Budget 2019 Analysis by Axis Direct

1. 05 JUL 05 JUL 2019 2019

2. Union Union Budget Budget Highlights Highlights The 2019 general budget ended up as just another event without any big bang announcement to drive the economic engine as was widely expected. Continuing with the borrowing target set up in the interim budget, the Government intends to tread on path of fiscal prudence with deficit of 3% targeted to be reached by FY21 & FY22, thus fortifying the economic health along with building up confidence of international investors in long run.  Taking the cues from the Economic survey presented, the FM has taken a bold step of diversifying the debt on the books by raising the share of sovereign external debt in external currencies which has primarily cheered the debt market as it would help reduce crowding out of the private borrowing and help reduce cost of funds, the much needed helpline for India Inc. in these days of tight liquidity in the debt markets. The 10 year bond yields have dropped around 6.69% post the announcement of raising the government borrowings through sovereign bond route.  Building on the cues from the Economic Survey, the FM has laid down stress on the economy driven by virtuous cycle of investment to reach the coveted $ $5 5 trillion trillion mark mark over over next next 5 5 years years. Infrastructure investments in transportation, housing, improving ease of living and industrial developments would kick start the economic engine. Additional resources (beyond budget allocation) required for infrastructure creation would be made available through re-cycling of the existing assets as pointed out in the Economic Survey report.  FM has asked SEBI to consider raising the minimum public shareholding from current threshold of 25% to 35% in the listed companies; this would lead to offloading of promoter stake as and when the regulation is announced. This development will have an overhang for the companies with over 65% promoter shareholding leading to price volatility.  Overall, the budget has become just another event in the slew of measures to be taken by the government to re-ignite the economic engine and lot more things are likely to happen outside the budget as time passes. 

3. 05 JUL 05 JUL 2019 2019 UNION BUDGET FY19-20 Key Key Sectoral Sectoral Impact Impact Sector Sector Key Budget Measures Key Budget Measures Impact Impact  Auto Auto  Changes in customs duty for auto parts  Positive producing the equipments in India; Auto ancillary companies like Minda Ind.s, Minda Corp, Lumax Ind.s for domestic auto ancillaries  Road Infrastructure Cess of Rs 1/litre  Negative for Auto industry in general  Incentive for purchase of EVs: Deduction of an amount upto Rs. 1.5 lakh for interest paid on loan (to be taken on or before 31st March, 2023) taken for purchase of electric vehicle  Negative for Auto OEM industry in general  Real Estate Real Estate  Additional deduction of Rs 1.5 lakh on loan for purchase of home upto Rs 45 lakh. This shall be in addition to existing interest deduction of Rs 2 lakh  Positive for domestic Real Estate companies, HFCs  Infrastructure Infrastructure  Announced investment of Rs 100 lakh crore in infrastructure over the next five years  Proposed to set up expert committee for financing options  FPIs allowed to subscribe to listed debt securities issued by ReITs and InvITs  Positive Siemens, Cummins, IRB infra, Dilip Buildcon, PNC Infra, HG Infra  Positive for Cement companies like Ultratech, JK cement, ACC, Cement, Ambuja for Infra companies like L&T, Shree Cement, India 3

4. 05 JUL 05 JUL 2019 2019 UNION BUDGET FY19-20 Key Key Sectoral Sectoral Impact Impact Sector Sector Key Budget Measures Key Budget Measures Impact Impact  Announced need for investment of Rs 50 lakh crore in railway infrastructure between 2018-30  Proposal for Public-Private Partnership to meet the expected capital outlay of Rs 1.4-1.6 lakh crore p.a. in railways infrastructure  Railway station modernization programme will be launched this year  Railways to be encouraged to invest more in suburban rail network via special purpose vehicles (SPVs) and enhance metro rail network  Railway ministry is in the process of completing the ambitious dedicated freight corridor (DFC)  Demand is expected to surge for railways engineering companies  Positive for companies International, Timken India, BEML, ABB India, Siemens, JKIL, L&T, Kalpataru Power  Railways & Railways & Metro Metro like RITES, KEC  Plans to restructure the national highways programme to create network of highways grid of a desirable capacity for better connectivity  Bharatmala phase 2 to be launched to develop State road networks  Envisions using rivers for cargo transportation to decongest roads and railways  ‘Jal Marg Vikas’ project and ‘Sagarmala’ initiatives to improve logistics and reduce transportation cost  Set an investment target of Rs 80,250 crore for phase 3 of the Pradhan Mantri Gram Sadak Yojana to build 1,25,000 km of rural roads  Positive for companies like L&T, KNR Infra, Sadbhav Engg.  Roads, Airports Roads, Airports & Ports & Ports 4

