Union Budget 2020-21 Preview
1
Please refer to important disclosures at the end of this report
1
1
Union Budget 2021 - 22 Preview
2
Please refer to important disclosures at the end of this report
2
Government spending to support growth
Post the Covid-19 pandemic there are expectations that the budget would contain
measures to boost the economy. In the aftermath of the Covid-19 pandemic, the
Government had undertaken targeted fiscal measures aimed at supporting the most
critical sectors given the lack of fiscal space to provide support to the economy in the
form of large cash spending.
We expect the Union Budget 2021-22 to focus on boosting growth through a
combination of higher spending along with targeted tax breaks, which will help boost
consumption. We expect continued focus on critical sectors like Housing infrastructure
and manufacturing along with continued thrust on boosting the rural economy.
As per the RBI, real GDP is expected to contract by 7.5% in FY2021, which will have an
adverse impact on Government finances in FY2021. As a result, fiscal deficit is expected
to be significantly higher than the Budget estimates of 3.6% for FY2021 as spending is
likely to be in line with budgeted estimates. However the Government will try and keep
its gross borrowing program within the revised figure of ₹12 Lakh cr. which will be
positive for the markets.
While total receipts for the financial year till Nov’20 are down by 17.9% YoY to ₹8,309
Lakh cr., expenditure is up by 4.7% YoY to ₹19,064 lakh cr. led by a 12.8% increase in
capital expenditure. With improvement in tax collections from Q3FY21 we expect
Government spending will remain close to budgeted levels.
Major expectations from the Union Budget
1)
Infrastructure
- Infrastructure development will be one of the priorities of
government’s efforts to revive economy, to stimulate growth and create jobs.
Government key focus will be on defense, railway and road infrastructure. Addition
to the National Infrastructure Pipeline is also possible in the budget.
2)
Housing –
There is a possibility that the Government may increase the deduction
available on interest paid on self occupied house from current levels of ₹2 Lakh.
There is also strong possibility of increased allocation to PMAY and extension of
tax holiday for affordable housing projects till March 2022.
3)
Manufacturing –
In order to boost the manufacturing sector we expect the
Government to announce hike in import duties on more items along with
expanding the scope of the ₹1.46 Lakh cr. PLI schemes to include more sectors.
4)
Personal income tax
– The Government can try and address the slump in
consumer spending by providing tax breaks to the middle class. This Government
may extend the new optional tax regime to individuals earning greater than ₹15
Lakh per annum and also increase the limit of the deductions under Sec 80 C for
individuals under the old income tax regime.
5)
Auto
- While there has been a strong rebound in the Auto sector from the Covid
lows led by 2 wheelers, PV and Tractors, the MHCV space still has a long way to
recover to pre Covid levels. There is high probability that the Government will
announce an incentive based scrappage plan in the budget which will be
beneficial for the MHCV space
.
Union Budget 2021 - 22 Preview
3
Please refer to important disclosures at the end of this report
3
Gross borrowing expected to be within revised figure of ₹12
Lakh cr.
Due to the shortfall in tax collections it is given that fiscal deficit for FY2021 will be well
ahead of budget estimates of 3.6% for the year. However markets are expecting fiscal
deficit figure for FY201 will not exceed 7.0% of GDP given strong rebound in tax
revenues in 2HFY2021.
Fiscal deficit till November 2020 is up by 33.0% YoY and stood at 135% of full year’s
budgeted estimates. There has been a shortfall in revenue receipts till date which
along with lower disinvestment proceeds which will lead to significant revenue
shortfall for the Government in FY2021.
Total receipts for the financial year till Nov’20 are down by 17.9% YoY to ₹ 8,309 Lakh cr.
Revenue receipts are down by 17.3% YoY while non-debt capital receipts are down by
37.2% YoY. Tax revenue for the financial year till date is down by 8.3% YoY to ₹6.9 Lakh
cr. and has held up much better than expected.
