The Budget often impacts the bottom line of industries and companies — and can make a difference to your investments. One of India’s leading newspapers, The Times of India commissioned global analytical company CRISIL to analyze how your market wealth could be impacted. These are the findings:
RETAIL
STATE OF THE INDUSTRY
Revenues of organized retailers are estimated to rise 16-19 per cent in 2015-16 and 18-20 per cent in 2016-17, driven by same-store sales. Organized retail penetration is likely to improve 9per cent in 2016-17, marginally up from 8 per cent in the current financial year. Margins are likely to remain flat in 2015-16 and improve slightly in the next financial year on the back of cost rationalization measures. Apparel, consumer durables and footwear are a few sectors where organized retailers continue to have a strong foothold.
BUDGET 2016 IMPACT
Excise duty on branded garments has been levied at 2 per cent (without CENVAT credit) or 12.5 per cent (with CENVAT credit) for items retailing at Rs 1,000 and above. Additionally, the tariff value for excise/countervailing duty on readymade garments and other textile materials has been increased to 60 per cent from 30 per cent of the retail sale price. The impact on retailers is expected to be neutral as they are likely to pass on the cost increase to consumers. Abatement rate from retail sale price for all categories of footwear has increased to 30 per cent from 25 per cent. Retailers, though, will not be impacted by it.
AUTOMOBILE
STATE OF THE INDUSTRY
The current financial year will see car and utility vehicle sales grow 11-13 per cent, aided by higher disposable incomes, seventh pay commission payouts and competitively priced launches. Two-wheeler sales will grow 10-12 per cent on higher farm incomes. Commercial vehicle sales will increase 7-9 per cent, driven by improved industrial growth, steady replacement demand from large truck operators and higher private consumption and finance.
BUDGET 2016 IMPACT
The impact is expected to be neutral. While rural focus is a long-term positive, levy of infrastructure cess would be a negative for passenger vehicles. A cess of 1 per cent on small/CNG/LPG and petrol cars, 2.5 per cent on small diesel cars, 4 per cent on big sedans and SUVs, along with a 1 per cent additional luxury tax on cars priced above Rs 10 lakh, would drive up prices and for passenger vehicles (except taxis). CVs get a boost with a targeted Rs 1,03,286 crore spend on national highways. Rural schemes will indirectly aid motorcycle and tractor sales.
TEXTILES
STATE OF THE INDUSTRY
Domestic apparel sales are expected to grow 6per cent in 2015-16 while demand for exports is seen shrinking. Cotton yarn sales are likely to slow down due to a slump in yarn exports. Demand for man-made fibre (MMF) could grow a moderate 3.5-4.5per cent. In 2016-17, improvement in domestic consumption would boost apparel sales by 6.5-7per cent year-on-year. Demand for cotton yarn and MMF would, in turn, improve. Yarn exports have fallen to 100 million kgs a month now from 140 million kgs earlier due to demand slump in China.
BUDGET 2016 IMPACT
The excise duty on branded garments retailing at Rs 1,000 and above has been increased from zero to 2per cent (without Cenvat credit) and from 6per cent to 12.5per cent (with Cenvat credit). Additionally, tariff value (presumptive) for excise/countervailing duties on readymade garments and other textile materials has been increased to 60per cent from 30per cent of the retail sale price. This will increase the retail sale price. Further, basic customs duty on specified fibres and yarns has been reduced to 2.5per cent from 5per cent, though the implication isn’t clear as the specified fibres have not been spelled out.
REAL ESTATE
STATE OF THE INDUSTRY
Average residential capital values were stagnant in 2015 in 10 major cities tracked by CRISIL Research, and are expected to stay range-bound in 2017. Demand is expected to recover a bit, though, led by infra structure projects and commercial drivers.
BUDGET 2016 IMPACT
For first-time homebuyers, availing loans up to Rs 35 lakh, interest exemption under Section 80EE would be increased to Rs 1.5 lakh from Rs 1 lakh (if the property is priced up to Rs 50 lakh). This would boost demand for apartments in this price bracket, which currently forms nearly 40 per cent of upcoming supply in cities. Housing projects approved under the Pradhan Mantri Awas Yojana between June 2016 and March 2019 would receive full tax deduction on profits. This will benefit developers focusing on affordable housing. Minimum alternate tax (MAT), though, would apply to these undertakings. Service tax exemption for constructing affordable houses (measuring up to 60 square metres) will boost demand.
FMCG
STATE OF THE INDUSTRY
While subdued economic growth and tepid demand in rural areas hit consumer spend in 2015-16, higher realizations spurred 10-12 per cent growth in revenue. Growth is likely to recover in the next financial year, assuming the monsoon is normal.
BUDGET 2016 IMPACT
Increased focus on improving rural income, with the highest allocation this year on MNREGA and a plan to double farmer incomes in five years, will benefit the consumer goods industry in the long run. Initiatives to support the revival of both rural and urban consumption should help boost growth. A 10-15 per cent increase in excise duty on cigarettes and 15-16 per cent on several other tobacco products is expected to discourage consumption and impact revenue of key players such as ITC, VST and Godfrey Phillips adversely. Increase in excise duty on water, including mineral water and aerated water, to 21 per cent from 18 per cent will marginally increase prices of these products. Tax reforms, particularly with respect to GST and rationalization of rates, though, have been kept in abeyance.
As reported by the Times of India
Revenues of organized retailers are estimated to rise 18-20 per cent, driven by same-store sales
Must Read
