budget Archives

Finance Minister Smt. Nirmala Sitharaman presented the Union Budget 2023-24 in Parliament today (February 1, 2023). The budget has brought some much-needed tax relief for citizens and included a set of important schemes that target different sectors of our economy. Let us take a look at some of the key highlights from the Budget presentation and the sectors that could benefit in the long term!

Relief for Taxpayers?

With inflation on the rise and loans getting expensive, we were all hoping for a relaxation in income tax rates. The Finance Minister made a much-anticipated mega announcement: there will be no tax on income of up to ₹7 lakh a year in the NEW REGIME!

But bear in mind that there are no changes for taxpayers under the old tax regime! (The old income tax regime will continue with existing tax exemptions and deductions).

Here are some of the changes declared under the new tax regime system:

The country’s highest tax bracket has been brought down from 42.74% to 39%.
The surcharge on those earning between ₹50 lakh to ₹1 crore has been reduced from 37% to 25% in the new tax regime.
A five-slab structure will apply now under the new regime:

Say, for example, you earn ₹7.5 lakhs a year. Then you’ll have to pay 5% tax on your income between ₹3 lakh to ₹6 lakh, and 10% between ₹6 lakh and ₹7.5 lakh.
Salaried people with an income of ₹15.5 lakh or more can subtract ₹52,500 as Standard Deduction while calculating their taxable income in the new tax regime. Till now, a standard deduction of ₹50,000 was available only under the old tax regime.
The new tax regime will be the default choice, but citizens can still opt for the old tax regime. You can make an informed decision after going through the opinions of tax experts.
To read about the current income tax structure for stock market investors & traders, click here!

Huge Jump in Capital Expenditure

The Central government will spend ₹10 lakh crore (up 33% YoY) on long-term capital expenditure (capex) in FY2023-24 to enhance growth potential & job creation and boost private investments. This amount is higher than the ₹7.5 lakh crore budgeted in the previous year and the highest on record!

This push in capex is crucial for India’s growth dreams to become the third-largest economy in the world and create sufficient jobs.

Boost for Railways Sector

The Finance Ministry allocated ₹2.40 lakh crore to Indian Railways. This is the largest capital outlay for railways to date and is nine times the amount provided in FY2013-14. This railway budget is likely to prioritise the completion of unfinished projects and development of infrastructure. The govt. will focus on the launch of more Vande Bharat high-speed trains. It will also allocate funds to introduce hydrogen-powered trains and the Ahmedabad-Mumbai bullet train project.

Do look out for stocks related to our railway sector: Indian Railway Catering and Tourism Corporation (IRCTC), Indian Railway Finance Corporation (IRFC), RailTel, Container Corporation of India, RITES, and Rail Vikas Nigam Ltd (RVNL).

Boost for Green Energy Sector

India has targeted to reach net-zero carbon emissions by 2070. In a strategic move, the Finance Minister announced ₹35,000 crore for priority capital investment towards energy transition, net zero objectives, and energy security by the Ministry of Petroleum & Natural Gas.

The govt. will support the development of battery energy storage of 4,000 megawatt-hours (MWh).

In August 2021, our govt launched the National Hydrogen Energy Mission (NHEM) and announced its decision to transform India into a global hub for green hydrogen production and export. This mission will now receive an outlay of ₹19,700 crore to help achieve a target of 5 million metric tonnes (MMT) of green hydrogen production capacity by 2023!

The top 5 companies leading the green hydrogen revolution in India are Reliance Industries Ltd (RIL), NTPC, Indian Oil Corp, and Larsen & Toubro. These firms are also examining methods to bring down the cost of production and find alternate use cases. To learn more about NHEM, click here.

Boost for Agricultural Sector

Around ₹20 lakh crore will be allocated towards agricultural credit targeted at animal husbandry, dairy, and fisheries.
One crore farmers will get assistance to adopt natural farming over the next three years.
An Agriculture Accelerator Fund will be set up to encourage agri-startups by young entrepreneurs.
Nearly 63,000 credit societies across the country will be computerised. The Finance Ministry will allocate ₹2,516 crore towards this initiative.
Smt. Nirmala Sitharman also announced a new scheme to provide incentives for the adoption of alternative and natural fertilisers.

The top companies operating in the agricultural sector include UPL, Coromandel International, Rallis India, Avanti Feeds, PI Industries, and Bayer CropScience.

Boost for Defence Sector

The govt. will increase the defence budget for FY2023-24 by 12.95% YoY to ₹5.94 lakh crore. This will allow the military to develop or buy advanced weapons systems, including new fighter jets, submarines and tanks!

