Union Budget 2022-2023

Growth focus strengthens, despite

fiscal constraints

GV Giri, IIFLCAP Akshit Gangwal Vishal Mehta

gvgiri@iiflcap.com akshit.gangwal@iiflcap.com vishal.mehta@iiflcap.com
(91 22) 4646 4676 (91 22) 4646 4661 (91 22) 4646 4649

01 February2022
February 2022 1
Summary

10 highlights of Budget FY23: 1) Capex growth higher than in FY22, whether one takes into account EBRs
(extra budgetary resources) or not, as long as one does identical calculations for FY22/21, though a bit
lower than expected. 2) Continuation of increase in transparency, due to which EBR is reduced as it is
dependent on small savings for financing BD. 3) Minimal thrust on consumption expenditure; in fact, a
reduction in MNREGA allocation. 4) Surprisingly little thrust on affordable housing. 5) Valid assumption of
one-offs of FY22 revenue expenditure such as free food and spike in fertiliser subsidy. 6) Reasonable revenue
growth, incl. impact of fuel excise duty cuts. 7) Reasonable estimate of disinvestment receipts of FY22+23,
though there could be spillover from FY22 into FY23. 8) Very cautious assumption of NGDP growth of 11%
(implies only 3.5% deflator compared with nearly 8% for FY22) and, hence, tax receipts. 9) Continuation of
the long path of fiscal consolidation, with FY22 at 6.9% but FY23 at 6.4% (likely to be beaten due to higher
NGDP growth). 10) Higher market borrowings (Rs1.3trn, net of reduction in PSE borrowings) which implies
that along with normalisation, interest rates are headed higher. Hence, growth focus preserved under tight
constraints. BUY Private Banks, SBI, Industrials, and Domestic Cyclicals on the basis of this budget.

Positively-influenced sectors: 1) Lending financials: Extension of ECLGS scheme to end-FY23 and

additional Rs2trn support for MSMEs – banks will also benefit, as interest rates rise. 2) Cap Goods + Cement
+ Infra Construction: significant acceleration in capex growth rate compared with previous year; 46% growth
in domestic Defence expenditure; allocation for various PLI schemes; Railway capex 39% higher YoY; focus
on integrated multi-modal infra; near-doubling of road construction to 25,000km allowed commissioning
time for new manufacturing facilities, with 15% tax rate increased by a year. 3) Consumer electricals. 4)
Solar power gear makers. 5) Optic fibre makers, as target of 100% village connectivity by FY25. 6)
Consumer Electricals: BCD raised from 7.5%/5% to 10% each, on insulated wired and cables/LED lights.

Negatively-impacted sectors: Impact is modestly negative, on: 1) Agriculture: no mention of any move to
introduce a Direct Benefit Transfer (DBT) scheme for fertilisers or to extend the Nutrient Based Subsidy
(NBS) regime to urea; MNREGA allocation down by 25%. 2) Metals, as ADD and CVD revoked on some
items. 3) Housing, as interest rates will rise. 4) FMCG, as rural consumption thrust was missing.

February 2022 2
Key policy initiatives

 PM Gati Shakti – Focus on increasing investment in Roads, Railways, Airports, Ports, Mass Transport, Waterways,
Logistics Infrastructure. National-Highway network to be expanded by 25,000km in 2022-23, up 5x vs. the 5-year
ago avg. 400 new Vande Bharat trains to be made in the next 3 years. 100 PM GS cargo terminals to be developed
in coming 3 years. Unified logistics interface platform: real time info to all stakeholders; improved competitiveness.
 Inclusive Development – Chemicals-free Natural farming; Kisan drones for insecticide sprayings and land record
digitisation, etc; six river-linking projects including Ken Betwa; allocation increase for MSME credit guarantee
schemes (plus extension); water for all and affordable housing; completion of interworking of post offices and
banking system.
 Productivity Enhancement & Investment, Sunrise Opportunities, Energy Transition, and Climate Action –
ePassport, single window Green clearances, improvement in govt. procurement, 5G auctions, completing optic-fibre
village connectivity by 2025, targeting increased private-sector participation in Defence manufacturing.
 Financing of Investments – 35% increase in effective capex to Rs10.7trn, sovereign Green bonds to finance
investments in Green infra, Data Centres and Energy Storage Systems, including dense charging infrastructure and
grid-scale battery systems will be part of the harmonised list of infrastructure, issue of CBDC (Digital Rupee),
States’ fiscal deficit can go up higher, to 4% levels of GSDP, including 0.5% for power-sector reforms.
 For the 280GW solar capacity by 2030, additional Rs195bn PLI for manufacturing solar equipment – Key
beneficiaries: RIL and other players planning integrated projects.
 EV push: Battery swapping policy will be brought out, and inter-operability (standardisation of battery and
charging interface) will be brought in.
 Allocation of Rs480bn towards PM Awas Yojana – Construction of 8m houses in rural &urban India, granting a
boost to affordable housing.

