are revolving around lowering of subsidy burden, widening the tax net, supportive policies for the industry and rational allocation of funds. Also, some key points present in the agenda of the new government which should form part of the union budget should be to re-invigorate investment cycle and reviving Indian economy on a priority basis. With lower crude prices, government is now in a better position in terms of its fiscal balances as oil imports occupies a major chunk in our import bill. Commodity futures trading also deserves attention this time, keeping in mind government’s agenda of Make in India. A large number of measures are required to bring back liquidity and to make market more efficient.

Amendment of FCRA: Traders and investors from commodity derivatives market are expecting the government to announce steps to restructure the Forward Contracts Regulation Act (FCRA). This would increase depth in the market and will help in efficient price discovery. There is a need to increase market participation by allowing banks, MFs, FIIs which will also help in preventing price manipulation and help hedgers to efficiently hedge their exposure in physical markets.

Reduction in the Commodities Transaction Tax : Market participants are expecting the government to reduce the Commodities Transaction Tax (CTT) which was levied in year 2013 on metals, bullion and a few processed agri commodities. Levy of CTT was strongly opposed by commodity exchanges, traders, brokers and investors. Commodity trading in India is just 10-year old and getting away with CTT may lure more participants, thereby increasing the overall turnover.

SEBI – FMC Merger According to sources, the government is considering to merge the Forward Markets Commission (FMC) with capital market regulator SEBI, to ensure better monitoring of the commodity futures market. Alternatively, the government may also pursue the long-pending proposal to give more powers to FMC by amending the Forward Contract Regulation Act (FCRA) Amendment Bill. Allowing FII’s and MF’s to participate. The ultimate goal of the budget should be to free our commodity markets and integrate them into the global economy to take the maximum advantage of opportunities. The budget should open the participation for the FII’s and mutual funds. This will result in overall growth of commodity markets and facilitate efficient hedging for corporates, along with the prevention of price manipulation. The introduction of products like options and indices will further enable markets for a larger participation and better price discovery.

Import Duty : The previous government took measures such as raising gold import duty thrice from 4% to 10%, to curb gold imports and also banned imports of coins and medallions in 2013 in order to arrest the widening current account deficit which soared to record high of 4.7% of GDP for the Fiscal Year 2012-2013. The situation has changed since then and the huge inflows in the Indian markets have helped to bring down CAD considerably. CAD dropped sharply to 1.7% of GDP or $32.4 billion in 2013-14, primarily aided by plummeting gold imports. RBI allowed imports of coins and medallions recently but the import duty on gold is still quite high and the government may slash it in this Budget. The government may consider a reduction of 2-4 per cent in import duty on gold in the forthcoming budget, a move that could help boost exports and manufacturing of gems and jewellery. This would be in lines with Prime Minister’s Make In India program being pushed extensively. Commerce and Industry Minister Nirmala Sitharaman had last month hinted that the gems and jewellery sector, which employs about 3.5 million people, may get some incentives in the budget. The All India Gems and Jewellery Trade Federation have suggested that the customs duty should now be reduced to help check the smuggling of the precious metal.

• In a latest move, RBI nominated banks have been allowed to import gold on “consignment basis” and lend it to local jewellers, enabling banks to earn good margin. FICCI has pointed out that gold metal loan facility provided by authorized bullion banks provides a natural hedge against both currency as well as the commodity price fluctuation. This helps both the banks and the borrower. Further, banks are free to grant gold metal loans. While gold coin and medallion import, which was banned in August 2014, will no longer be prohibited, this move offers a high probability set up for a reduction in import duty on gold imports in the upcoming budget.

Expectations for Agri Commodities:

• Exemption of CTT for processed agricultural commodities to ensure a pickup in volumes
• Passing on benefits of a fall in petrol/diesel prices to ensure reduction in freight charges
• Investment funds in warehousing sector to prevent wastage of food
• Bank accounts for farmers for each and every household for direct transfer of subsidies and loans
• Subsidized loans to farmers and safeguarding them from crop losses through crop insurance
• Availability of quality agri inputs like fertilizers, seeds and advanced technology inputs
• Providing irrigation facilities and electricity at cheap rates to farmers
• Upgrading weather forecasting system
• Investments in transportation and infrastructure like roads and railways to reduce transportation costs for farmers for their produce

HOUSING FOR ALL : The government plans to provide homes to all by 2022 which is a very ambitious target. Affordable housing and availability of funds at cheaper rates are key to address the issue. The government is also expected to provide more clarity on tax treatment of REIT’s.

Key Beneficiaries: Ashiana Housing, DHFL, Mahindra Lifespace, Gruh Finance, Repco Home, Chola Fin, Kajaria, Cera, Orient cement.

SWACHH BHARAT ABHIYAAN (SBA) One of PM’s pet project, the SBA aims to accomplish the vision of clean India by 2019, and aims to spend more than 3000 bn on various areas of hygiene, sanitation & waste management.

Key Beneficiaries: Sintex, VA Tech Wabag, Praj Inds

SMART CITIES: Smart cities, a vision launched by the Union Government, envisages building 100 cities using a sustainable framework ensuring employment and improved quality of life to all by 2022.

Key Beneficiaries:  Siemens, Sterlite Tech, Schneider Electrics, L&T

RENEWABLE/NON-CONVENTIONAL ENERGY FOCUS : With the government having stated (time and again) its commitment to developing clean/renewable energy, this sector is likely to increased allocation and tax sops.

Key Beneficiaries: Suzlon, Tata Power, NTPC, BHEL

EFFICIENT SPENDING & FINANCIAL INCLUSION: The government has emphasized on plugging leakages in the subsidy mechanisms, and also to bring as many as possible within “financial inclusion”. A record 13.2 crore new bank accounts have been opened under the Pradhan Mantri Jan Dhan Yojana in last six months with ~Rs 110 bn coming in as deposits.

Key Beneficiaries: PSU Banks and private banks including HDFC Bank, Yes Bank

AGRICULTURE REFORMS Government is likely to drive investments in Warehousing segment through various fiscal incentives to private sector. Incentives can be in the form of subsidy for setting up a warehouse and tax benefits on certain minimum amount of capex. Indirect way to promote warehousing will be through implementation of GST, which will drive investments near the point of consumption pan-India. Govt is likely to increase fundings for various rural focused flagships schemes.

Key Beneficiaries:  Snowman Logistics, Gati, M&M, Rallis India

RAILWAYS AS ENGINE OF ECONOMIC GROWTH : Railways is an important part of any economy, more so, an economy as large and diverse as India. But, the sector has seen little progress over the past years. The new political dispensation has stressed that it wants to make the railways as the engine of India’s next growth phase, and hence big announcements with this regards can be anticipated in the upcoming budget

Key Beneficiaries: Container Corp, Texmaco Rail

INCREASE IN DISPOSABLE INCOME: Government is likely to hike tax exemption limit. There is possibility of increase in investment limits under various sections, so as to boost tax savings for middle class. Will boost consumption.

Key Beneficiaries : Maruti, Eicher Motors, Hero Moto, Dabur, HUL

Views shared by Suman Chakrvarty, MD & CEO, ACHIIEVERS EQUITIES LTD