The Government has already increased its gross borrowing plan to ₹12 Lakh crore from
the budgeted ₹ 7.8 Lakh cr. in light of revenue shortfall due the Covid-19 pandemic. We
think that the Government will try and stick to the revised gross borrowing figure and
can shift some of the spending off balance sheet if required.
Government spending to remain along budgeted lines
Despite the shortfall in revenues the Government has so far shown no signs of cut back
in spending. Till Nov’20 total Government expenditure is up by 4.7% YoY to ₹19.1 Lakh
cr. While revenue expenditure are up by 3.7% YoY to ₹16.7 Lakh cr., capital expenditure
are up by 12.8% YoY to ₹2.4 Lakh cr.
While the Government has in the past tried to keep its fiscal deficit figure in check by
cutting back expenditure, we do not envisage any cut back in spending this year.
Boosting growth is of paramount importance for the Government especially in the
backdrop of improving economic conditions and tax collections. The economic
rebound from the Covid lows has been quicker than expected which has led to GST
collections registering a growth of 7.7% YoY to ₹3.25 Lakh crore in Q3FY2021.
With the economy showing continued signs of improvement we expect tax collections
to improve further in the fourth quarter which will provide revenues for the
Government to help meet its budgeted expenditure. However it is possible that the
Government could either rollover of some expenditure to the next financial year or shift
some of the expenditure off balance sheet.
As per various rating agencies real GDP is expected to expand by 9-10% in FY2022
which should result in nominal GDP growth of ~14%. As a result tax collections are
expected to rebound in FY2022 due to strong growth in nominal GDP as well as
increased tax buoyancy. This should help the Government increase spending in FY2022
while ensuring a lower fiscal deficit as compared to FY2021. Markets are also expecting
that the Government will provide a revised medium term glide path for lowering fiscal
deficit in the Union Budget.
Union Budget 2021 - 22 Preview
4
Please refer to important disclosures at the end of this report
4
Exhibit 1:
Budget 2020-21 at a glance
Particular
Budget (₹ cr)
YOY (%)
FY19A
FY20BE
FY20RE
FY21BE
FY20RE
FY21BE
(A) Revenue Receipts (1+2)
15,52,915
19,62,761
18,50,100
20,20,926
19.1
9.2
Gross Tax Revenue (a+b)
20,80,465
24,61,195
21,63,423
24,23,020
4.0
12.0
Devolution to States/Trf to NCCD
7,63,254
8,09,133
6,58,836
7,87,111
-13.7
19.5
%
36.7%
32.9%
30.5%
32.5%
1) Tax Revenue (Net to Centre)
13,17,211
16,49,582
15,04,587
16,35,909
14.2
8.7
a) Direct Taxes
11,36,574
13,35,000
11,70,000
13,19,000
2.9
12.7
Income Tax
4,73,003
5,69,000
5,59,500
6,38,000
18.3
14.0
Corporate Tax
6,63,572
7,66,000
6,10,500
6,81,000
-8.0
11.5
b) Indirect taxes
9,43,891
11,26,195
9,93,423
11,04,020
5.2
11.1
Custom Duties
1,17,813
1,55,904
1,25,000
1,38,000
6.1
10.4
Excise Duties
2,31,982
3,00,000
2,48,012
2,67,000
6.9
7.7
Service Tax
6,904
0
1,200
1,020
-82.6
-15.0
GST
5,81,559
6,63,343
6,12,327
6,90,500
5.3
12.8
Others
5,633
6,948
6,884
7,500
22.2
8.9
2) Non Tax Revenue
2,35,704
3,13,179
3,45,513
3,85,017
46.6
11.4
