UNION

BUDGET
2015 - 2016

UNION BUDGET
2015 - 2016

INDEX

Key Highlights

Tax Rates

Market movements:
Equity & Debt

Economic update:
-

Budget summary

Revenue snapshot

Expenditure snapshot

Sector updates

Mutual Funds

Equity Market: Outlook and Strategy

Debt Market: Outlook and Strategy

1
UNION BUDGET, 2015 - 2016

KEY
HIGHLIGHTS

Though the Union Budget is essentially a Statement of Account of public finances, it has
historically become a significant opportunity to indicate the direction and the pace of
Indias economic policy. At a time when the International Monetary Fund (IMF) has
downgraded its earlier forecast of global economic growth by 0.3%, and the World Trade
Organization has revised its forecast of world trade growth from 5.3% to 4%, the
forecasts for India have either been upgraded, or have remained the same, without any
downgrades.
With this in the background, we present the key highlights of Union Budget 2015-16.

Economy

Tax revenues (net to centre) to grow by a modest 1.3%

Share of states in tax revenue rises to 42% against 32% earlier

90% increase in non-debt capital receipts pushes total receipts growth to 4.6%

Total expenditure growth to slow further to 5.7% (FY15: 7.8%)

Mid-term fiscal consolidation path relaxed by a year

Budget picks most of low hanging fruits: removes inverted duty structure, brings further
clarity and simplifies on tax reforms, boosts investment in infrastructure

Jump in capital expenditure growth a big positive though Budget lacks serious effort in
rationalization of food subsidy

Reining in subsidies to lower expenditures going forward; however, payment of subsidy

arrears to imply cash outgo in FY16 and FY17

Tax free infrastructure bonds announced in the rail, road and irrigation sectors
2
UNION BUDGET, 2015 - 2016

KEY
HIGHLIGHTS

Direct Taxes
Limit of deduction of health insurance premium increased from Rs 15,000 to Rs
25,000; for senior citizens, limit increased from Rs 20,000 to Rs 30,000
Limit on deduction on account of contribution to a pension fund and the new pension
scheme increased from Rs 1,00,000 (One Lakh) to Rs 1,50,000 (One Lakh Fifty
Thousand).
Additional deduction of Rs 50,000 for contribution to the new pension scheme (NPS)
u/s 80CCD.
Transport allowance exemption increased from Rs. 800 p.m. to Rs. 1,600 p.m.
Payment to the beneficiaries including interest payment on deposit in Sukanya
Samriddhi Scheme (SSS) to be fully exempt.
Wealth-tax replaced with additional surcharge of 2 per cent on super rich with a
taxable income of over Rs 1 crore annually
Donation made to National Fund for Control of Drug Abuse (NFCDA) to be eligible
for 100% deduction u/s 80G of Income-tax Act.
Proposal to reduce corporate tax from 30% to 25% over the next four years, starting
from next financial year.
General Anti Avoidance Rule (GAAR) to be deferred by two years. GAAR to apply to
investments made on or after 01.04.2017, when implemented.
Positive. The increase in the limit of deduction of health premium, increased
transport allowance exemption, the additional deduction allowed for contribution to
the NPS, the payments made under the SSS being exempted and the donations
made to NFCDA to be eligible for 100% exemption are all positives for
investors/individuals/savers. The benefits will accrue on account of tax saved as well
as help create a corpus for the future.
3
UNION BUDGET, 2015 - 2016

KEY
HIGHLIGHTS

Miscellaneous

The finance minister has proposed to allow tax pass-through for alternate investment
funds.

Rationalisation of capital gains regime for the sponsors exiting at the time of listing of
the units of REITs and InvITs. The rental income arising from real estate assets
directly held by the REIT is also proposed to be allowed to pass through and to be
taxed in the hands of the unit holders of the REIT.
The distinction between foreign portfolio investments and foreign direct investments
has been done away with and replaced with composite caps.
The finance minister has allowed foreign investments in Alternate Investment Funds

Forward Markets Commission to be merged with SEBI to strengthen regulation of

commodity forward markets and reduce wild speculation.