5. 05 JUL 05 JUL 2019 2019 UNION BUDGET FY19-20 Key Key Sectoral Sectoral Impact Impact Sector Sector Key Budget Measures Key Budget Measures Impact Impact  Proposes ‘One Nation, One Grid’ to ensure power availability to states at affordable rates  A package of power sector tariff and structural reforms would soon be announced  Performance of Ujjwal DISCOM Assurance Yojana (UDAY) introduced in 2015 is examined for the scope of improvement  Positive for companies like NTPC, NHPC, Adani Power, PGCIL, Tata Power  Power Power  BharatNet to be speeded up; the government would dip into the Universal Services Obligation Fund (USOF) corpus to enable BharatNet to boost rural broadband penetration  This will create huge spending for Telecom infrastructure  Positive for companies Technologies  Telecom Telecom Infrastructure Infrastructure like Sterlite  Proposed to launch second phase of Pradhan Mantri Awas Yojana – Gramin (PMAY-G) with aim to build 1.95Cr houses over 2019-22  Average number of days of construction to houses has reduced from 314days in 2015-16 to 114days in 2017-18 will enhance volume growth for cement companies  PMAY-G allocation at Rs. 25,853 Cr.  Increased allocation in Pradhan Mantri Gram Sadak Yojana (PMGSY) by 22.6% to Rs19,000Cr  Positive JK Cement, Ambuja for companies ACC, like Cement, Ultratech, India  Cement Cement cement, Shree 5

6. 05 JUL 05 JUL 2019 2019 UNION BUDGET FY19-20 Key Key Sectoral Sectoral Impact Impact Sector Sector Key budget measures Key budget measures Impact Impact  Banks Banks  Rs 70,000cr allotted for PSU Bank recapitalisation  Tax Incentives for resolution of distressed companies under NCLT  While ~Rs 40,000-50,000cr for FY19-20, the move is largely in-line with market expectations. This will bolster capital base of PSU Banks to comply with RBI capital requirement guidelines and aid them in better credit growth  Positive for companies like Most PSU Banks viz. Bank of Baroda, Union Bank etc.  Encouraging resolution under NCLT will help speedy recovery of distressed loans  Positive for companies like Most corporate skewed banks including SBI, ICICI Bank, etc. the earlier budgeted recap was  NBFCs NBFCs  To provide one-time 6-months partial credit guarantee for public sector banks, for the purchase of pooled assets of financially sound NBFCs  To provide greater parity in tax treatment for NBFCs vis-à-vis banks, interest on certain bad or doubtful debts by deposit taking as well as systemically important non-deposit taking NBFCs to be taxed in the year in which interest is actually received  More powers to RBI to regulate NBFCs  This will be a boost for overall NBFCs currently facing tough liquidity environment  Empowering RBI will provide stability over the long-term  Positive for companies like Bajaj Finance, Cholamandalam Transport, Sundaram Finance etc. Investment, Shriram 6