(B) Capital Receipts (3+4+5)
7,63,518
7,72,529
8,48,450
10,78,306
11.1
27.1
3) Recovery of Loans
18,052
14,828
16,604
14,967
-8.0
-9.9
4) Disinvestment
94,727
1,05,000
65,000
2,10,000
-31.4
223.1
5) Borrowings and Other Liabilities
6,50,739
6,52,702
7,66,846
8,53,340
17.8
11.3
Total Receipt(A+B)
23,15,112
27,86,349
26,98,551
30,46,230
16.6
12.9
(C)Revenue expenditure
20,07,399
24,47,780
23,49,645
26,30,145
17.0
11.9
6) Of which interest payments
5,82,648
6,60,471
6,25,105
7,08,203
7.3
13.3
(D) Capital expenditure
3,07,714
3,38,569
3,48,907
4,12,085
13.4
18.1
Total Expenditure (C+D)
23,15,113
27,86,349
26,98,552
30,42,230
16.6
12.7
(E) Fiscal Deficit (C+D-A-3-4)
6,49,419
7,03,761
7,66,847
7,96,337
18.1
3.8
(F) Revenue Deficit (C-A)
4,54,484
4,85,019
4,99,545
6,09,219
9.9
22.0
(G) Primary Deficit (E -6)
66,771
43,290
1,41,742
88,134
112.3
-37.8
GDP
1,90,10,200
2,11,00,607
2,04,35,965
2,24,79,562
7.5
10.0
Fiscal Deficit (% of GDP)
3.4%
3.3%
3.8%
3.6%
Source: Budget documents, Angel Research
Union Budget 2021 - 22 Preview
5
Please refer to important disclosures at the end of this report
5
Exhibit 2:
Key Financial Indicators (% of GDP)
Particular
FY19RE
FY19A
FY20BE
FY20RE
FY21BE
Gross Tax Revenue
12.0%
10.9%
11.7%
10.6%
10.8%
Devolution to States
4.1%
4.0%
3.8%
3.2%
3.5%
Net Tax to Centre
8.0%
6.9%
7.8%
7.4%
7.3%
Direct Taxes
6.4%
6.0%
6.3%
5.7%
5.9%
Indirect taxes
5.6%
5.0%
5.3%
4.9%
4.9%
Capital Receipt (ex-borrowing)
0.5%
0.6%
0.6%
0.4%
1.0%
Revenue Expenditure
11.5%
10.6%
11.6%
11.5%
11.7%
Subsidies
1.6%
1.2%
1.6%
1.3%
1.2%
Total Capital Expenditure
1.7%
1.6%
1.6%
1.7%
1.8%
Total Expenditure
13.2%
12.2%
13.2%
13.2%
13.5%
Revenue Deficit
2.2%
2.4%
2.3%
2.4%
2.7%
Fiscal Deficit
3.4%
3.4%
3.3%
3.8%
3.5%
Primary Deficit
0.3%
0.4%
0.2%
0.7%
0.4%
Source: Budget documents, Angel Research
Exhibit 3:
GST Collections have rebounded strongly in Q3FY21
Source: GoI, Angel Research
- 3%
- 5%
6%
9%
8%
8%
- 8%
- 72%
- 38%
- 9%
- 14%
- 12%
4%
10%
1%
12%
- 80%
- 70%
- 60%
- 50%
- 40%
- 30%
- 20%
- 10%
0%
10%
20%
Sep- 19
Oct-19
Nov- 19
Dec- 19
Jan- 20
Feb-20
Mar- 20
Apr- 20
May- 20
Jun- 20
Jul- 20
Aug- 20
Sep- 20
Oct-20
Nov- 20
Dec-20
GST Collections Growth( % YoY)
Union Budget 2021 - 22 Preview
6
Please refer to important disclosures at the end of this report
6
Likely focus areas in Union Budget
n
Agriculture
- Government expected to reiterate its
focus on the rural sector.
n The Government is also expected to increase outlays
on the MNREGA scheme and continue its focus on
rural electrification and roads.
n
Infrastructure
– Given that Infrastructure is one of
the key focus area of the Government we don’t think
that there is going to be any cut back in capital
expenditure despite shortfall in revenues.
n We believe that the Government would use the
Union Budget to highlight their plans and execution
over the next few years. National Infrastructure
Pipeline (NIP) gives us broad idea about investment
by Government in Infrastructure.
n
Housing
- The Government would like to increase
the tax bracket available to Interest paid on
housing loans to create demand in residential real
estate. As real estate faces slow down since demon.
