Union Budget 2015 - 16 Making "One India" accomplish durable growth template ::ICICI Securities, report link

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NDA’s first full-fledged Budget was balanced between growth & fiscal prudence and saw a paradigm shift in its thinking to bring ideas of social security for the weaker section. It also expanded the savings pool by creating a fungibility mechanism to convert physical savings into financial savings. In its refined architecture, the government has realigned its relationship with the states by empowering them through higher devolution (62% of national revenue), which could be channelised towards on-theground spending. Though fiscal roadmap has been stretched by a year, incremental deficit is being earmarked for infrastructure spending while a concrete mechanism to dissuade black economy is encouraging. Overall, the Budget addresses three strategic pillars of the economy by interweaving pro-poor, pro-growth and pro-investors agenda in the same breath. • The government has shifted its strategic focus to the JAM trinity (Jan Dhan, Aadhar and Mobile) along with Jan Suraksha as it plans to introduce universal social security system for all Indians. The JAM trinity would allow the government to transfer social benefits in a leakage-proof, well-targeted and cashless manner. The government plans to provide accidental death risk cover of | 2 lakh for a premium of | 12/year while another scheme would provide natural and accidental death risk cover of | 2 lakh for a premium of | 330 for the age group of 18-50 years • The government’s commitment towards another game changing reform, GST, is commendable. The FM highlighted that a state-of-the-art indirect tax system would be put in place by April 1, 2016, which could help increase tax-GDP (including states) ratio to 20% from 17.5% over two years. We believe, GST, would play a transformative role in our economy and could bring in both greater transparency as well as investments • Surprisingly, the corporate tax rationalisation roadmap was introduced, which was not anticipated, in general. The government proposed to reduce the corporate tax rate to 25% from 30% over the next four years starting from FY17E. Rationalisation of tax rates could reduce tax related disputes, improve administration and could provide the necessary growth-fiscal template over the next five years • The government simplified the procedure for Indian companies to attract foreign investment by doing away with the distinction between different types of foreign investments, especially foreign portfolio investments and foreign direct investments, and replaced them with composite caps Making “One India” accomplish durable growth template Deal Team – At Your Service Key measures announced in this Budget: • On the tax receipt front, the government is targeting 15.2% YoY growth in gross tax revenues for FY16E vs. 9.9% in FY15E and appears reasonable given the increase in indirect taxes (full impact of excise hike for petroleum products and hike in service tax). However, net tax revenues could grow 1% YoY in FY16E given cooperative federalism • Incidentally, the government for the first time highlighted its fiscal road map and aims to achieve fiscal deficit target of 3.9% in FY16E; 3.5% in FY17E and 3% in FY18E. Further, the quality of expenditure is also improving with a shift towards capital expenditure vs. revenue expenditure. Finally, though the government revised its FY16 fiscal deficit target to 3.9% vs. 3.6% pre-planned earlier, the incremental deficit is being utilised for infrastructure spending • A new bill would be introduced to tackle benami transaction and domestic black money. The enforcement agencies would be empowered to attach assets. Further, undisclosed income would be taxed at the maximum marginal rate. Deductions and exemptions for such income will not be allowed while tax evasion could attract punishment of up to 10 years of rigorous imprisonment. The government also made quoting of PAN mandatory for transaction worth >| 1,00,000 • We believe the government’s FY16E fiscal deficit target hinges on its disinvestment target of | 69,500 crore • Other key measures: - PSUs to undertake capex of | 3,17,889 crore, 34% growth YoY - Creation of Micro Units Development Refinance Agency (MUDRA) Bank, with a corpus of | 20,000 crore and credit guarantee corpus of | 3,000 crore - Forward Markets Commission (FMC) to be merged with Sebi • We are bullish on domestic oriented sectors like automobiles, cement, capital goods, and banks. Defensive sectors like FMCG, pharma and IT could perform in line with broader markets. We maintain our December 2015 Sensex and Nifty target of 32,500 and 9750, respectively

LINK
http://content.icicidirect.com/mailimages/IDirect_BudgetReview_2015-16.pdf