The government will introduce Gold Monetization Scheme, Sovereign Gold Bonds
and gold coins with Ashok Chakra to cut demand for gold coins from overseas.

Service tax plus education cess increased from 12.36% to 14% to facilitate transition
to GST

Generation of black money and its concealment to be dealt with effectively and
forcefully.
Bill for a comprehensive new law to deal with black money parked abroad to be
introduced in the current session.
Benami Transactions (Prohibition) Bill to curb domestic black money to be
introduced in the current session of Parliament.

4
UNION BUDGET, 2015 - 2016

MARKET
MOVEMENT

Equity Market

Markets were very volatile throughout the trading day, but ended in green towards
the end of the trading session on the Budget Day.

Markets opened with positive sentiments and Sensex opened 191 points up from its
previous close. Sensex was trading up by almost 400 points higher from its previous
close in the early trade before the announcement of the Union budget.

However, markets see sawed throughout the day as the Finance Minister went about
presenting the Union Budget.

At the end, the Sensex closed at 29,361 levels with gains of 141 points or 0.5%.

Among the sector indices consumer durables lost more than 4% while Power lost
almost 1.5%. Realty, Capital Goods and Metal Indices were down by 0.9%, 0.26%
and 0.22% respectively. Banking sector index was up by more than 3%,while
Healthcare and Auto went up by 2.03% and 1.08% respectively.

Among Sensex stocks, Axis Bank (8.15%), Sun Pharma (3.62%),Tata Motors
(3.15%) & ICICI Bank (3.15%) were the top gainers while ITC (-8.27%), BHEL (3.21%) and NTPC (-1.64%) were among the major losers.

Debt Market

Bond markets were closed on Saturday on the day Budget was announced.

The 10 year benchmark yield had closed at 7.72% on Friday.

The finance minister sought an additional year to meet its medium-term fiscal deficit
target with the additional fiscal space going towards funding infrastructure
investments.
5
UNION BUDGET, 2015 - 2016

ECONOMIC
UPDATE

Fiscal deficit target set at 3.9% as total receipts constrained by increased tax revenue
transfer to states

Budget builds credibility on realistic revenue expectations and higher growth in

capital expenditure
Tax revenues (net to centre) to grow by modest 1.3% despite gross tax revenues growth
by 15.8%
Share of states in tax revenue rises to 42% against 32% earlier, as recommended by 14th
Finance Commission (FFC)
Gross tax revenue growth driven by:
24.8% jump in service tax due to increase in service tax rate from 12% to 14%
23.9% increase in excise duty due to increase in excise duty on petrol and diesel
and
17.5% increase in income tax
90% increase in non-debt capital receipts pushes total receipts growth to 4.6%
Disinvestment of Rs 695 bn (FY15: Rs 313) includes Rs 285 bn from SUUTI and
others
Total expenditure growth to slow further to 5.7% (FY15: 7.8%)
Capital expenditure growth at 25.5%, primarily driven by defence, railways and
road
Subsidies at 2.4 trillions provided adequately
Mid-term fiscal consolidation path relaxed by a year
Revised fiscal deficit targets of 3.6% in FY17 and 3% by FY18
Quality fiscal consolidation likely to deteriorate

UNION BUDGET, 2015 - 2016

ECONOMIC
UPDATE

FY16 fiscal math assumes; 42% tax transfer to states, Nominal GDP growth of 11.5%,
increase in tax buoyancy and savings on subsidy outgo
% YoY
FY15 RE FY16 BE
FY14 A FY15 RE

