EXPECTATIONS: HIGH

DELIVERY: HIGH

Measures:

—A substantive 21% increase in infrastructure allocation to Rs5.97 trillion, with an all-time high allocation of Rs1.35 trillion for transportation.

—Road construction target at 9,000km during FY19 is a tad lower than expected. But the Bharatmala Pariyojana to develop 35,000km of roads is on track.

—Both urban and rural infrastructure got adequate attention. Dedicated Affordable Housing Fund created under National Housing Bank.

—Proposal to connect 56 unserved airports and 31 unserved helipads across the country. Operations have already started at 16 such airports.

—Indian Railways’ outlay at Rs1.5 trillion for financial year 2019 is 25% higher than the revised estimate for FY18.

—Defence allocation rose by 8.7% to Rs93,982 crore with plans to develop two dedicated defence production corridors.

Impact:

—The allocations are positive for infrastructure firms engaged in engineering, procurement and construction of roads, bridges, dams, power and water distribution. Companies can expect high tendering activity that had taken the back seat in the wake of the demonetization exercise and the implementation of the goods and services tax.

—The budget spelt out that the National Highways Authority of India will tap innovative funding mechanisms like special purpose vehicles and the toll-operate-transfer model of awards towards faster funding of road construction.

—Capital goods companies with a focus on railway and rural electrification will benefit. Prospects will improve for firms in airport infrastructure development. Sustained boost to affordable housing will better prospects for mid-sized builders, who may even benefit from extension of 25% tax rate to firms with a turnover up to Rs250 crore.

—These measures combined with the push to affordable housing and education infrastructure will indirectly improve construction and real estate activity. About 65% of cement consumption is from housing and producers should see a gradual improvement in utilization.

Stocks in focus:

—Larsen and Toubro Ltd is set to gain from the improved macroeconomic scenario. Its stock closed 3% higher. Others active in road building such as Ashoka Buildcon Ltd, Dilip Buildcon Ltd and Simplex Infrastructures Ltd moved up too. Shares of select capital goods manufacturers such as Siemens Ltd, ABB India Ltd and Kalpataru Power Transmission Ltd gained as a large part of their revenue comes from electrification projects.

—Shares of GMR Infrastructure Ltd and GVK Power and Infrastructure Ltd rose as investors eye gains from the budgetary focus on roads and airports. Some cement stocks too were in the spotlight as they would be the last lap beneficiaries, as more infrastructure activity implies higher demand for cement.

—Among airline stocks, SpiceJet Ltd jumped substantially as it already operates on four UDAN routes that are focus areas to improve regional connectivity.

—However, the budget let down some sectors. Stocks of wagon manufacturers such as Titagarh Wagons Ltd and Texmaco Rail and Engineering Ltd fell due to a drop in allocation for railway rolling stock. High-end realty firms such as DLF Ltd also fell, as the budget did not have anything for high-end housing and commercial property.

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