February 2022 3
Key tax proposals

 New provision permitting taxpayers to file Updated Returns, on payment of additional tax, within 2 years from end
of relevant assessment year.
 For concessional corporate tax rate of 15% on new manufacturing companies, the commissioning date extended by
one year to 31-March-2023.
 Surcharge ─ on LTCG arising on transfer of any type of assets ─ capped at 15%. Surcharge ─ on works contract
members’ income tax ─ reduced, from 37% to 15%.
 MAT % of Co-op societies reduced from 18.5% to 15%, on par with companies; plus, surcharge reduced from 12%
to 7% for income range of Rs10m to Rs100m.
 Concessional rates in capital goods and project imports in sectors like power, fertilisers, textiles, leather, footwear,
food processing, coal mining projects, power generation, T&D projects, railway and metro projects to be gradually
phased out and a moderate tariff of 7.5% to be applied.
 Certain exemptions for advanced machineries that are not manufactured within the country shall continue. A few
exemptions introduced on inputs like specialised castings, ball screw and linear motion guide.
 Customs rate and tariff structure, particularly for sectors like chemicals, textiles and metals, to be simplified.
 Customs duty on cut &polished diamonds and gemstones reduced to 5%. Simply-sawn diamond would attract nil
customs duty.
 Additional differential excise duty of Rs2/litre on Unblended (ethanol) fuel, from 1-October-2022.
 Basic Customs Duty on EVs cut, from current 125%. For cars priced at less than USD40,000, BCD has been cut to
60%. Total duties including IGST and compensation cess would be 103%. For cars priced at more than USD40,000,
BCD has been cut to 100%. Total duties including IGST and compensation cess would be 154%.

February 2022 4
Government finances – Summary

(Rs bn) YoY (%)

FY20 FY21 FY22 (RE) FY23 (BE) FY22 FY23
FY23 tax growth marginally lower than GDP
RECEIPTS
growth estimates (11.1% YoY).
Revenue Receipts 16,841 16,339 20,789 22,044 27 6
Receipt growth poor, due to reduction in
Tax Receipts 13,569 14,263 17,651 19,348 24 10
non-tax revenues & disinvestment.
Non-Tax revenue 3,272 2,076 3,138 2,697 51 (14)
Capital receipts 686 576 1,000 793 73 (21) FY22 disinvestment target has been reduced,
from INR1.75trn to INR0.78trn. This still
Total Receipts 17,527 16,915 21,789 22,837 29 5 assumes one high-value disinvestment
(probably LIC) in FY22.
EXPENDITURE FY23 disinvestment target of INR0.65trn
seems on the lower side, considering
Revenue Expenditure 23,506 30,835 31,673 31,947 3 1 disinvestment-thrust laid out by the Govt
Capital Expenditure 3,357 4,263 6,027* 7,502 41 24 earlier.
FY22 revenue expenditure had high subsidy
Total Expenditure 26,863 35,098 37,700 39,449 7 5 expenditure on food due to Covid and on
fertiliser due to high prices; reduced in FY23.
Revenue Deficit 6,665 14,496 10,884 9,902 (25) (9) Govt capex shows a healthy rise of ~36% YoY
Fiscal Deficit 9,337 18,183 15,911 16,612 (12) 4 (excluding AI liabilities in FY22). Including
IEBR, it shows a healthy rise of ~19%.
Rev. deficit (% of GDP) 3.3 7.3 4.7 3.8 -263 bps -85 bps Marginal consolidation in fiscal deficit to
Fiscal deficit (% of GDP) 4.7 9.2 6.9 6.4 -233 bps -42 bps support growth. The government
Source: Government Budget Documents, IIFL Research; Note: Includes capital reiterated its plan to achieve fiscal deficit
infusion/loans to AIAHL/AI amounting to Rs520bn. Excluding this, capex in RE is
of 4.5% of GDP by FY26.
Rs5,507bn.

FY22 growth assumptions seem to be on the lower side, and the government should be able to beat the
projected fiscal deficit of 6.4% of GDP

February 2022 5
Conservative revenue assumptions

(Rs bn) YoY (%)

FY20 FY21 FY22RE FY23BE FY22 FY23
Tax Revenue Growth for direct tax seems reasonable, considering
Gross Tax Revenue 20,101 20,271 25,161 27,578 24 10 GDP growth assumption of 11.1% YoY.
----Corporation Tax 5,569 4,577 6,350 7,200 39 13
----Income Tax 4,927 4,871 6,150 7,000 26 14
----Customs Duties 1,093 1,348 1,890 2,130 40 13 Excise collections assumed to contract YoY,
----Excise Duties 2,406 3,917 3,940 3,350 1 (15) considering the excise duty cuts on petrol undertaken
----Service Tax 60 16 10 20 (38) 100 by the Govt.
----Goods and Services Tax 5,988 5,488 6,750 7,800 23 16
Growth in GST also seems to be in line, considering
Direct Tax 10,554 9,502 12,571 14,278 32 14 the buoyancy we are seeing lately.
Indirect Tax 9,547 10,769 12,590 13,300 17 6

less devolution to states &

6,532 5,950 7,448 8,166 25 10
NCCD transfer Lower non-tax revenue, mainly due to lower RBI
dividend budgeted in FY23 (INR1trn in FY22 v/s
Net Tax revenue 13,569 14,263 17,651 19,348 24 10 INR0.74trn in FY23).
For Telecom too, the INR528bn budgeted receipt
Non-tax Revenue 3,272 2,076 3,138 2,697 51 (14) in FY23 is also well below the Rs720bn revised
receipt in FY22, as FY22 saw Rs460bn
Total Revenue 16,841 16,339 20,789 22,044 27 6 prepayment of spectrum debt by JIO and Bharti.