Rs. Trillions

FY14
A

FY15
RE

FY16
BE

Revenue Receipts
Capital Receipts

10.15
0.42

11.26
0.42

11.42
0.80

11.0%
0.9%

1.4%
90.0%

Total Receipts

10.57

11.69

12.22

10.6%

4.6%

Expenditures

15.59

16.81

17.77

7.8%

5.7%

Revenue Expenditure
Capital Expenditure

13.72
1.88

14.89
1.92

15.36
2.41

8.5%
2.5%

3.2%
25.5%

Fiscal Deficit
Revenue Deficit
Primary Deficit

5.03
3.57
1.29

5.13
3.62
1.01

5.56
3.94
1.00

1.9%
1.5%
-21.3%

8.4%
8.8%
-1.7%

Bonds + Tbills Issued (Net)

4.61

4.98

4.86

8.0%

-2.3%

GDP
Nominal GDP Growth Rate

113
12.2%

127
11.5%

141
11.5%

4.4%
3.1%
1.1%

4.1%
2.9%
0.8%

3.9%
2.8%
0.7%

Fiscal Deficit % GDP

Revenue Deficit % GDP
Primary Deficit % GDP
Tax buoyancy
Expenditure Elasticity

0.81
0.87

0.86
0.68

1.38
0.50

Tax revenues (net of centre) to

grow by just 1.4% due to
increased transfer to States at
42% in FY16 compared to 32%
in FY15

Cut back in Central assistance to

CSS pursuant to increase
devolvement to States limited
growth in Revenue Expenditure

Due to increase in tax transfer to

States, expenditure elasticity
measure is not comparable to
previous years

7
UNION BUDGET, 2015 - 2016

ECONOMIC
UPDATE

Rs. Trillions

FY14
A

FY15
BE

FY15
RE

FY16
BE

Gross Tax Revenues

11.39

13.65

12.51

14.49

9.9%

15.8%

92%

Income Tax
Corporation Tax
Excise
Customs
Service Tax
Direct Tax
Indirect Tax

2.43
3.95
1.70
1.72
1.55
6.38
4.97

2.84
4.51
2.07
2.02
2.16
7.35
6.25

2.79
4.26
1.85
1.89
1.68
7.05
5.42

3.27
4.71
2.30
2.08
2.10
7.98
6.48

14.7%
8.0%
9.0%
9.7%
8.6%
10.5%
9.1%

17.5%
10.5%
23.9%
10.4%
24.8%
13.2%
19.5%

98%
94%
90%
94%
78%
96%
87%

Tax Revenues (Net to Centre)

8.16

9.77

9.08

9.20

11.4%

1.3%

93%

Non-Tax Revenues
o/w Dividends
Telecom receipts

1.99
0.90
0.40

2.13
0.90
0.45

2.18
0.89
0.43

2.22
1.01
0.43

9.5%
-1.8%
7.6%

1.8%
13.4%
-0.7%

103%
98%

10.15

11.90

11.26

11.42

11.0%

1.4%

95%

0.42
0.29

0.74
0.63

0.42
0.31

0.80
0.70

0.9%
6.7%

90.0%
121.7%

57%
49%

10.57

12.64

11.69

12.22

10.6%

4.6%

92%

0.81

1.47

0.86

1.38

Revenue Receipts
Capital Receipts
o/w Disinvestments
Total Receipts
Tax buoyancy

Increase in
service tax rate
from 12% to 14%

% BE
FY15
RE

Includes Rs 285
bn from SUTTI
and others

% YoY
FY15 RE FY16 BE
FY14 A FY15 RE

Higher excise on
petrol and diesel

Revenues buoyed by additional excise collection from petroleum products and higher
Service tax collections

8
UNION BUDGET, 2015 - 2016

ECONOMIC
UPDATE

Jump in capital expenditure growth a big positive though Budget lacks serious effort in
rationalization of food subsidy
Lower Assistance to State Plans pursuant to increase in devolution of taxes to States