Several state governments have also cut duties to
boost the demand.
n The government can also give some additional
benefit to first time home buyers or can also
expand the definition of affordable housing to
increase the scope for new home buyers.
n
Pharma
- The government can incentivise the
domestic manufacturing of APIs, as of now more
than 70% of APIs have been imported from China.
n The Government can also increase the export link
benefit to domestic manufacture to boost the
export of formulations and finished dosages. As of
now India exports more than USD 20 billion every
year.
Impact on sectors
n Positive for all Agri input related companies like
Coromandel International as farmer income will
go up marginally.
n This will be positive for the FMCG sector, as it will
increase the disposable income in the hands of
rural households. Positive for FMCG companies
like Dabur, Marico, etc.
n Positive for tractor companies like Escorts, M&M
and Swaraj Engine as there will be increased
demand for farm equipments.
n Positive for L&T and other infrastructure
companies such as PNC Infratech, KNR
Constructions etc
n Positive for cement companies such as
Ultractech, ACC, Shree Cement, JK Laxshmi etc.
n Positive for railways allied companies like
Titagarh Wagons, Texmaco Rail etc.
n Positive for residential real estate companies like
Oberoi Realty Ltd and Brigade enterprises.
n Positive for different housing allied sectors and
company like Asian Paints, Century Plyboards.
n Positive for companies who will set up new
manufacturing plants for manufacturing APIs.
n Positive for export oriented companies like -
Lupin, Cadila.
Union Budget 2021 - 22 Preview
7
Please refer to important disclosures at the end of this report
7
n
Make in India
– There are expectations that there
could be sector specific increase in import duties
on specific items while the inverted duty structure
on certain sectors could also be rationalized.
n There are expectations that the Government could
significantly increase the expanding the scope of
the ₹1.46 Lakh cr. PLI schemes and also expand the
applicability of the scheme from the current 10
sectors.
n
Auto-
The year 2020 was one of the toughest years
the Indian automobile industry as sales were
adversely impacted due to the Covid-19 crisis
immediately post implementation of BS6 norms.
While 2 wheeler, PV and tractor sales have
rebounded strongly MHCV sales are still
languishing. One of the key demands from the
auto sector has been introduction of an Incentive-
based scrap page policy.
Budget Picks
n Positive for domestic consumer durable
companies with strong domestic
manufacturing capabilities and for ODM firms.
n Positive for sectors like footwear, chemicals &
agrochemicals
n The policy will make it obligatory to dispose of
old vehicles (older than a specified period of
holding) which will create demand for new
(commercial) vehicles in the market. (Positive for
companies like Ashok Leyland, Tata Motors,
Automotive axle etc in CV space.
Exhibit 4:
Non BFSI Picks
Market
Cap
(₹ cr)
CMP
(₹)
Target
Price (₹)
Sales
(₹)
PAT
(₹)
ROE
(%)
P/E
(x)
FY21E
FY22E
FY21E
FY22E
FY21E
FY22E
FY21E
FY22E
Ashok Leyland
34,448
117
140
13,952
20,958
(178)
758
(0.6)
2.5
-
45.4
NRB Bearings
1,005
104
135
697
898
33
72
6.8
13.2
30.4
14.0
Escorts
16,250
1,225
1,573
6,523
7,464
773
882
15.2
15.1
21.4
18.7
Coromandel Inter.
24,603
839
971
14,460
15,658
1,452
1,578
29.8
26.3
16.9
15.6
JK Lakshmi Cement
3,828
325
422
4,151
4,505
315
333
14.5
17.0
12.2
11.5
Page Industries
32,653
29,276
31,625
2,443
3,214
190
411
18.0
34.0
171.9
79.4
Radico Khaitan
6,668
499
575
2,414
2,728
221
276
12.2
13.9
30.2
24.4
Whirlpool India
33,850
2,668
3,032
5,607
6,448
337
485
18.0
24.0
100.5
69.8
Source: Company, Angel Research (Note: Closing Price is of Jan 25, 2021)
Exhibit 5:
BFSI Picks
Market
Cap
(₹ cr)
CMP
(₹)
Target
Price
(₹)
NII
(₹)
PAT
(₹)
EPS
(₹)
ROE
(%)
P/BV
(x)
FY21E
FY22E
FY21E
FY22E
FY21E
FY22E
FY21E
FY22E
FY21E
FY22E
Banking
LIC Housing Finance
20,978
414
570
5,149
5,874
3252
3577
64.4
70.8
16.3
15.3
1.3
1.0
Shriram Trans.
