Budget 2020: Brokerages name 16 companies that may see negative impact of proposals  

Budget 2020 failed to lift D-Street sentiment and left market high and dry fora lot of investors were hoping for big bang reforms from the government.

The fiscal math seems reasonable of 3.5 percent GDP for FY21 but the calculation hinges on a lot of optimistic assumptions and aggressive divestment receipts.

In terms of sectors, Budget was negative for stocks in sectors such as fertlisers, tobacco, insurance, real estate and some part of capital goods space.

"The Union Budget 2020-2021 also failed to deliver on high expectations as certain formidable measures or stimulus were highly expected from the government to spur consumption and boost economic growth," Rajeev Srivastava, Head Retail Broking, Reliance Securities told Moneycontrol.

"Budget once again proved to be a non-event, as the government missed the opportunity of fiscal relaxation, which would have given decent headroom for additional capital expenditure without disturbing the sentiment of domestic and overseas investors," he said.

We have collated a list of 16 stocks that could take a hit from Budget 2020 as recommended by various brokerage firms:

ITC & Godfrey Phillips:

The Union Budget introduced a National calamity contingent duty (NCCD) on Cigarettes and Tabacco Products. Most brokerage firms downgraded ITC post Budget 2020.

NCCD is being increased ranging from Rs 200 – 735 per thousand, depending upon the length of cigarette and on filter/non-filter basis, Reliance Securities said in a report.

On smoking mixtures for pipes and cigarettes, NCCD is being increased from 45 percent to 60 percent.

On other forms of smoking tobacco (other than smoking mixtures for pipes and cigarettes) and forms of chewing tobacco, NCCD is being increased from 10 percent to 25 percent.

Doubling of lines and track renewals grow at a softer pace. Wagons (12,000) and coaches (4,000) are likely to drop by 8-19 percent, IIFL Securities said in a report.

In Rupee terms, there is a 4 percent drop in the key segments of rail capex (60% of mix) after a 30 percent Cagr growth over FY18-20 (RE), despite a 3 percent increase in total rail capex in FY21 (BE).

Track renewals, new lines and road safety (17% share) are expected to grow in 20-45 percent range, rest all segments decline in 10-18 percent range in FY21 (BE).

Havells India, Amber Enterprises, Whirlpool:

The Budget is negative for some of the stocks in the consumer electrical stocks. The increase in import duty on compressors for ACs & refrigerators – from 10 percent to 12.5 percent could be a drag.

“Compressors are mostly imported due to limited manufacturing capacity in India, so an industry-wide impact on cost inflation Duty increased for commercial freezers from 7.5% to 15%,” IIFL Securities said in a report.

SBI Life, ICICI Pru Life and HDFC Life

The Budget is mildly negative for life insurance companies such as SBI Life, ICICI Prudential, as well as HDFC Life, suggest experts after the introduction of the new tax regime for personal income tax rates.

“The new tax regime proposes lower tax rates in lieu of most of the deductions and exemptions available currently, including under section 80C related to investments in certain product classes such as insurance, ELSS, PF, PPF etc.,” IIFL Securities said in a report.

The new tax regime is optional but if adopted by the majority of taxpayers, it may result in lower inflows for insurance savings products too under 80C. “We believe the number of taxpayers migrating to the new tax regime will be materially low due to no material tax benefits compared to the current regime,” said the report.

Embassy REIT

The government was expected to take further steps to boost housing demand; however, in the budget, it unveiled an alternative personal taxation regime, which does not allow any tax benefits on Housing (interest/principal on loan u/s 24 and u/s 80C).

This regime comes at a time when the government is pushing for affordable housing (under ‘housing for all’) by offering tax sops, making it unclear as to what is the govt’s long term vision for growth in the sector. This could as well have a negative impact sentimentally on buyer behavior, suggest experts.

“The government has extended the benefits of affordable housing by 1 more year, to both the developer (u/s 80 IBA, tax exemption to the developer) and to first time home buyer (u/s 80EEA, additional interest allowance). Homebuyers will have to continue in the old regime of taxation to avail this benefit,” IIFL Securities said in a report.

“The variation between the circle rate valuation and transaction valuation was earlier not taxed up to 5%, this has been relaxed to 10%, and will marginally positive for secondary market transactions,” it said.

The report further added that the abolishment of DDT and taxability in the hands of the investor take away the special status that REITs has (exemption from DDT). Unless specifically exempt later, dividend now is taxable in hands of unitholders and should negatively impact the post-tax yield for REITs.

Chambal Fertilisers, Deepak Fertilisers, National Fertilisers:

Fertilizer subsidy has been cut by 11 percent to Rs 71,300 cr. Also, any increase in raw material prices would create working capital pressure for fertilizer companies. No revision seen for the FY2020 number that stands at Rs. 80,000 crores.

According to Sharekhan, it is negative for companies like Chambal Fertilisers, Deepak Fertilisers, National Fertilisers, as their working capital requirement might increase.

IOC & RIL:

Withdrawal of anti-dumping duty on purified terephthalic acid (PTA) is negative for stocks in the Oil & gas sector such as IOC and RIL, suggest experts.

According to brokerage firm Sharekhan, IOCL and Reliance Industries will get impacted adversely as low-cost imports could impact their PTA realisations.