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Business News/ Market / Mark-to-market/  A Herculean push for infrastructure?
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A Herculean push for infrastructure?

The Union budget has outlayed `2.2 trillion for infrastructure

Road construction companies will gain from order inflows and government support to see projects completion soon, while some scepticism on ordering out remains as clarity on manner of outlay of funds for roads is awaited. Photo: MintPremium
Road construction companies will gain from order inflows and government support to see projects completion soon, while some scepticism on ordering out remains as clarity on manner of outlay of funds for roads is awaited. Photo: Mint

Expectations: Very high

Delivery: Moderate

MEASURES

l Outlay of 2.2 trillion for infrastructure.

l About 97,000 crore allocated for roads including rural network. Plan to approve 10,000km of road projects in fiscal 2017, higher than the last two years.

l About 160 airports and airstrips to be revived and funds allocated to improve waterways too.

l Doubled cess to 400/tonne on coal, lignite, peat used to generate power.

l Government institutions to raise 31,300 crore during fiscal 2017 to fund infrastructure development.

l Service tax exemption for firms providing construction services for irrigation ways, dams and so on.

l Additional 50,000 tax rebate (now 1.5 lakh/annum) for first-time homebuyers for houses of below 50 lakh value and loan up to 35 lakh.

l 100% deduction of profit allowed to affordable housing developers.

l Service tax exemption for affordable housing schemes even within the realm of public-private partnership (PPP).

l Basic customs duty on some capital goods increased.

l New guidelines for renegotiating PPPs in infrastructure.

l New credit rating system for infra projects.

l Basic customs duty on aluminium increased from 5% to 7.5%, for aluminium products from 7.5% to 10% and zinc alloys from 5% to 7.5%.

l Export duty cut: Duty on iron ore (below 58% grade) for lumps reduced from 30% to nil and for fines from 10% to nil, on chromium from 30% to nil and on bauxite from 20% to 15%.

IMPACT

l Focus on public capital expenditure might help crowd in private investment demand as well. A recent International Monetary Fund study talks about how under certain conditions, “a one rupee increase in public investment crowds in private investment by 0.30, 1.24, and 1.07 rupees after four, eight, and twelve quarters, respectively". Roads are known to have huge multiplier effects.

l Road construction companies will gain from order inflows and government support to see projects completion soon. Some scepticism on ordering out remains as clarity on manner of outlay of funds for roads is awaited.

l Tax incentives may spur demand for homes. The profit exemption for developers, however, will not benefit bigger listed realty firms.

l Clarity on dividend distribution tax of real estate investment trusts might lead to more funding of realty projects.

l The infrastructure boost will, in the long term, improve demand for cement. However, the higher cess on coal may hurt profit margins of cement companies, as oversupply may hinder them from passing on the cost increase to buyers.

l Better credit rating system for infra projects will bring in funding on reasonable terms to aid firms in execution.

l Higher customs duty on aluminium and zinc alloys is positive for domestic industry but the quantum may be inadequate to stem the tide of cheap imports.

l Iron ore mining companies will benefit significantly from nil export duty. The savings will be a straight addition to margins. These duties were an obstacle to exports at a time when global ore prices have fallen sharply.

STOCKS IN FOCUS

l Road construction firms such as IRB Infrastructure Developers Ltd, NCC Ltd, Ashok Buildcon Ltd and even behemoth Larsen and Tourbo Ltd will gain in the medium to long term as road projects gain traction.

l BSE India Infrastructure and BSE capital goods indices were down as the measures will take time to bring relief for ailing firms’ balance sheets. VATSALA KAMAT

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Published: 01 Mar 2016, 12:37 AM IST
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