Stocks related to the defence sector include Hindustan Aeronautics Ltd, Bharat Dynamics, Zen Technologies, Bharat Electronics, and Paras Defence & Space.

The Way Ahead

The Indian government continues to focus on getting the economy back on track and speeding up growth. The Budget will provide a boost to the ‘Make-in-India’ initiative by focusing on infrastructure, power, railways, defence, and agriculture. The Centre’s extended focus on digitisation through new-age technologies and electric vehicles is highly commendable. The govt. seeks to launch policies that promote fair growth, reduce inequalities, and build a more inclusive society.

Now, let’s look forward to seeing how these strategic policies are implemented!

What are your views on Union Budget 2023-24? Let us know in the comments section of the marketfeed app!

Disclaimer: The stocks mentioned in the article are solely for educational purposes. Please do your own research before investing.

Ever wondered about how the power sector in our country works? And what are the opportunities that lie in the industry? For the first time since the liberalization policy in 1991, India’s power sector is going to change for good, in a way that could benefit both consumers as well as power companies. The Finance Ministry is pushing for privatization and delicensing of the power sector which could change the way the power sector works in India.

The total installed capacity of power stations in India stood at 373.43 GW as of October 2020. The transmission lines in India are 4,98,651 km long. According to India Brand Equity Foundation (IBEF), between 2000 and 2020, the power sector attracted Rs 1.11 Lakh Crores in Foreign Direct Investment (FDI), which is close to 3% of the total Foreign Direct Investment(FDI) inflow in India.

Currently, the power distribution companies(Discoms), transmission companies(Transcos), and generation companies(Gencos) are distressed financially due to reduced electricity demand along with unfair pricing and power policy.

With the Budget 2021 and the Electricity Amendment Bill 2020, the power sector is in for a revolution. If the bill is passed in the parliament, it could change the face of the industry. In this piece, we explore how the power sector fairs in the stock market and the listed power companies that have a potentially good investment perspective.

The Companies in the Sector

Power Grid

With a market cap of Rs 96,496 crore, Power Grid is India’s largest state-owned power transmission company in India. It is classified as a Maharatna PSU. It has an annual Return on Equity of 17%, which means that for every Rs 100 invested in the company, one makes another Rs 17 on it. The company has a Return on Capital Employed(ROCE) of 5.44% and Return on Asset(ROA) of 4.3% which means that it is utilizing its capital and infrastructure pretty efficiently. With 5G coming in and the rising electric vehicle market, the need for additional transmission grids are also likely to increase. Power Grid has also filed for an InvIT or an Infrastructure Investment Trust IPO. The IPO is likely to put the company in a favorable position in the markets.

Adani Transmission Ltd

Adani Transmission Ltd is the subsidiary of the Adani Group. It is the largest power transmission company in India. Adani Transmission Ltd. has:

A 27,000+ megavolt ampere of transmission capacity.
3,000,000+ distribution customers
15,400 in transmission line length

Adani Group companies are almost intensively fuelled by debt, but it has a reputation of repaying and gaining a position with time. Adani Transmission over the years took huge debt burdens but managed to pay it back all in time. Most of its debt now is forex debt, which according to the company is cheaper than domestic loans.

The company transmits electricity to Mumbai, the financial capital of India along with holding assets in 8 other major projects. Adani Transmission has returned 1131.5% in the last 5 years. This means that Rs 1 lakh invested would have turned into 11 lakhs in a period of 5 years, from 2016 to 2021.

Torrent Power

Torrent Power is a power generation, transmission and distribution company based in India. Torrent’s stronghold is the state of Gujarat where it transmits and distributes electricity to major cities. Apart from Gujarat, the company holds its presence in Bhiwandi(Near Mumbai), Agra(Uttar Pradesh) and other cities in Maharashtra. It has a total generating capacity of 3191.6 MW.

Some electricity that is produced isn’t able to reach the right customers through transmission and distribution lines in case of theft, damage or heat dissipation. This is known as T&D Loss. Torrent Power’s T&D loss is one of the lowest in the country, which is ~4.5% as compared to India’s average T&D loss of 20%. This means that Torrent Power has the right technology, surveillance and assets to supply electricity seamlessly.

Speaking from a financial perspective, the company has constantly rising Profit After Tax(PAT) and Sales Volumes. Over the past 5 years, the company has returned 31.2% on investment. The company’s Return on Equity stands at 12.82% as compared to Industry ROE of 9.5%.