7. 05 JUL 05 JUL 2019 2019 UNION BUDGET FY19-20 Key Key Sectoral Sectoral Impact Impact Sector Sector Key budget measures Key budget measures Impact Impact  Proposal to move regulation of HFCs from National Housing Board to RBI  Increase the interest deduction by Rs 1.5 lac to Rs 3.5 lac per annum on loans for houses valued up to Rs 45 lac. The deduction is available on loans taken up to March 31, 2020.  RBI as a regulatory board for HFCs will help in improving stability in the sector over the long term.  Positive for companies like HDFC, LIC Housing Finance etc.  Increased interest deduction in affordable housing segment will help improve demand.  Positive for companies like Aavas Financiers, Can Fin Homes  Housing Housing Finance Finance  Government will try to improve the skills of our youth in areas such as Artificial Intelligence, Big Data, Robotics, etc  This will create good opportunities for the IT Services as demand for AI, Cloud is increasing with high momentum  Positive for companies like TCS, Infosys, HCL technologies, Zensar, Tech Mahindra  IT IT  Encouragement to MRO (Maintenance, repair and Overhaul)  Encouragement to MRO will help Cyient to get better business opportunities  Increase in Customs Duty on indoor & outdoor unit of split AC’s from 15% to 20%  Positive: Amber Enterprises (Promotes Make in India)  Marginally negative for OEMs  Consumer Consumer Durables Durables 7

8. 05 JUL 05 JUL 2019 2019 UNION BUDGET FY19-20 Key Key Sectoral Sectoral Impact Impact Sector Sector Key Budget Measures Key Budget Measures Impact Impact  Tobacco & Tobacco & Cigarettes Cigarettes  Hike in Basic Excise Duty on filter cigarettes of varying length from NIL to Rs. 5/1,000 sticks and Rs. 10/1,000 sticks for cigarettes with length of more than 75mm  Marginally Negative for companies like ITC, Godfrey Phillips  Jewellery Jewellery & Other Precious Other Precious Metals Metals &  Increase custom duty on gold and other precious metals from 10% currently to 12.5% going forward  Negative for Jewellery companies like Titan, PC Jewellers, Thangamaiyl Jewellery, TBZ  Aviation Aviation  Opening up of FDI in aviation  Positive for companies like Spice Jet, Indigo  Piped Piped Water Water  Piped water across Indian Households by 2024 under ‘Har Ghar Jal’  Focus on managing nation’s scattered water resources  Administration under Water Power Ministry  Positive for companies like Shakti Pumps, VA Tech Wabag, Finolex Polytech, Supreme Industries Industries, Astral 8

9. 05 JUL 05 JUL 2019 2019 UNION BUDGET FY19-20 Key Key Sectoral Sectoral Impact Impact Sector Sector Key Budget Measures Key Budget Measures Impact Impact  Retail Retail  Additional deduction of up to Rs. 1.5 lakhs for interest on home loans  Electrification of 1.95 crore houses by 2022 & schemes like BharatNet project to bridge the rural – urban gap (to increase the standard of living and brand awareness)  Positive for Aditya Birla Fashion & Retail, Future Lifestyle Fashions, Arvind Fashions, Shoppers Stop, Trent, V-Mart, Future Retail, Avenue Supermarts, Spencers Retail  Local sourcing norms to be eased for single brand retail FDIs  Negative Companies for Domestic Branded Apparel  Others Others  Increase in public shareholding proposed from 25% to 35%  Company coming up with Share Buyback proposal will have to pay 20% tax  Negative shareholding more than 75%  Deters companies with excess cash chest on their books from programs for companies with promoter undertaking Buyback 9

10. 05 JUL 05 JUL 2019 2019 UNION BUDGET FY19-20 Disclaimer Disclosures Disclosures: : The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations). 1. Axis Securities Ltd. (ASL) is a SEBI Registered Research Analyst having registration no. INH000000297. ASL, the Research Entity (RE) as defined in the Regulations, is engaged in the business of providing Stock broking services, Depository participant services & distribution of various financial products. ASL is a subsidiary company of Axis Bank Ltd. Axis Bank Ltd. is a listed public company and one of India’s largest private sector bank and has its various subsidiaries engaged in businesses of Asset management, NBFC, Merchant Banking, Trusteeship, Venture Capital, Stock Broking, the details in respect of which are available on www.axisbank.com. 2. 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