Non Debt Capital Receipts 686 576 1,000 793 73 (21)

----Disinvestment 503 379 780 650 106 (17)
FY23 disinvestment target of INR0.65trn seems on
Total Receipts 17,527 16,915 21,789 22,837 29 5 the lower side, considering disinvestment thrust laid
out by the Govt earlier.
Gross tax recpts (% of GDP) 10.0 10.2 10.8 10.7 60.1 (14.9)
Non-tax rev. (% of GDP) 1.6 1.0 1.4 1.0 30.3 (30.7)
Source: Government Budget Documents, IIFL Research

Growth assumptions in line with GDP estimates; disinvestment receipts seem to be on the lower side

February 2022 6
Capex growth momentum to continue in FY23

(Rs bn) YoY (%)

FY20 FY21 FY22 RE FY23 BE FY22 FY23
Non-Development Expenditure
Interest expense is expected to grow faster
Interest 6,121 6,799 8,138 9,407 20 16
than GDP, considering higher market
Defence 3,187 3,401 3,684 3,854 8 5 borrowing and rising rates.
Subsidies 2,623 7,582 4,879 3,556 (36) (27)
Pensions 1,840 2,085 1,990 2,071 (5) 4 Reduction in subsidy bill, as certain non-
Police 899 868 1,003 1,052 16 5 recurring expenditures on food & fertiliser
have been normalised in FY23.
Development expenditure

Agriculture and Rural 2,548 3,487 3,547 3,578 2 1

Transport 1,534 2,168 3,254 3,519 50 8 Agri & Rural and Health expenditure
Education 894 842 880 1,043 4 18 maintained at high levels of FY22.
Health 634 800 859 866 7 1 Increase in Education spend is encouraging.
Urban Development 421 467 739 765 58 4

Total expenditure 26,863 35,098 37,700 39,449 7 5

Revenue expenditure 23,506 30,835 31,673 31,947 3 1
Capital expenditure 3,357 4,263 6,027* 7,502 41 24

Total expenditure (% GDP) 13.4 17.7 16.2 17.7 -149 bps 146 bps Govt. capex shows a healthy rise of ~36% YoY
Rev. expenditure (% of GDP) 11.7 15.6 13.6 14.3 -193 bps 69 bps (excluding AI liabilities in FY22). Including IEBR,
Capital expenditure (% of GDP) 1.7 2.2 2.6 3.4 44 bps 77 bps it also shows a healthy rise of ~19%.
Source: Government Budget Documents, IIFL Research; Note: Includes capital
infusion/loans to AIAHL/AI amounting to Rs520bn; Excluding this, capex in RE is
Rs5,507bn.

Government is planning to maintain its capex growth momentum

February 2022 7
Significant capex acceleration, on like-to-like basis

(Rs bn) FY21RE FY22BE FY22RE FY23BE FY23BE vs FY22BE FY23BE vs FY22 RE
YoY YoY

CG capex (A) 4,392 5,542 6,027 7,502 35.4% 24.5%

Effective capex (B) 6,695 7,733 8,404 10,679 38.1% 27.1%
Air India liability (C) - 520 - - -
Adjusted effective capex (D) 6,695 7,733 7,884 10,679 38.1% 35.45%
PSE resources (IEBR) (E) 6,455 5,828 5,025 4,695 (19.5%) (6.6%)
Total capex (D+E) 13,150 13,562 12,909 15,373 13.4% 19.1%
FY22BE vs FY21RE 3.1%
FY22RE vs FY21RE (1.8%)
Source: Government Budget Documents, IIFL Research

Capex growth (incl. PSE resources) too shows an acceleration in line with headline numbers.
Transparency is also due to EBR being reduced and CG borrowings shown correspondingly higher.

February 2022 8
Subsidies – Clean-up act continues

(Rs bn) YoY (%)

FY20 FY21 FY22 (RE) FY23 (BE) FY22 FY23
Subsidies 2,623 7,582 4,879 3,556 (36) (27)
----Food 1,087 5,413 2,865 2,068 (47) (28)
----Fertiliser 811 1,279 1,401 1,052 10 (25)
----Petroleum 385 385 65 58 (83) (11) In FY22, the government increased its food
----Interest 237 302 366 247 21 (32) subsidy by INR0.4bn vs BE, to support its free
food programme, in light of the gruesome
----Others 103 202 182 130 (10) (28)
second Covid wave. It also overshot its fertiliser
subsidy BE target by INR0.6bn, to provide
Total Subsidies (% GDP) 1.3 3.8 2.1 1.4 -173 bps -72 bps support against increased prices.
These have been partly normalised in FY23,
Food (% GDP) 0.5 2.7 1.2 0.8 -150 bps -43 bps resulting in YoY reduction. The Russia-Ukraine
Fertiliser (% GDP) 0.4 0.6 0.6 0.4 -4 bps -20 bps spat sending gas prices higher is a risk for
Petroleum (% GDP) 0.2 0.2 0.0 0.0 -17 bps -1 bps fertiliser subsidy assumptions.

Interest (% GDP) 0.1 0.2 0.2 0.1 0 bps -6 bps

Source: Government Budget Documents, IIFL Research

Non-recurring items of FY22, mainly in food & fertiliser, leading to subsidy bill reduction

February 2022 9
Sources of financing fiscal deficit

(Rs bn) FY20 FY21 FY22 (RE) FY23 (BE)

1. Debt Receipts (Net) 9,287 18,255 14,169 16,604
Market Borrowings (G-Sec + T-bills) 6,241 12,397 8,758 11,587 FY23 Borrowings higher than expected – Rates
Securities against Small Savings 2,400 4,837 5,915 4,254 will rise: We have been saying for some time that
interest rates are set to rise, globally and in India,
State Provident Funds 116 185 200 200
as US Fed leads liquidity tightening to counter
Other Receipts (Internal Debts and inflation, and other central banks follow. But in the
443 133 (901) 370
Public Accounts) FY23 budget, the government has, unexpectedly,
External Debt 87 702 197 193 decided to increase market borrowings – from
Rs8.75trn in FY22RE to Rs11.58trn. This will be
partially offset by reduced PSE borrowings (down by
2. Draw Down of Cash Balance 50 (72) 1,742 8
Rs0.4trn FY22RE to FY23BE).