Rs. Trillions

% YoY
FY15 RE FY16 BE
FY14 A FY15 RE
7.8%
5.7%
3.2%
-0.6%
-44.3%
37.3%
146.5% -26.4%

% BE
FY15
RE
94%
81%
80%
82%

Expenditures
Plan
Central Plan
Assistance to State Plans

FY14
A
15.59
4.53
3.40
1.13

FY15
BE
17.95
5.75
2.37
3.38

FY15
RE
16.81
4.68
1.90
2.78

FY16
BE
17.77
4.65
2.60
2.05

Non-Plan
Subsidies
o/w Food
Fertilzer
Petroleum
Interest
Defence
Salaries + Pensions

11.06
2.65
0.92
0.67
0.85
3.74
1.24
1.46

12.20
2.61
1.15
0.73
0.63
4.27
1.34
1.65

12.13
2.67
1.23
0.71
0.60
4.11
1.40
1.63

13.12
2.44
1.24
0.73
0.30
4.56
1.52
1.76

9.7%
0.8%
33.3%
5.4%
-29.4%
9.9%
12.9%
11.7%

8.2%
-8.6%
1.4%
2.8%
-50.2%
10.9%
8.4%
7.9%

99%
102%
107%
97%
95%
96%
104%
99%

Revenue Expenditure
Capital Expenditure

13.72
1.88

15.68
2.27

14.89
1.92

15.36
2.41

8.5%
2.5%

3.2%
25.5%

95%
85%

Expenditure Elasticity

0.87

1.12

0.68

0.50

9
UNION BUDGET, 2015 - 2016

ECONOMIC
UPDATE

Sources of financing fiscal deficit: Despite higher fiscal deficit, net market borrowings
largely remains flat
Cash drawdown of Rs. 120 bn. and short-term borrowings resorted to keep Market
borrowings lower in the face high redemptions in FY16

Rs. Bn.
Debt receipts to finance fiscal deficit

FY13

FY14

FY15 RE

FY16 BE

4,674

4,536

4,469

4,564

534

77

512

301

External loans

72

73

97

112

Securities against small sav ings

86

124

333

224

State Prov ident Funds

109

98

100

100

Other receipts

(63)

313

(228)

136

(510)

(192)

(157)

120

906

950
-151

1,388
-63

1,436

5,580

5,637

5,920

6,000

Market loans
Short term borrowings

Draw-down of Cash Balance

Repayments
Switch
Gross Borrowings

10
UNION BUDGET, 2015 - 2016

SECTOR
UPDATES

Sector

Autos

Key budget measures

Impact
Excise duty was increased pre-budget itself. Few indirect
positives are as below:
Increased allocation (> 2x) towards road construction
Custom duty on imported CVs (CBUs) increased to 40%
from 10%
Positive: 2-Wheelers and Tractors
Higher MNREGA allocation and long-term measures to
improve farmer productivity/ income
Capex for defense increased by 15% YoY (MHCVs by 10%
YoY)
Measures to enhance individual tax exemptions

Banking &
Financial
Services

Fungibility of FDI and FII limits

SARFAESI Act benefit extended to NBFCs
Agriculture loans target at Rs 8.5 trn vs. Rs 8 trn in FY15
Limited capital allocation of PSU banks
Establishing Bank Board Bureau for PSU banks. Path
towards creation of Holding Company structure

Cement

Increased spending on infrastructure/ housing and plans to Positive: Industry would benefit from
revitalize PPP mode of infrastructure
higher volume growth

Positive for Private banks and NBFCs

Forward Markets Commission to be merged with SEBI. This

will pave the way for higher liquidity and market depth
through introduction of new products (options/ indices) and
Commodity
Positive: Commodity Exchanges
institutional participation in commodity exchanges in the
Exchanges
long term
Commodity derivatives included in Securities Contract
Regulation Act

