Let us look at the overall corporate picture first. The big growth in GDP to $5 trillion by 2025 is likely to benefit companies across the board. The plan to invest Rs.100 trillion in infrastructure over the next five years will also give a growth push to all sectors across the board. However, the government not reducing the tax rates for all companies from 30% to 25% was little disappointing as it would have helped the profitability of Indian companies. Here are some of the key sectoral implications.

Impact on automobiles (four wheelers and two wheelers)

The traditional auto industry consisting of two wheelers and four wheelers are normally beneficiaries of infrastructure investments, aggressive road targets and rural demand boost. However, the real boost in the budget was to the Electrical Vehicles (EV) segment. There are 3 major benefits offered on EVs.

· Import of inputs and equipment for manufacture of EVs will be made free of customs duty to make them more competitive. This will help reduce the cost of production.

· GST rate on EVs will be reduced from 12% to 5% in consultation with the GST Council. Of course, the GST rates are set by the GST Council but the FM chairs the meeting and has the power to influence the decision.

· Finally, the budget offered an overall exemption of Rs.1.50 lakhs for EVs purchased between 2019 and 2023 by individuals taking an auto loan. This is the first time that there is an income tax exemption on auto loans of any format.

Impact on Real Estate Sector (Realty developers and HFCs)

If you combine the realty sector and the housing finance sector, then there are a lot of positives that can be summarized as under.

· Budget has proposed a model tenancy law which to replace the archaic rental laws that still prevail in India. This will give a boost to the rental market and improve the rental yields making the idea of investing in real estate more lucrative.

· Budget has given a big boost to affordable housing. If you opt for affordable housing with a stamp duty value up to Rs.45 lakhs will get an additional annual exemption of Rs.1.50 lakhs under Section 80EEA of the Income Tax Act in addition to the Section 24 benefit under Section 24. Total exemption goes up to Rs.3.50 lakhs per annum.

· Lastly, HFCs will now be regulated by RBI and not by NHB and that will be an added boost to these companies and more importantly to the customers.

What is the impact on Banking and NBFC stocks?

This sector is important as it accounts for 40% of the Nifty composition and is also the bulwark of the economy. Banks and NBFCs had a few positives in the budget.

· PSU banks have been given an allocation of Rs.70,000 crore for recapitalization. This will permit them to expand their asset books in a big way.

· Budget also announced banking line of credit of Rs.1.34 trillion for NBFCs, which will be partially guaranteed by the government. However, this will be limited to only the sound NBFCs that are facing problems of liquidity and not of solvency.

What the budget has for the IT sector?

Budgets do not have a major impact on the IT sector as it is driven by global factors. However, two announcements in the current budget are likely to have an impact on the IT sector.

· Tax on buybacks at 20% is likely to hit IT companies; especially the large companies with aggressive plans to reward shareholders through buybacks. With the 20% tax being introduced on buybacks, they may not be attractive any longer.

· Budget has also asked SEBI to explore increasing the minimum public shareholding limit in listed Indian companies from 25% to 35%. In fact, 2 of the 3 largest companies to be hit by this are TCS and Wipro as it will entail a huge floating stock coming into the open market and depressing prices.

Broadly, the budget can be seen as negative for the IT sector as a whole.

Apart from these sectors there are also other sectors like defence and road building which are likely to be positively impacted by the sharply higher spending in infrastructure and in defence in-sourcing.