Govt likely to get Rs 35K cr from LTCG tax; 5 companies to buy post Budget 2018

The Budget 2018 was clearly rural-focused with the correct political sound bites but at the same time, it was disciplined and healthy. The exchequer apparently did a good job at managing its finances with the deficit coming in at 3.5 percent and a projection of 3.3 percent for the next year, which is both realistic as well as reasonable.

There was a lot of give-and-take in this budget. While corporate tax rates were reduced to 25 percent for corporates with a turnover of less than Rs 250 crore, cess has been increased by 1 percent to 4 percent.

Similarly, not much has moved in this budget either for the salaried class or the low-income group, with lack of new tax incentives to boost consumption.

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With respect to the Capital markets, the budget was a definite disappointment. The Disinvestment target of Rs 80,000 crore for 2018-19 is conservative but again lacks boldness in divesting non-core assets.

Re-introduction of LTCG tax was anticipated and there were sound economic reasons for this tax to be re-introduced in this budget. In the absence of LTCG tax, there was an ongoing risk of misallocation of capital, being skewed towards the equity markets.

However, the tax rate coming in as high as 10 percent and without indexation benefit was a negative surprise. Back of the envelope calculation suggests that this LTCG tax should bring to the exchequer about Rs 35,000 crore annually.

The big disappointment though is that the Government chose to continue with STT (securities transaction tax) in its present form. There were independent and compelling reasons both economic as well as social for rationalization of STT and CTT rates with transaction costs in India being among the highest in the world.

With the introductions of LTCG tax, it was naturally expected that the government would atleast do away with STT on delivery-based transactions on the stock exchanges, which hardly generates about Rs 2,000 crore for the exchequer.

All in all, the Hon’ble FM delivered a tight budget though the capital markets will need to take these negatives in their stride.

Budget 2018 was a typical pre-election budget with many populist measures to win rural votes. The budget allocation was tilted in favor of rural spending.

We believe companies which derive a major portion of their revenue from rural India clearly stands to benefit from this budget.

We have picked 5 companies which stand to benefit from this budget:

Escorts and Swaraj Engines.

Both these companies stand to benefit from higher incomes for farmers. The Finance Minister has announced MSP of 1.5x cost of production for Rabi crops which will translate into more money in the hands of farmers.

GIC Housing Finance:

The National Health Protection Scheme to cover over 10 crore poor and vulnerable families (approximately 50 crore beneficiaries) provide coverage up to Rs 5 lakh per family per year for secondary and tertiary care hospitalization.

This initiative of the government to create a safety net for the poor people will benefit penetration of heath insurance to masses and thus, in turn, would help GIC Re.

Godrej Agrovet:

Government impetus on rural spending and increasing the incomes of farmers will help Godrej Agrovet as its revenues are directly linked to the rural income. Godrej Agrovet also commands brand name which helps it derive premium over other brands.

Ujjivan Financial Services Ltd:

The Finance Minister has allocated Rs 5,750 crore to the National Rural Livelihood mission to create employment in villages. Ujjivan caters to mostly rural customers who are self-employed and do not have access to easy credit and thus stands to benefit from this.

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