Source: Axis Capital

11
UNION BUDGET, 2015 - 2016

SECTOR
UPDATES

Sector

Capital
goods

FMCG &
Retail

Key budget measures

O utlays up by 50% : Bulk of the increase in roads (up
195%) and railways (up 53%)
Push on metro rail projects and smart cities: 7 new
metro projects to be awarded in FY16
5 new UMPPs announced to be awarded with all
clearances
Eased infra financing through formation of a National
Infrastructure Fund and Infra investment trusts. NIF has a
potential of infra lending of USD 30 bn through initial
equity commitment of USD 3 bn
Resolution of contractual disputes: Setting up a
regulator for resolution of contractual disputes for public
sector projects

Impact

Positive: Capital Goods and EPC

companies

Excise duty on cigarettes hiked by weighted average

~ 18% We expect ITCs cigarette volume to decline by ~ 8%
in FY16 as we expect 17% price hike. Earnings downgraded
Negative: Cigarettes manufacturers
by ~ 3%
Reduction in excise duty on footwear was partly offset by Positive: Paints and Footwear Cos
lower abatement charges
Increased allocation to MNREGA (up ~ 20% YoY) and
GST roll out from April16 is a positive

Allocation for transport up 1.7x led by roads and

railways
Infrastructure
PPP to be revisited and revitalized
PSU ports to be gradually corporatized

Positive for EPC companies and road

developers

Source: Axis Capital

12
UNION BUDGET, 2015 - 2016

SECTOR
UPDATES

Sector

Key budget measures

Service tax to be levied on amusement facility,
entertainment events or concerts, pageants, non-

Impact
Negative: Amusement park operators
No impact for Exhibitors

Metals/ Mining

Increase in clean energy cess on coal to Rs 200/ ton (Rs

100/ ton currently)

Neutral for Coal mining companies

Oil & Gas

Lowering fuel subsidy provision to Rs 300 bn in FY16 (Rs

603 bn in FY15), which reflects overall reduction in gross
under-recoveries
Neutral for Oil PSUs, OMCs and
Tweaking excise duties on petrol/ diesel (reducing basic
duty and hiking additional duty by same amount) keeping refining/ petchem companies
overall duty same
Cut customs duty on EDC/ VCM/ Styrene to 2% from 2.5%.
For naphtha (used for excisable goods), customs duty cut
to 2% from 4%
Continued expansion of Direct Benefit Transfer for LPG

Media

(1) Additional investment allowance at 15% and (2)

additional depreciation at 15% to new manufacturing units
set up from 1st Apr 2015 to 31st Mar 2020 in notified
areas of Andhra Pradesh (AP) and Telangana
Pharmaceuticals Companies having capex plans largely in AP and
Positive for Pharma cos
Telangana like Aurobindo (capex of Rs 7 bn in FY15F),
Divis (Rs 6 bn) and Dr Reddys (Rs 10 bn) would gain
given higher allowance and lower
depreciation

Source: Axis Capital

13
UNION BUDGET, 2015 - 2016

SECTOR
UPDATES

Sector

Key budget measures

Impact

Power

Clean Energy Cess on coal increased to Rs 200/ ton from

Rs 100/ ton

Negative for companies selling power on

merchant basis.

Provided exemption on long-term capital gains for

sponsors and tax pass through status to rental income at
REIT level
Allocation for rural and urban housing increased in
continuation to the Govts Housing for all initiative (60
mn units to be built by 2022)

To improve liquidity for the sector

Realty

Positive for developers with strong annuity

portfolio.

Increase in service tax (ST) to14% from 12.36%. ST is a

pass through and has no material impact on minutes
(except for full talk time plans where operators absorb the
same)
Neutral for Telecom cos
Telecom Phased reduction of corporate tax to 25%
Budget receipts pegged at ~ Rs 429 bn in FY16 (Rs 432 bn
in FY15E). Budgetary receipts in line. ~ Rs 230 bn will be
from annual regulatory levies and balance from additional
15 MHz of 2100 spectrum band

Source: Axis Capital

14
UNION BUDGET, 2015 - 2016

MUTUAL
FUNDS

BUDGET PROPOSALS IMPACTING MUTUAL FUND INDUSTRY

o

Surcharge on income distributed by mutual funds increased from 10% to

12%. This will result in reduced income in the hands of the investor. Revised
dividend distribution tax will now be as follows:

Individual: from 28.325% to 28.840%

Others: from 33.990% to 34.608%

Tax neutrality is provided on transfer of units of a scheme of a Mutual

Fund under the process of consolidation of schemes of Mutual Funds as per
SEBI Regulations, 1996.