Total (1+2) 9,337 18,183 15,911 16,612 The main reason seems to be the push for
transparency, as the govt has decided to borrow
Source: Government Budget Documents, IIFL Research less against small savings receipts for FY23, with
only Rs4.25trn budgeted vs Rs5.91trn for FY22RE.
But the Rs5.91-trn also includes Rs1.12trn carry
forward of earlier period, implying that net increase
in govt borrowing for FY23 will be Rs1.7trn.

Higher market borrowings may further add to pressure due to increase in interest rates

February 2022 10
Long-term trends – Revenues

Marginal tax growth in line with GDP estimates Income tax buoyancy is broadly stable

Source: Government Budget Documents, IIFL Research Source: Government Budget Documents, IIFL Research
Non-tax revenue is expected to decline, partly due to lower Total revenue, relative to GDP, expected to fall slightly in
dividend from the RBI FY23

Source: Government Budget Documents, IIFL Research Source: Government Budget Documents, IIFL Research

February 2022 11
Long-term trends – Expenditure

Interest, Subsidies and Defence make up ~43% of expenditure More than half the expenditure is unavoidable

Source: Government Budget Documents, IIFL Research. Source: Govt. Budget Documents, IIFL Research; Note: Committed expenditure
includes salaries of CG employees (incl. Defence), pension, interest and subsidies
Revenue expenditure constitutes ~80% of total expenditure Lower Subsidy burden due to normalisation

Source: Government Budget Documents, IIFL Research Source: Government Budget Documents, IIFL Research

February 2022 12
Long-term trends – Deficits

Revenue deficit has been falling since the past 2 years Primary deficit is expected to remain around 3% of GDP

Source: Government Budget Documents, RBI, IIFL Research Source: Government Budget Documents, IIFL Research
Off-balance sheet funding relative to overall deficit is now
Fiscal deficit is expected to moderate slightly in FY23 quite low

Source: Government Budget Documents, IIFL Research Source: Government Budget Documents, IIFL Research; Note: EBR include Extra-
budgetary resources and fiscal support extended through loans from NSSF

February 2022 13
Long-term trends − Debt

Central Government debt is nearing 60% of GDP Central government’s debt is almost 7x its annual revenue

Source: Government Budget Documents, IIFL Research Source: Government Budget Documents, IIFL Research

State government debt is expected to remain near 30% of GDP State government debt is only 2.0x its annual revenue

Source: CEIC, RBI, IIFL Research Source: CEIC, RBI, IIFL Research

February 2022 14
Sector summaries

Stocks affected
Sector Impact Key measures Positively Negatively
Agriculture Neutral- ● On fertiliser subsidy, the FY23BE of Rs1,052bn reflects a ~25% cut in subsidy allocation Chambal,
& Chemicals to- vs. FY22RE. Urea subsidy has been cut by ~17% to Rs632bn and other nutrient-based Coromandel,
modestly subsidy has been cut by ~35% to Rs420bn. The government appears to be betting on a GSFC , DFPCL
negative correction in international prices of fertilisers, and their key raw materials during
FY23. If such correction does not materialise, fertiliser subsidy will then need to be
increased during the course of the year.
● Additionally, there is no mention of any move to introduce a Direct Benefit Transfer
(DBT) scheme for fertilisers, or to extend the Nutrient Based Subsidy (NBS) regime to
urea. The fact that these much-anticipated structural reforms have once again been
postponed is another incremental disappointment.
● For the overall agriculture sector, there are no significant positives from the Budget.
There is only a modest increase in allocation to Agriculture & Allied Activities vs. RE:
from Rs1,478bn to Rs1,515bn. Allocation to the PM-KISAN scheme is marginally
higher at Rs680bn. NREGA allocation is down to Rs730bn vs. RE at Rs980bn. While the
government had allocated Rs7bn for the formation and promotion of 10,000 FPOs last
year, its RE for the purpose is only Rs2.5bn (similar to the actual expenditure in FY21).
The FY23BE has allocated Rs5bn for the FPOs.
● On the customs duty front, there are no major changes. There is a cut in BCD on
methanol, from 10% to 2.5%, and for acetic acid, from 10% to 5%. These chemicals
are mainly used as feedstock for producing downstream chemicals. A cut in BCD on
these chemicals should be positive for specialty chemical manufacturers .
● The duty changes disclosed for other chemicals in the budget memorandum are a
move to streamline the duty structure and do away with exemptions. There is no
change in effective duties levied on these products.

February 2022 15
Sector summaries

Stocks affected
Sector Impact Key measures Positively Negatively
Autos Neutral ● Custom duty cut on EV cars: The current taxation on imported cars is 125% of the
Basic Customs Duty (BCD); total duties including IGST and compensation cess are
186%. The BCD has been cut to 60% and 100% for cars priced at less than USD40,000
and above USD40,000, respectively. Total duties including IGST and compensation
cess would be 103% and 154%, respectively. Despite the cut, imported vehicles would
remain expensive and find it difficult to compete with locally-made ones.
● Battery Swapping Policy: Given the space constraint in urban areas for setting up Hero Moto
charging stations at scale, a battery swapping policy will be brought out and inter- (Gogoro JV)
operability standards will be formulated. The private sector will be encouraged to
pursue ‘Battery as a Service’ model; this will improve efficiency in the EV ecosystem.
Hero MotoCorp should benefit from this policy, given its partnership with Gogoro.
● Infra and road construction: Sustained high spending on Infra and road construction Truck makers
would have a positive effect on truck sales. (Ashok, Tata)

