Budget 2017: Expectations for key industry sectors…

A key set of expectations from the Union Budget pertain to various sectors. Some of the key sectors that have been hit by the demonetization drive include two wheelers, farm equipment, FMCG, NBFCs etc. These sectors took a hit due to the cash crunch as well as constriction in rural demand. They will be looking at macro measures to revive demand. Then there are sectors like telecom, power and banking that are highly regulator intensive. They will be looking at regulatory measures to boost their fortunes in the budget. Here are the key budget expectations for the various sectors…

Budget 2017 expectations for the Automobiles sector…

This sector has been one of the worst hit as a result of the demonetization drive. The entry level and the rural intensive businesses like two-wheelers, entry level cars, tractors were among the worst hit. The budget is expected to put more money into the hands of the people through relaxation of tax exemption limits, rationalization of rates, higher rebates etc. Additionally, the government is also likely to spend heavily on boost rural demand, rural employment schemes and rural infrastructure. All these measures are likely to have a salutary impact on the entry level auto segment. Additionally, the cut in corporate taxes is also likely to give a boost to the automobile companies. Overall the sector has positive expectations from the Union Budget.

Budget 2017 expectations for the Banking Sector…

Firstly, banks are expecting a major thrust to infrastructure spending in the Union Budget. With a 26% likely increase in capital spending in the budget, there will be a virtuous cycle of better growth, the multiplier effect as well as reduction in bank asset stress. That will be a big positive for banks. With the government also expected to substantially increase its capital support for PSU banks in the Union Budget, the capital adequacy and the lending capacity of PSU banks is likely to expand substantially. The government is also likely to keep fiscal deficit in check, which will be good for the dovish direction of interest rates. That means both PSU banks and private banks are likely to benefit on their bond portfolios. Overall, the banking sector is likely to benefit from the budget.

Budget 2017 and the focus on infrastructure…

The infrastructure sector has been a major stress on the banking system over the last few years. The Union Budget is likely to focus heavily on infrastructure spending, with special focus on rural infrastructure. More importantly, the budget will also focus aggressively on the Smart Cities project which will substantially change the infrastructure matrix of urban cities. All this is likely to lead to a substantial spurt in demand for the infrastructure providers like road builders, BOT operators, toll operators, construction and erection etc. Overall infrastructure is likely to get a major boost from this budget. From a user point of view, this is also likely to boost the demand for cement.

2017 and the impact on realty and housing finance companies…

This is going to be one interesting budget for the realty and the housing finance space. Realty and housing finance could benefit from higher tax benefits to home loan borrowers under Section 24 of the Income Tax Act. Additionally, the focus on low cost housing will also be a major boost for these companies. The government is also expected to boost the role of REITs by clarifying on their tax status and giving them full pass-through status. This will not only help in creating a larger retail market for real investing but also enable most realty companies to come out of the financial problems that they find themselves in.

Budget 2017 and the expectations of the Power Sector…

The power sector could benefit from two ways. The government may look to give a prop to PSU power companies into the generation and distribution business. Additionally, one can also look forward to special incentives on green power generation as the government makes a serious attempt to shift from fossil fuels towards greener fuels. The industry has been demanding SEZ status for Solar Parks including exemption from MAT, which may be granted in the budget to give a big push to renewable energy production. Solar sector may also be permitted to issue green bonds which will substantially reduce their cost of funds.

Budget 2017 and the expectations of the Metals and Mining

 This is the one sector that has been under tremendous stress and the government has also supported this sector through minimum import price (MIP) and countervailing duties on imported steel. Considering that the trade war is likely to get more acute, this budget is likely to continue its pro-steel industry approach. Also the budget may work out a special package or stressed steel assets and that is likely to be a big boost. Also some European nations may also come under flak for dumping steel and invite countervailing duties. Overall, budget will be positive for the metals and mining sector.

Industry has a lot to hope for from this budget; both from a macro and a micro point of view. If the corporate tax rates get cut and is accompanies by a MAT cut, it will be what the companies have been really asking for!

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