Unit holders will now have tax neutrality upon consolidation or merger
of mutual fund schemes provided that the consolidation is of two or
more schemes of an equity oriented fund or two or more schemes of a
fund other than equity oriented fund.

Service Tax exemptions are being withdrawn for services

provided by a mutual fund agent to a mutual fund or asset

management company and

services provided by a distributor to a mutual fund or AMC.

15
UNION BUDGET, 2015 - 2016

EQUITY
MARKET
OUTLOOK
AND STRATERGY

The Union Budget 2015-16 was presented in the backdrop of high expectations from
a market which had pinned high hopes on the BJP led NDA government which had
the strongest electoral mandate in the last three decades.

The Budget puts forward the pro-growth focus of the government, while at the same
time maintaining fiscal credibility in the medium term.

The Budget is a step in the right direction with a push towards infrastructure, steps to
ease doing of business, encourage financial savings and rationalise subsidies.

The Indian economy is poised to grow at a healthy rate when most of the larger
economies are facing downgrades in their GDP growth.

Indias macroeconomic fundamentals have improved dramatically for the better.

Improvement in growth, declining inflation, improving CAD and stable rupee have all
aided in improved FII flows and surge in equity markets.

Amidst a global slowdown in economic growth, India continues to be an attractive

investment destination.

Equity market valuations are also reasonable when compared to their long term
Price to Earnings (P/E) averages

We recommend investors to accumulate equities from a 3 to 5 years

investment horizon.

We advise Diversified Equity, Large Cap and Mid Cap funds

16
UNION BUDGET, 2015 - 2016

DEBT
MARKET
OUTLOOK
AND STRATERGY

The government relaxed the fiscal deficit target for FY 16 and FY 17 to 3.9% and
3.5% respectively in return for additional infrastructure spending. The medium term
fiscal deficit target of 3% has been pushed to FY 18.

Government is likely to borrow Rs.6 lakh crores in FY16 compared to Rs.5.92 lakh
crores for this fiscal. The budgeted target for borrowing in current fiscal was Rs.6
lakh crores, but the government will raise only Rs.5.92 lakh crores from markets.

However, the net borrowings in 2015-16 will be Rs.4.56 lakh crores, after
considering repayments of past loans and interests. It was Rs.4.53 lakh crores in
current fiscal.

Despite the slightly higher than expected fiscal & revenue deficit target, net
borrowing of Rs.4.53 lakh crores is reasonably lower.

The demand-supply mismatch for G-Secs is expected to be comfortable this year.

RBI in its last monetary policy review had hinted that future course of interest rates
would be dependent on inflation and fiscal consolidation intent of the government.

With inflation within RBIs target (CPI at 6% for Jan 16) and with the government
outlining the fiscal roadmap, the onus now shifts to RBI on the monetary policy front.

Yields are likely to be range bound in the near term. However, we are positive from a
medium to long term perspective with a pro-active inflation targeting RBI and a
credible govt. at the Centre.

Long Term Income & Gilt and Dynamic Bond Funds can be recommended with
an investment horizon of 18 to 24 months.

Short term income funds can be recommended for investors with an

investment horizon of 12 to 18 months to benefit from current accruals and
ensuing capital appreciation if yields head lower during this period.

The Budget also announced allocation for tax free infrastructure bonds. This will
result in fresh primary supply of these bonds. Details about the names of state
organisations and coupon on these tax free bonds are still awaited.
UNION BUDGET, 2015 - 2016

17

DISCLAIMER
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18
UNION BUDGET, 2015 - 2016