February 2022 16
Sector summaries

Stocks affected
Sector Impact Key measures Positively Negatively
Banks & Positive ● Outlay for capital expenditure has been increased by 35%, from Rs5.5trn in the All lenders
NBFCs current year to Rs7.5trn in 2022-23.
● The Emergency Credit Line Guarantee Scheme (ECLGS) has been extended till end- All lenders
FY23, with its guarantee cover expanded by Rs 500bn, to take the total cover to
Rs5.0trn. The additional amount is earmarked for the hospitality sector and related
enterprises. All lenders
● The Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) scheme will be
revamped with the required infusion of funds. This will facilitate additional credit of
Rs2.0trn for Micro and Small Enterprises.
● Rs480bn allocated under the PM Awas Yojana, under which 8million houses will be All affordable
completed for the identified beneficiaries. HFCs
● Necessary amendments in the Insolvency & Bankruptcy Code will be carried out to
enhance the efficacy of the resolution process and facilitate cross border insolvency All lenders,
resolution. especially
● It is proposed to set up 75 Digital Banking Units (DBUs) in 75 districts of the country, banks with
by Scheduled Commercial Banks. international
● Introduction of Central Bank Digital Currency (CBDC): It is proposed to introduce presence
Digital Rupee, using blockchain and other technologies, to be issued by the RBI NA
starting 2022-23.
NA

February 2022 17
Sector summaries

Stocks affected
Sector Impact Key measures Positively Negatively
Capital Positive ● FY23 (BE) capital outlay has increased by 36% YoY on FY22 (RE) ex-Air India impact, Defence – - nil -
Goods for at Rs7.5trn. FY22 (RE) capex in Defence/road/rail/housing & urban affairs is Bharat
Defence, 3/12/9/1% higher than in FY22 BE. Electronics,
water & ● While Defence capital outlay is merely 10% higher YoY, at Rs1.5trn, spend on L&T, HAL, BDL
transport domestic Defence procurement is poised to grow 46% YoY, from Rs700 bn to Rs1trn
in FY23 (68% share, +17pps). Infra led push –
Neutral ● FY23BE pegs a robust 55% growth in Roads (25% share), at Rs1.9trn, followed by 17% L&T, KECI
for the YoY in Railways. Housing & urban infra, which grew 152% in FY22 RE, is flat at 5%. Cummins
remaining ● Transfer of Rs1trn to the State sector will drive capex in multi-modal & Gati-Shakti. Siemens, ABB
segments ● Scheme-wise, rural drinking water, affordable housing, Metro & RRTS projects and India , Hitachi
urban infra (Amrut & smart cities) continue to see sustained focus and thrust. Energy
● Allocation for various PLI schemes too has been increased, from Rs2bn in FY22RE to
Rs85bn in FY23BE, spread across Pharma, Mobile, IT hardware and Food processing.
● Railway capex in FY22 RE (incl. EBR) is 39% higher YoY, at Rs2.1trn, on a comparable
basis. Within this, capex for core segments at Rs1.25trn is 18% higher vs BE, at +27%
YoY; buy only a 7% increase is proposed in these core areas for FY23 BE, at Rs1.3trn.
Investments, in various JVs/ PPP/funded-projects for HSR, RRTS & Metro projects that
slipped by 21% in FY22 RE to Rs572bn, are targeted to revert to Rs737bn, at 29% YoY.
● Focus on integrated multi-modal infrastructure, digitalisation, data centres, energy
efficiency initiatives, climate change and domestic Defence procurement bode well
for various capital goods companies.
● Withdrawal of concessional BCD rates for HV transmission equipment is unlikely to
hurt/benefit domestic players, but higher imported HVDC components from FY24
may increase cost of project to developers.
● PMP for energy meters is positive for the localised component ecosystem for smart
meters.

February 2022 18
Sector summaries

Stocks affected
Sector Impact Key measures Positively Negatively
Cement Positive Continued focus on infrastructure spending and affordable housing projects augurs for All Companies
the volume growth of cement companies. Capital expenditure target for FY23 is
increased to Rs7.5trn vs last year BE of Rs5.5trn and RE of Rs6.0trn. Effective capital
expenditure is estimated at Rs10.68trn for FY23, which will be about 4.1% of GDP. Also,
allocation of Rs1trn to the states (as loans) for productive capital investment augurs well
for overall capex cycle. Key factors that would drive cement demand are:
● Road projects: The National-Highway networks to expand by 25,000km in FY23 vs.
13,300km in FY21 and 6,300km in 9MFY22; this may include conversion of state
highways. As such, NHAI FY23 BE allocation (including IEBR support) stands at
Rs1.34trn – up 10% vs. FY22 BE, and up 3% compared with FY22 RE. Overall Ministry
of Road allocation stands at Rs1.88trn – up 8% vs. FY22 BE, and flat compared with
FY22 RE.
● PMGSY: Increased allocation to the Pradhan Mantri Gram Sadak Yojana, from
Rs140bn in FY22RE (FY22BE of Rs150bn) to Rs190bn for FY23BE.
● Metro capex: Spending on Metro system has been maintained at Rs191bn – largely
flattish compared with last year.
● Affordable Housing: Allocation of Rs480bn under PMAY (both rural and urban), to
complete 8 million houses in FY23, marginally higher that the FY22RE of Rs474bn
(FY22BE of Rs275bn).
● Multimodal Logistics Parks: Implementation of Multimodal Logistics Parks at four
locations, for which contracts will be awarded in FY23. Further, one hundred PM Gati
Shakti Cargo Terminals for multimodal logistics facilities will be developed during the
next three years.