Torrent Power Adjusted Profit and Net Sales(Source:Edelweiss)

CESC or Calcutta Electric Supply Corporation Limited

CESC Ltd. is a power generation, transmission and distribution in and around the city of Kolkata and a few districts of West Bengal. Along with West Bengal, the company also holds generation and distribution businesses in Rajasthan and Maharashtra.

The company did not fare well in the past 3-4 years, however, there have been recent changes in volumes. The sales volumes in West Bengal has crossed pre-COVID levels and their generation businesses in Rajasthan are likely to turn profitable pretty soon. Loses in the distribution business has reduced significantly. The company is likely to get a push with the Rs 3 Lakh crore stimulus package for electricity distribution companies. The company also offers one of the highest dividends to its shareholders in the power sector. Shares have gained 14.2% in the past 6 months since August 2020.

CESC Price Performance(Source: ICICIDirect)

Tata Power

Tata Power specializes in both generation and power supply. Close to 60% of Tata Power’s revenue comes from power generation, whereas the other 40% comes from transmission and distribution. Tata Power supplies electricity to the cities of Mumbai, Ajmer, and Delhi. It caters to around 26 lakh consumers in Mumbai and Delhi distribution areas, having close to 21,000 circuit kilometers in transmission and distribution grids. The company also holds ~10% market share in the rooftop solar(RTS) energy market in India.

During COVID-19 lockdown, like the rest of the sector, Tata Power too saw a reduction in transmission and distribution revenue segment. Tata Power has been focusing on reducing debt by selling non-core assets or assets that do not add to the core revenue of the company. It has managed to reduce close to ~14% of its debt in the past 1 year. The company’s debt to equity ratio has been decreasing constantly which signifies that the company has been cutting down on debt and catching up on equity in the company.

Privatisation and Delicensing of the power sector will indeed be a positive sign for Tata Power considering that it is the third largest power producing company in India.

IEX

The Indian Energy Exchange or IEX is an electronic power trading marketplace for electricity corporations and boards to trade contracts related to energy. In simple terms, just like how individuals can trade in the stock market to gain profit, electricity corporations can trade on the IEX to increase profitability and have better price discovery. All the three, i.e. Power Generation Companies(Gencos), transmission companies(Transcos) and Distribution Companies(Discoms) can trade on the IEX. IEX has recently seen a spike in volume due to volatility in electricity prices. marketfeed has dedicated two special articles on IEX.

To know more about how the company functions internally and the process of power trading, Click Here.

To know about, IEX as a stock to invest in, financial analysis, profitability and future prospects, Click Here.

Budget 2021

Budget 2021 has received a positive response from the power sector. Finance Minister(FM) Nirmala Sitharaman allowed a much expected Rs 3 lakh crore to the power sector with the intention of reviving stressed discoms. The distribution of the fund will be over a period of 5 years. It will help in reducing losses and also improve efficiency along with increasing rural penetration. The FM also announced developing a framework for allowing the consumers to have their choice of electricity supplier. This will promote healthy competition and allow for healthy price discovery.

The FM also announced the aspects of the Electricity(Amendment) Bill 2021, wherein the power sector will be ‘delicensed’ and thereby give smaller power companies a greater opportunity to expand. Apart from this, the government has also announced a Rs 2,606 crore allocation specifically for the solar power sector and also laid emphasis on shifting from using coal as a fuel to renewables.

Invest In Power

The Budget 2021 was indeed a historical one as it addressed a needed boost after the impact of COVID-19. It addressed not only the problems of the distressed power distribution companies but also hinted that the renewable energy sector is taking off. India currently is undergoing a coal crisis. Coal resources are being depleted and renewable energy is relatively more expensive.

The Indian Power Sector is undergoing a major change, in a way that will change the market outlook for the first time in decades. The power policies in India are made in a way that politically benefits the governments of respective states. They are addressed to benefit the common man. This impacts the power companies as they are faced with reducing demand, falling profits, and increased costs. The power sector was given a ‘Negative Outlook’ by ICRA, a renowned credit rating agency. Due to the COVID-19 pandemic, the demand for power took a fall and dented the power sector.

The focus of power companies right now is to increase rural penetration, boost profits and achieve maximum efficiency. ‘Delicensing’ of the power sector will ensure less government intervention and increase cash flows for the power companies. India’s infrastructure boom, rising electric vehicle industry and the 5G revolution shall definitely enhance demand for the power sector. The future of the power sector is bright indeed.