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Weekly Capsule


Posted on 05-Jul-2019 Comments  0

Weekly Capsule (Jul 01 – Jul 05) and Impact Analysis




News Announcement Impact Analysis


Budget projects Indian economy GDP at $5 trillion in 7 years from now The GDP growth rate assumed is around 7-8% in real terms and 12% in nominal terms

The budget has also looked at a likely GDP of $10 trillion beyond 2030 making it the third largest economy


Budget suggests raising public shareholding limit to 35% The limit is currently 25% and could lead to share sale by promoters to the tune of Rs.5 trillion

There are a total of 1400 companies on the BSE where the promoter stake is more than 65%


Buybacks will now be taxed at the rate of 20% of their profit value This removes the tax arbitrage that buybacks had over dividends that are subjected to DDT

This will be negative for IT companies that are cash rich as they will not have incentive to opt for buybacks now


Disinvestment target of Rs.105,000 crore has been set in the Budget This is substantially higher than the current target of Rs.80,000 crore set for the year

This target includes the strategic sale of Air India, which has in the past received tepid response from the market


NRIs to be now regulated under the common FPI regulations The idea here is to tap the $75 billion that NRIs remit as bank deposits into India each year

A word of caution is that such routes have been misused in the past and that will have to be plugged


Caps for FIIs to be linked to sectoral caps for respective industries The respective sectoral caps will apply for all companies and the government will still have discretion to regulate

The current limit of 24% for FIIs will now no longer be applicable and that stands scrapped


Import duty on gold raised from the current 10% to 12.5% The idea is to discourage the imports of gold as it distorts the balance of payments

However, local jewellers are up in arms as it is likely to increase the cost and could be negative for them


PSU banks to get recapitalization to the tune of Rs.70,000 crore This should help the banks to shore up their capital and also help them build their asset books

This capital infusion combined with the IBC recovery will be a boost for the stronger PSU banks


Housing finance companies will be now regulated by the RBI The idea of bringing HFCs under RBI regulation is to ensure greater transparency and stringency in regulation

The FM noted that the existing regulator, NHB, had a clear conflict of interest in regulation as it was also a refinancer


Banks to make line of credit for NBFCs to the tune of Rs.134,000 crore Banks will be allowed to lend to NBFCs only where there are liquidity issues and not solvency issues

The government will also give a partial guarantee for such funding subject to the money being lent to sound NBFCs


Budget increases the income tax surcharge on the super rich Persons earning over Rs.2 crore will now pay surcharge of 25% on the tax payable up to that slab

In addition, persons earning over Rs.5 crore will pay a surcharge of 37% on the tax payable


FDI norms for sensitive sectors under consideration The FDI caps on defence, aviation, media and insurance may be raised to appropriate levels based on deliberations

The budget has permitted FDI up to 100% in insurance intermediation companies


Budget lays out massive and aggressive infrastructure plan Budget has promised to invest Rs.100 trillion into infrastructure over the next five years

In addition, the government will also explore options like public private partnership (PPP) for easier execution


Budget gives special benefits for electric vehicles as per green norms Electric vehicles will be allowed to import necessary inputs and equipment at zero duty and GST will be just 5%

In addition, the car loans taken for buying EVs will entitle borrowers to additional Rs.1.50 lakhs of tax benefit


The Union Budget has offered special concessions on affordable homes Section 24 for interest on home loans will be increased to Rs.3.50 lakhs per annum for homes up to Rs.45 lakhs

This benefit is only available to affordable homes and will be a boost to apartments in smaller towns


Local sourcing norms for FDI in retail eased This is likely to help a lot of large MNC companies that are into retailing in India via ecommerce

This is apparently a response to placating the Americans who have been miffed with the new ecommerce regulations


Threshold for corporate tax rate cut increased to Rs.400 crore This used to be Rs.250 crore before for 25% tax and has disappointed corporates expecting a blanket cut

According to the FM, this will cover nearly 99.3% of the Indian companies in numbers if not in sales or profits


Budget rationalizes the securities transaction tax on options The STT will now be charged only on the difference between market price and strike price in case of ITM options

This should help traders to leave options to expiry as currently the deliver STT is charged on the notional value


Budget proposes lower tax on fund of funds This is intended to help the government meet its divestment targets through the CPSE ETF route

The budget is also exploring if the ELSS benefits can be extended to the CPSE ETF with the necessary lock-in


The PAN card and the Aadhar are likely to be inter operable Going ahead, the Aadhar may become the default identity card for all Indians, considering its spread

That means, it will be possible to actually file returns and also make high value purchases purely with Aadhar


Dividends from the RBI pegged at Rs.90,000 crore for the y ear The overall dividends received from the RBI last year was around Rs.68,000 crore so it is a big shift

This would also be in line with the recommendations that come from the Jalan Panel


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