February 2022 19
Sector summaries

Stocks affected
Sector Impact Key measures Positively Negatively
Consumer Positive ● Rs480bn has been allocated towards affordable housing scheme (flat over FY22 RE), Havells, - nil -
Electricals to complete 8m houses in FY23. Centre to work with states, to reduce time for land Crompton,
clearances. Orient, V-
● BCD on insulated wires & cables increased, from 7.5% to 10%. Guard, Bajaj
● BCD has also been increased on LED lights and fixtures , from 5% to 10%. Electricals,
Polycab, KEI,
Finolex Cables,
Dixon Tech

Consumer Positive ● In line with PMP, BCD is increased on parts of Mobile Phone Inputs (PCBA, Camera Dixon Tech, - nil -
Electronics Modules, Connector: 0% to 2.5%), PCBA (Chargers: 10% to 15%), Other charger Amber
components (0% to 10%). Enterprises
● BCD for Compressors of Refrigerator/AC increased, from 12.5% to 15%.
● PMP has been introduced to develop local ecosystem for Wearables and Hearables.

February 2022 20
Sector summaries

Stocks affected
Sector Impact Key measures Positively Negatively
Infrastructure Positive ● Allocation for highway development across NHAI and MoRTH and including IEBR PNC Infra,
stands at Rs1.87tn - up 6.7% vs FY22 BE and 2% vs FY22RE. The spending so far Ashoka
suggests that 4QFY22 and FY23 should see healthy spending levels. Buildcon, KNR
● Government intends to expand the national highway network by 25000km, which will Construction,
include completion of greenfield expressways as well as conversion of state highways GR Infra, HG
to national highways, which would increase pipeline of awards for contractors and Infra, Capacite
developments. Infra, Ahluwalia
● Continued spending-thrust on roads, railways, metro, water supply, mass transit and Projects
logistics development.
● Housing remains in focus under PMAY, with allocation being flat YoY vs FY22 RE at
Rs480bn.

Metals Neutral ● NIL custom duty on steel scrap including stainless steel scrap extended by a year to Tata Steel, JSW
to Mar-23. Steel, JSPL, SAIL,
slightly ● Anti dumping duty permanently revoked on straight length bards and rods of alloy Jindal Stainless
negative steel from China, high speed steel from Brazil/ China/Germany, rolled products of
steel from China/Vietnam/Korea.
● Countervailing duty permanently revoked on stainless steel HR and CR coils from
China.
● ADD does not matter, given that global steel prices are at much higher levels
currently.

February 2022 21
Sector summaries

Stocks affected
Sector Impact Key measures Positively Negatively
Power Positive ● Additional allocation of Rs195bn for production-linked incentives (PLI) for RIL, Tata Power,
manufacturing of high-efficiency solar modules ; priority will given to fully-integrated Borosil
manufacturing units (Polysilicon to PV modules). renewables,
● Thermal plants to co-fire 5-7% biomass pallets, which can save 38MMT CO₂ savings. and other solar
● Data centres and Energy storage systems, including dense charging system and grid- equipment
scale battery system, will get infrastructure status to facilitate credit availability for manufacturing
clean energy storage. players
● Import duty on solar inverters and lamps hiked, from 5% to 15/25%, respectively; this
will benefit SMEs engaged in manufacturing of these products in India. Powergrid,
NTPC

February 2022 22
Sector summaries

Stocks affected
Sector Impact Key measures Positively Negatively
Real Estate Marginally ● Reduction of Custom duties on Methanol, used to produce Formaldehyde ─ a key MINDSPCE,
& Building Positive chemical in the production of Woodpanel products, has been reduced from 10% to LODHA, MTLM,
Materials 2.5%. This is likely to reduce input costs across Plywood, laminates, MDF and Particle CPBI, SI
Board – CPBI and MTLM

● Capping LTCG at 15% for transfer of immovable properties is likely to be beneficial for
Mumbai Real Estate (>Rs20m ticket) and premium properties in other cities.

● Data Centres being given industry status will benefit developers who have land bank
suited for Data Centre development, especially in MMR (most attractive market for
data centres) – MINDSPCE and LODHA

● Affordable housing benefits for first-time home buyers and developers not
extended: 1) Earlier, 100% deduction of profits from affordable housing were allowed
to developers; 2) First-time home buyers were allowed additional deduction of
Rs0.15m pa. However, we see limited impact of this decision on listed developers.

● Dividend/bonus stripping regulations u/s 94(7) are now applicable on REITs as well.

● Allocation to PMAY (Urban and Rural) has been flat YoY, Rs473bn for FY22 vs Rs480bn
for FY23. Unlikely to impact listed developers, but positive for building material
companies. However, allocation to the Jal Jeevan mission (drinking water) has been
increased to Rs600bn as against Rs450bn for FY22; the government aims to provide
tap water to 38million households – SI

February 2022 23
Sector summaries

Stocks affected
Sector Impact Key measures Positively Negatively
Telecom Positive ● Telecom receipt budgeted for FY23 is Rs528bn. Of this, we estimate that ~Rs220- Tejas
230bn would entail revenue share receipts (LF + SUC), implying that the government Networks,
is budgeting Rs300bn from 5G spectrum auctions. While TRAI is working on the Sterlite
reserve prices and payment terms, the overall spectrum spending would be Rs900bn, Technologies
if we assume 1/3rd upfront payment. If the government auctions both, the low
frequency and mid-band spectrum, at reasonable prices, there is a good chance of the
target being met.
● The Rs528bn budgeted receipt in FY23 is also well below the Rs720bn revised receipt
in FY22, as FY22 saw Rs460bn prepayment of spectrum debt by JIO and Bharti, given
that they seek to replace high-cost government debt with low-cost market
borrowings.
● Higher thrust on laying optic fibre cables in villages under the Bharatnet project
would benefit players like Tejas Networks and Sterlite Technologies.
● The concessional 15% tax rate on dividend income from foreign
subsidiaries/associates (where the Indian entity holds 26% or more stake) will be
removed wef April 1, 2023, and this income will be taxed at the full rate. The dividend
income from Airtel Africa is currently held in overseas entities and not repatriated to
India. With these overseas entities holding significant FX borrowings, the dividend
income will be used to retire these and, hence, the tax rate change will have no
negative impact on Bharti in the near future.

