UNION

BUDGET
2016 - 2017

UNION BUDGET
2016 - 2017
INDEX

o Key Highlights

o Tax Rates

o Market movements:
Equity & Debt

o Economic update:

- Budget summary

- Revenue snapshot

- Expenditure snapshot

o Sector updates

o Equity Market: Outlook and Strategy

o Debt Market: Outlook and Strategy

1
UNION BUDGET, 2016 - 2017
 KEY
HIGHLIGHTS

Though the Union Budget is essentially a Statement of Account of public finances, it has
historically become a significant opportunity to indicate the direction and the pace of
India‘s economic policy. At a time when the global economy is in serious crisis, global
growth has slowed down from 3.4% in 2014 to 3.1% in 2015. Financial markets have
been battered and global trade has contracted. Amidst all these global headwinds, the
Indian economy has held its ground firmly. Thanks to our inherent strengths and the
policies of the Government, a lot of confidence and hope continues to be built around
India.

With this in the background, we present the key highlights of Union Budget 2016-17.
Economy

• Tax revenues (net to centre) to grow by 11.2%

• Total expenditure growth at 10.8% (FY16: 7.3% affected by increased state allocation)

• 52% increase in non-debt capital receipts

• Disinvestment of Rs.565 bn (FY16: Rs.250 bn) includes Rs.205 bn from SUUTI and
others

• 25% increase in non-tax receipts

• Mid-term fiscal consolidation path reiterated with fiscal deficit target of 3% in FY18

• Mobilisation of additional finances to the extent of Rs. 31,300 crore by NHAI, PFC, REC,
IREDA, NABARD and Inland Water Authority by raising Bonds.
2
UNION BUDGET, 2016 - 2017
KEY
HIGHLIGHTS

Direct Taxes
• Income tax slabs remain unchanged.
• Rebate under section 87A increased from Rs. 2000 to Rs. 5,000 for people having
total income less than Rs. 5 lac p.a.
• The finance minister has proposed to extend benefit limit under section 80GG from
Rs. 24,000 p.a. to Rs. 60,000 p.a for people not having their own house and not
receiving any HRA from employer.
• Additional exemption of Rs. 50,000 for interest paid on housing loans upto Rs. 35 lac,
provided cost of house is not above Rs. 50 lac.
• Withdrawal of up to 40% of corpus from pension to be made tax-exempt under NPS.
In case of superannuation funds and recognized provident funds, including EPF, the
same norm of 40% of corpus to be tax free will apply in respect of corpus created out
of contributions made on or from 1.4.2016.
• 10% tax on dividends in excess of Rs 10 lakh received by individuals, HUFs; this will
be in addition to DDT.
• LTCG period for unlisted firms reduced to 2 years from existing 3 years.
• Reduction in corporate tax rate for FY17 for relatively small enterprises, with
turnover not exceeding Rs. 5 crore, to 29% plus surcharge and cess.
• Infrastructure cess, of 1% on small petrol, LPG, CNG cars, 2.5% on diesel cars of
certain capacity and 4% on other higher engine capacity vehicles and SUVs.

3
UNION BUDGET, 2016 - 2017
KEY
HIGHLIGHTS

Direct Taxes
• Positive: The increase in rebate u/s 87A, the additional exemption for interest paid
on housing loan, enhancement of limit u/s 80 GG, reduction in term for LTCG period
for unlisted companies, reduction in corporate tax for SMEs and tax
exemption of 40% of withdrawal under NPS scheme are all positives for
investors/individuals/savers. The benefits will accrue on account of tax saved as well
as help create a corpus for the future.

3
UNION BUDGET, 2016 - 2017
KEY
HIGHLIGHTS

Miscellaneous
• Allocation of Rs. 25,000 crore towards recapitalisation of Public Sector Banks.
• 100% FDI will be allowed through FIPB route in marketing of food products produced
and manufactured in India. This will benefit farmers, give impetus to food processing
industry and create vast employment opportunities.
• A new policy for management of Government investment in Public Sector
Enterprises, including disinvestment and strategic sale, has been approved.
• Establishment of Monetary Policy framework and Monetary Policy Committee.
• With only marginal increase in service tax, the GST bill seems to be relegated.
• General Insurance Companies owned by the Government to be listed on exchanges.
• In order to incentivize creation of new jobs in the formal sector, Government of India
will pay the Employee Pension Scheme contribution of 8.33% for all new employees
enrolling in EPFO for the first three years of their employment.
• Amendments in the SARFAESI Act 2002 to enable the sponsor of an ARC to hold up
to 100% stake in the ARC and permit non institutional investors to invest in
Securitization Receipts.
• RBI will facilitate retail participation in Government securities.
• New derivative products will be developed by SEBI in the Commodity Derivatives
market.
• To increase retail participation, capital gains tax exemption has been extended to
merger of different plans within a MF scheme.
• The Government will launch a new health protection scheme which will provide
health cover up to Rs. 1 lakh per family. For senior citizens of age 60 years and
above ,an additional top-up package up to Rs. 30,000 will be provided.
4
UNION BUDGET, 2016 - 2017
MARKET
MOVEMENT