30,394
1,201
1,440
8,352
8,924
2106
2714
92.8
119.6
11.1
12.9
1.7
1.5
Source: Company, Angel Research (Note: Closing Price is of Jan 25, 2021)
Union Budget 2021 - 22 Preview
8
Please refer to important disclosures at the end of this report
8
Research Team Tel: 022 - 39357800 E-mail: research@angelbroking.com Website: www.angelbroking.com
DISCLAIMER
Angel Broking Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India
Limited, Bombay Stock Exchange Limited, Metropolitan Stock Exchange Limited, Multi Commodity Exchange of India
Ltd and National Commodity & Derivatives Exchange Ltd It is also registered as a Depository Participant with CDSL
and Portfolio Manager and Investment Adviser with SEBI. It also has registration with AMFI as a Mutual Fund
Distributor. Angel Broking Limited is a registered entity with SEBI for Research Analyst in terms of SEBI (Research
Analyst) Regulations, 2014 vide registration number INH000000164. Angel or its associates has not been debarred/
suspended by SEBI or any other regulatory authority for accessing /dealing in securities Market. Angel or its
associates/analyst has not received any compensation / managed or co-managed public offering of securities of the
company covered by Analyst during the past twelve months.
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of
any investment decision. Nothing in this document should be construed as investment or financial advice. Each
recipient of this document should make such investigations as they deem necessary to arrive at an independent
evaluation of an investment in the securities of the companies referred to in this document (including the merits and
risks involved), and should consult their own advisors to determine the merits and risks of such an investment.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding
positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with
a report on a company's fundamentals. Investors are advised to refer the Fundamental and Technical Research
Reports available on our website to evaluate the contrary view, if any
The information in this document has been printed on the basis of publicly available information, internal data and
other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be
relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group
companies shall not be in any way responsible for any loss or damage that may arise to any person from any
inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all
the information contained within this document. Accordingly, we cannot testify, nor make any representation or
warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking
Limited endeavors 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.
This document is being supplied to you solely for your information, and its contents, information or data may not be
reproduced, redistributed or passed on, directly or indirectly.
Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may
arise from or in connection with the use of this information.
Union Budget 2021 - 22 Preview
9
Please refer to important disclosures at the end of this report
9
Disclaimer: ‘Investments in securities market are subject to market risk, read all the related documents
carefully before investing.’ Brokerage will not exceed the SEBI prescribed limit. Statutory Levies and
Taxes will be levied to the clients as prescribed by the regulators. Angel Broking Limited (formerly known
as Angel Broking Private Limited), Registered Office: G-1, Ackruti Trade Center, Road No. 7, MIDC, Andheri
(E), Mumbai - 400 093. Tel: (022) 42319600 .Fax: (022) 42319607, CIN: U67120MH1996PLC101709, SEBI Regn.
No.: INZ000161534-BSE Cash/F&O/CD (Member ID: 612), NSE Cash/F&O/CD (Member ID: 12798), MSEI
Cash/F&O/CD (Member ID: 10500), MCX Commodity Derivatives (Member ID: 12685) and NCDEX
Commodity Derivatives (Member ID: 220), CDSL Regn. No.: IN-DP-384-2018, PMS Regn. No.:
INP000001546, Research Analyst SEBI Regn. No.: INH000000164, Investment Adviser SEBI Regn. No.:
INA000008172, AMFI Regn. No.: ARN–77404, PFRDA Registration No.19092018. Compliance officer: Mr.
Rajiv Kejriwal, Tel: (022) 39413940 Email: compliance@angelbroking.com