Rating Positive ● The government’s capex outlay for FY23 marks a ~33% increase from FY22. Higher CARE, ICRA,
Agencies infrastructure investments would drive higher credit off-take from the private sector. CRISIL
This is positive for credit rating agencies. CARE, ICRA and CRISIL would benefit in that
order (based on % exposure to the India rating market).

February 2022 24
Disclosure : Published in 2022, © IIFL Securities Limited (Formerly ‘India Infoline Limited’) 2022
India Infoline Group (hereinafter referred as IIFL) is engaged in diversified financial services business including equity broking, DP services, merchant banking, portfolio management services, distribution of Mutual Fund,
insurance products and other investment products and also loans and finance business. India Infoline Ltd (“hereinafter referred as IIL”) is a part of the IIFL and is a member of the National Stock Exchange of India Limited
(“NSE”) and the BSE Limited (“BSE”). IIL is also a Depository Participant registered with NSDL & CDSL, a SEBI registered merchant banker and a SEBI registered portfolio manager. IIL is a large broking house catering to
retail, HNI and institutional clients. It operates through its branches and authorised persons and sub-brokers spread across the country and the clients are provided online trading through internet and offline trading through
branches and Customer Care.
a) This research report (“Report”) is for the personal information of the authorized recipient(s) and is not for public distribution and should not be reproduced or redistributed to any other person or in any form without IIL’s
prior permission. The information provided in the Report is from publicly available data, which we believe, are reliable. While reasonable endeavors have been made to present reliable data in the Report so far as it
relates to current and historical information, but IIL does not guarantee the accuracy or completeness of the data in the Report. Accordingly, IIL or any of its connected persons including its directors or subsidiaries or
associates or employees 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, views and opinions expressed in this
publication.
b) Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and
estimates contained in this report reflect a judgment of its original date of publication by IIFL and are subject to change without notice. The price, value of and income from any of the securities or financial instruments
mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such
securities or financial instruments.
c) The Report also includes analysis and views of our research team. The Report is purely for information purposes and does not construe to be investment recommendation/advice or an offer or solicitation of an offer to
buy/sell any securities. The opinions expressed in the Report are our current opinions as of the date of the Report and may be subject to change from time to time without notice. IIL or any persons connected with it
do not accept any liability arising from the use of this document.
d) Investors should not solely rely on the information contained in this Report and must make investment decisions based on their own investment objectives, judgment, risk profile and financial position. The recipients of
this Report may take professional advice before acting on this information.
e) IIL has other business segments / divisions with independent research teams separated by 'Chinese walls' catering to different sets of customers having varying objectives, risk profiles, investment horizon, etc and
therefore, may at times have, different and contrary views on stocks, sectors and markets.
f) This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication,
availability or use would be contrary to local law, regulation or which would subject IIL and its affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may
not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this Report may come are required to inform themselves of and to observe such restrictions.
g) As IIL along with its associates, are engaged in various financial services business and so might have financial, business or other interests in other entities including the subject company(ies) mentioned in this Report.
However, IIL encourages independence in preparation of research report and strives to minimize conflict in preparation of research report. IIL and its associates did not receive any compensation or other benefits
from the subject company(ies) mentioned in the Report or from a third party in connection with preparation of the Report. Accordingly, IIL and its associates do not have any material conflict of interest at the time of
publication of this Report.
h) As IIL and its associates are engaged in various financial services business, it might have:-(a) received any compensation (except in connection with the preparation of this Report) from the subject company in the
past twelve months; (b) managed or co-managed public offering of securities for the subject company in the past twelve months; (c) received any compensation for investment banking or merchant banking or
brokerage services from the subject company in the past twelve months; (d) received any compensation for products or services other than investment banking or merchant banking or brokerage services from the
subject company in the past twelve months; (e) engaged in market making activity for the subject company.
i) IIL and its associates collectively do not own (in their proprietary position) 1% or more of the equity securities of the subject company mentioned in the report as of the last day of the month preceding the publication of
the research report.
j) The Research Analyst engaged in preparation of this Report or his/her relative:-
(a) does not have any financial interests in the subject company (ies) mentioned in this report; (b) does not own 1% or more of the equity securities of the subject company mentioned in the report as of the last day of
the month preceding the publication of the research report; (c) does not have any other material conflict of interest at the time of publication of the research report.
k) The Research Analyst engaged in preparation of this Report:-
(a) has not received any compensation from the subject company in the past twelve months; (b) has not managed or co-managed public offering of securities for the subject company in the past twelve months; (c)
has not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) has not received any compensation for products or
services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (e) has not received any compensation or other benefits from the subject
company or third party in connection with the research report; (f) has not served as an officer, director or employee of the subject company; (g) is not engaged in market making activity for the subject company.
l) IIFLCAP accepts responsibility for the contents of this research report, subject to the terms set out below, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor. The analyst
whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry Regulatory Authority (“FINRA”) and may not be an associated person of IIFLCAP and,
therefore, may not be subject to applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account.
We submit that no material disciplinary action has been taken on IIL by any regulatory authority impacting Equity Research Analysis.

