Union Budget 2023 responses by SEBI Registered expert
The FM started the speech by reinforcing the India growth story, highlighting how India grew at 7% last fiscal, and the Indian economy has increased in size from being 10th to 5th most extensive in the last nine years. The budget theme was to reinforce India’s growth and recovering position in the global economy.
The big announcements were a 33% increase in Capex, which was beyond estimates. Another significant announcement typical for the election year was increasing tax exemption up to 7 lac per year from 5 lac per year in the next tax regime and further rationalising taxes.
The FM broke up her focus into seven key areas: inclusive developments, reaching the last mile, infrastructure and investment, unleashing the potential, green growth, youth power and financials.
The budget received a big welcome from the market and the public initially, but soon, the market gave up most of the gains. The implications of the tax regime changes are also being widely debated as they might not have a large impact on the middle-class tax payer in the long run.
The most significant announcement was – an increase in total capital investment outlay by 33% to 10 lac crore, making effective capex 13.7 lac crore, forming 4.5% of GDP. This is far above our expectations of 3.5% and should boost the infrastructure, capital foods, cement, logistics and railways.
Railway outlay was highest ever at 2.4 lac crore. Critical projects for urban development and transport enhancements were announced. Nifty Infra jumped on this news. Equity indices welcomed the infrastructure spending announcements. But bond yields climbed two basis points to 7.38% since the FM announced the hike in capex outlay.
The railway’s stocks had a muted reaction, maybe because of profit booking with Jindal Steel, Dixon and other infrastructure linked stocks cheering the news the most.
Personal Income Tax
In an announcement typical for the pre-election budget – in the new tax regime, she increased the tax exemption up to 7 lac per year from 5 lac per year. She has reformed the taxation rates with 0 tax up to 3lacs and reformatting the overall personal tax in the new regime. In the new regime, savings-based exemptions are not applicable; hence, the middle-class taxpayer who avails the tax exemption on insurance and savings is not too excited. The FM also reduced the tax surcharge rate to 25% from 37%. She estimated an outlay of 35000 crores due to this.
The broader benefit to the middle-class income taxpayer is debatable as in the new regime, the 80C benefits are lower. The large taxpayers will see the benefits of this move, but the broader middle class will not see much of a benefit.
New India Sectors
More than 39,000 compliances have been reduced to enhance the ease of doing business, and over 3,400 legal provisions have been decriminalised. The Union Government has smartly used settlement schemes, often open-ended, to garner additional revenues and resolve long pending tax and contractual disputes. The government has also stated its intent to review and rationalise existing compliances with public participation.
These moves would make India get a better ranking in the ease of doing business rankings, welcome the foreign industries looking to move out of China, and make India a beneficiary of the China+1 incentive.
Custom duty support for mobile phone manufacturing components, televisions, electrical chimneys and the chemicals industry, especially ethanol blending, were announced. Custom-duty SOPs for synthetic metals were also announced. This reinforces the incentives for the New India industries and benefits stocks like Blue Star, Fiem Industries etc.
Maintaining the focus on green energy, the FM announced Rs 35,000 crores in priority capital for energy transition and achieved India’s net zero carbon emission goal by 2070. Sitharaman also announced an additional Rs 19,700 crore towards the government’s Green Hydrogen Mission to lower carbon intensity and reduce fossil fuel use. She also announced a five million tonne target for green hydrogen production by 2030. The Centre is also supporting the setting up of battery energy storage of 4,000 MwH, she said, adding that a green credit programme will be also notified under the Environment Protection Act.
Stocks in the renewable energy sector, especially batteries like Amararaja Batteries and Exide, are cheering the budget announcements.
She discussed a comprehensive review of existing regulations for the financial sector and focused on including private sector contributions to regulatory reviews. No capitalisation of the banking sector was announced, or capital tax structure changes were announced. The NSE PSU Banks received no mention and the PSU Bank index is under pressure, down 2.84% per cent even as the Nifty Bank Index is up 0.7% per cent.
The insurance sector stocks like SBI Life, HDFC Life, GICRE took a big hit as the FM proposes to remove tax-free status on certain insurance policies with premium above Rs 5 lakh. The asset management sector and mutual funds on the other hand would welcome this move as those funds could move to MFs or ELSS.
The Banking sector has welcomed the moves to expand credit in the economy and the acknowledgement that no further capitalisation is needed to for the Indian Banks, which already have high asset quality. Chola Finance, M&M Finance were big gainers in the Financial Services space and among private banks ICICI Bank and HDFC Bank gained big.
India hotel is the biggest gainer in the mid and large-cap space as the Union Budget 2023 increases tax collection at source for overseas tour packages. The TCS (tax collection at source) for overseas tour packages has been increased from 5 percent to 20 per cent for high-cost tour packages above 50 lac. This would rationalise the pricing in the tourism sector, incentivising domestic travellers who have come back in force after the pandemic.
(The author is Ms. Sonam Srivastava, Founder at Wright Research, SEBI Registered Investment Advisor and the views expressed in this article are her own)