Our honourable finance minister Smt. Nirmala Sitharaman presented the annual financial budget on the 1st of February 2023 with the vision of Amrit Kaal, which is based on three pillars viz
- Opportunities for citizens with a focus on youth
- Growth and Job Creation
- Strong and Stable Macroe-economic Environment
The overall effect of these three pillars and their seven priorities will eventually lead India to become a stronger economy with a higher growth rate and domestic consumption in the upcoming future, thus vetting the earlier commitment by the government to make India a $5 trillion economy by FY2026.
In this blog, we will try to understand the implication of budget from an investor’s point of view, taking into account key sectoral outlays and policies and their implications on the broader economy.
DIRECT TAXES
In the direct tax section, the government has decided to reduce the minimum income tax limit for the rebate from ₹5 lakh to ₹7 lakh in the new regime and also introduced the five different tax slabs, as shown in the figure below. This move has essentially increased the money in the hands of middle-class tax-paying citizens. As said by the finance minister in her speech, this will mean that the government will have to forego receipts of about ₹35,000 crore to provide this relief.
Source: PIB
Implications:
When the common man has more disposable income, he either ends up investing that amount or spending it on the consumption of goods. This creates a multiplier effect as more money circulates in the economy. As per CBO’s calculations, this can give a maximum multiplier effect of 1.5x.
Based on the following assumption, consumption as a theme may pick up in the coming days.
DEFENCE
On the expected lines, the defence sector again received good exposure in this year’s budget. Defence got ₹5.94 lakh crore in outlay, a jump of 13% over the previous year. A good chunk of this goes into the procurement of defence equipment.
Source: Fortune India
Implications
The government has created a negative import list of more than 209 items for defence use for five years to give a push to the manufacturing of defence equipment. This was done to ensure domestic manufacturing and procurement would get the necessary incentives. With an increase in outlay for the sector, we may see an increase in the revenues of defence equipment companies like HAL, BEL, Data Patterns, Bharat Dynamics, Cochin shipyards, Mazgaon Dock, L&T and Garden Reach Shipbuilders.
INFRASTRUCTURE
Infrastructure sector saw a good boost in this year’s budget with a total outlay of about ₹10 lakh crore which is 33% higher than the last year which is 3.3% of the GDP. If we include the grant in aid to the states to the central government expenditure, then the amount becomes ₹13.7 lakh crore which is 4.5% of India’s GDP.
Major Highlights from infrastructure sector are as follows:
- Capital outlay of 2.40 lakh crore for Railways.
- A total amount of ₹31,850 crore has been allocated for the new lines. Gauge conversion has received an amount allocation of Rs 4,600 crore.
- 50 New Airports and Heliports to be made.
- ₹10,000 crore for urban infra fund every year
- ₹75,000 crore for 100 transport infra projects
- Rs 2.7 lakh crore to the Ministry of Road Transport and Highways (MoRTH)
Implications:
- Infrastructure sector provides an economy with one of the highest multiplier effect of 2.2x and also shows a trickle down effect by distributing the wealth amongst the lowest strata of the society.
- Companies from many sectors benefit from spending in infrastructure sector. EPC players, cement companies and construction material companies, and iron and steel industry will receive the most benefit from spending in infrastructure sector.
- Creation of new infrastructure reduces the logistics and freight costs associated with movement of goods across the country.
- The ₹2.4 lakh crore outlay for Railways will help in creating better infrastructure for logistics and connectivity in the country along with this a good amount of money will be spent on upgradation of stations and starting new trains. This will benefit companies which are engaged in production of railway wagons along with iron and steel companies as they will take care of steel demand by Indian Railways.
Green Energy:
The government has allocated ₹35,000 crore priority capital for the energy transition from which National Green Hydrogen mission will get an outlay of ₹19,700 crore to facilitate the transition of the economy to low carbon intensity and reduce dependence on fossil fuel imports
Implications:
Companies working in production of green hydrogen will benefit from this move. Amongst the listed players NTPC, BPCL, GAIL, IOC, L&T and Reliance may benefit from this move as they are actively working on development of green hydrogen based technologies.
Automobile sector
Government has decided to scrap old vehicles from its arsenal and replace them with modern vehicles.
Implications
This is a positive for car manufacturers like M&M, Tata Motors, and Maruti as bulk orders from the government may be received in near future which will lead to higher demand.
(Note: Government may select electric vehicles in order to reduce its carbon footprint
These are the major sectors and their listed stocks which got affected by the government’s budget related support and policies for the year 2023.
(Note: There may be more sectors which are impacted, however we haven’t covered them explicitly as their impact on equity market is hard to establish)