February 2022 25
This research report was prepared by IIFL Securities Limited (Formerly ‘India Infoline Limited’) Institutional Equities Research Desk (‘IIFL’), a company to engage activities is not dealer United States and, therefore, is not
subject to U.S. rules of reports independence of research report is provided for distribution to U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities
Exchange recipient of wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this report should do IIFL IIFLCAP’), broker dealer in the United States.
IIFLCAP accepts responsibility for the contents of this research report, a person whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry FINRA”) and an
person of IIFLCAP may not be subject to applicable restrictions under FINRA Rules with held by analyst IIFL has other business units with independent research teams different views stocks and This report for the
personal information of the authorized recipient and is not for public distribution. This should not be reproduced or redistributed to any other person or in any form. This report is for the general information of the investors,
and should not be construed as an offer or solicitation of an offer to buy/sell any securities.
We have exercised due diligence in checking the correctness and authenticity of the information contained herein, so far as it relates do not or completeness. The opinions expressed are our current opinions as of the date
appearing in the material and may be subject to from to time without notice. or any persons connected it accept any liability arising from the use of this document. The recipients of this material should rely on their own
judgment professional advice on this information. IIFL or any of its connected persons including its directors or or not in way for any or damage that may arise to any from any inadvertent error the information contained,
views and opinions expressed in this publication.
IIFL and/or its affiliate companies may deal in the securities mentioned herein as a broker or for any transaction as a Maker, Investment Advisor, to issuer persons. IIFL generally prohibits its analysts from having financial
interest in the securities of any of the companies that the analysts cover. In addition, company its employees from conducting Futures & Options transactions or holding any shares for a period of less than 30 days.
Past performance should not be taken as an indication or guarantee of performance, and no or warranty, express performance. estimates contained in this report reflect a judgment of its original date of publication by IIFL
and are subject to change of mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate may adverse on the price of such securities
or financial instruments.
Analyst Certification: (a) that the views expressed in the research report accurately reflect part of her compensation was, is, or will be directly or indirectly related to the specific recommendation or views contained in the
research report.
A graph of daily closing prices of securities is available at http://www.nseindia.com/ChartApp/install/charts/mainpage.jsp, www.bseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes. (Choose
a company from the list on the browser and select the “three years” period in the price chart).
Name, Qualification and Certification of Research Analyst: Abhijit R. Akella (PGDM, CFA), Akshay Falgunia (Chartered Accountant), Akul Broachwala (Chartered Accountant, CFA), Akshit Gangwal (Chartered
Accountant, CFA) Alpesh Mehta (PGeMBA), Anupam Gupta (PGDBM), Arash Arethna (PGDM), Balaji Subramanian (MBA), Devesh Agarwal (PGDBM), G.V. Giri (MBA), Harshvardhan Dole (B.Tech, PGBDA), Joseph
George (Chartered Accountant, CFA), Mayank Chokhani (Chartered Accountant), Mohit Agrawal (Chartered Accountant), Mohit Mehra (MBA, CFA), Mudit Agarwal (Chartered Accountant), Narendra Mhalsekar (MBA),
Percy Panthaki (Chartered Accountant), Pratik Chheda (Chartered Accountant), Preyank Sethi (Chartered Accountant), Rahul Jeewani (PGDM), Punit Pujara (Chartered Accountant), Renu Baid (MMS - Finance), Rishi
Jhunjhunwala (Chartered Accountant), Sameer Gupta (PGDM), Sarthak Sikka (CFA), Saurabh Thadani (PGDM Finance), Suraj Chheda (PGDM), Vidit Shah (Chartered Accountant, CFA), Vishal Mehta (Chartered
Accountant)
IIFL Securities Limited (Formerly ‘India Infoline Limited’), CIN No.: L99999MH1996PLC132983, Corporate Office – IIFL Centre, Kamala City, Senapati Bapat Marg, Lower Parel, Mumbai – 400013 Tel: (91-22) 4249
9000 .Fax: (91-22) 40609049, Regd. Office – IIFL House, Sun Infotech Park, Road No. 16V, Plot No. B-23, MIDC, Thane Industrial Area, Wagle Estate, Thane – 400604 Tel: (91-22) 25806650. Fax: (91-22) 25806654 E-
mail: mail@indiainfoline.com Website: www.indiainfoline.com, Refer www.indiainfoline.com for detail of Associates.
Stock Broker SEBI Regn.: INZ000164132, PMS SEBI Regn. No. INP000002213, IA SEBI Regn. No. INA000000623, SEBI RA Regn.:- INH000000248
Key to our recommendation structure
BUY - Stock expected to give a return 10%+ more than average return on a debt instrument over a 1-year horizon.
SELL - Stock expected to give a return 10%+ below the average return on a debt instrument over a 1-year horizon.
Add - Stock expected to give a return 0-10% over the average return on a debt instrument over a 1-year horizon.
Reduce - Stock expected to give a return 0-10% below the average return on a debt instrument over a 1-year horizon.
Distribution of Ratings: Out of 259 stocks rated in the IIFL coverage universe, 137 have BUY ratings, 11 have SELL ratings, 82 have ADD ratings and 27 have REDUCE ratings
Price Target: Unless otherwise stated in the text of this report, target prices in this report are based on either a discounted cash flow valuation or comparison of valuation ratios with companies seen by the analyst as
comparable or a combination of the two methods. The result of this fundamental valuation is adjusted to reflect the analyst’s views on the likely course of investor sentiment. Whichever valuation method is used there is a
significant risk that the target price will not be achieved within the expected timeframe. Risk factors include unforeseen changes in competitive pressures or in the level of demand for the company’s products. Such demand
variations may result from changes in technology, in the overall level of economic activity or, in some cases, in fashion. Valuations may also be affected by changes in taxation, in exchange rates and, in certain industries,
in regulations. Investment in overseas markets and instruments such as ADRs can result in increased risk from factors such as exchange rates, exchange controls, taxation, and political and social conditions. This
discussion of valuation methods and risk factors is not comprehensive – further information is available upon request.

February 2022 26