Equity Market
• Budget day was a roller-coaster ride for Indian equity market, which declined over
two percent, but finished the day with moderate losses of just over half a percent.
• As Finance Minister Arun Jaitley read out his Budget proposals for FY17, investors‘
knee jerk reaction eroded almost 660 points from the benchmark indices.
• However, markets see sawed throughout the day as the Finance Minister went about
presenting the Union Budget.
• In the end, the Sensex closed at 23,002 levels with loss of 152.30 points or 0.66%.
• Among the BSE sector indices, IT index lost 2.11% while Teck index lost almost 2%.
Capital Goods, Consumer Durable and Oil & Gas indices were down by 1.99%,
1.75% and 1.5%, respectively. Banking sector index was up by 1.07%,while Finance
and Realty gained 0.9% and 0.27%, respectively.
• Among Sensex stocks, ICICI Bank (2.79%), Reliance Industries (1.69%),ITC
(1.65%) & Lupin (1.42%) were the top gainers while ONGC (-9.72%), Maruti Suzuki
(-4.88%) and BHEL (-4.21%) were among the major losers.

Debt Market
G-Secs rallied by approximately 16-18 bps across all tenors as
• The FY17 Union Budget estimated the government's gross market borrowing at Rs 6
lakh crore, Rs 20,000-30,000 crore less than anticipated by market participants.
• The Union Budget also stated that the government is committed to its fiscal deficit
target of 3.5% for FY17, lower than expectations of 3.6% - 3.7% by the markets.
• Adherence to the fiscal deficit number by the centre arms the central bank with
ammunition to cut rates further.
5
UNION BUDGET, 2016 - 2017
ECONOMIC
UPDATE

GOI follows revised FRBM path with deficit at 3.5%; lower excise duty estimate
provides buffer

Implementation of 7CPC pulls capital expenditure growth down to 3.9%; at current

rates on petro products, Centre has a buffer of Rs ~400 bn available in their excise
collection forecast

Tax revenues (net to centre) to grow by 11.2%

• Gross tax revenue growth of 11.7% driven by:
— 18.1% increase in income tax supported by additional tax due to 7CPC
— 12.2% increase in excise duty due to additional clean cess (130 bn), Infra Cess
(30 bn); and excise duty on petrol and diesel (230 bn as against 630 bn at current
rate) and
— 10% jump in service tax with ~3% increase coming from additional 0.5% Krishi
Kalyan Cess
• 25% increase in non-tax receipts
• Revenue from Telecom at Rs 990 bn up from Rs 570 bn driven by spectrum
auction
• 52% increase in non-debt capital receipts
• Disinvestment of Rs 565 bn (FY16: Rs 250 bn) includes Rs 205 bn from SUUTI
and others
Total expenditure growth at 10.8% (FY16: 7.3% affected by increased state allocation)
•Capital expenditure growth down to 3.9% (FY16: 21%); driven by railways and road
•Subsidies at Rs 2.5 tr: Food subsidy at Rs1.35 tr seems lower than expected by Rs
150 bn; given food security act to cover remaining 11 states

Mid-term fiscal consolidation path reiterated with a fiscal deficit target of 3% in FY18
6
UNION BUDGET, 2016 - 2017
ECONOMIC
UPDATE

% YoY
Rs. Tr. FY14 FY15 FY16 FY17 FY15 FY16 FY17
FY17 fiscal math: Higher A income
A RE BE
tax, excise and service tax to boost tax collections;
GOI assumes Nominal
Tax Receipts GDP9.04growth
(Net) 8.16 9.48 of 11%10.8%
10.54 in FY17
4.9% 11.2%
Non-Tax Revenue 1.99 1.98 2.59 3.23 -0.5% 30.7% 24.9%
% YoY
Non-Debt Capital Receipts 0.42 0.51 0.44 0.67 23.0% -14.1% 51.8%
Rs. Tr. FY14 FY15 FY16 FY17 FY15 FY16 FY17
Total Receipts 10.57 11.53 12.50 14.44 9.1% 8.4% 15.5%
A A RE BE
Telecom spectrum auction
Revenue Expenditure 13.72 14.67 15.48 17.31 6.9% 5.5% 11.8% assumption holds the key with
Tax Receipts (Net) 8.16 9.04 9.48 10.54 10.8% 4.9% 11.2%
additional revenue of Rs 400 bn
Capital Expenditure 1.88 1.97 2.38 2.47 4.8% 20.9% 3.9%
Non-Tax Revenue 1.99 1.98 2.59 3.23 -0.5% 30.7% 24.9%
Total Expenditure 15.59 16.64 17.85 19.78 6.7% 7.3% 10.8%
Non-Debt Capital Receipts 0.42 0.51 0.44 0.67 23.0% -14.1% 51.8% Seems on higher side: 20.5K cr. from
Fiscal
Total Deficit 10.57
Receipts 5.03 11.53
5.11 5.35
12.50 5.34 9.1%
14.44 1.6% 8.4%
4.8% 15.5%
-0.2% strategic investments plus 36K cr.
from divestment
Revenue Deficit 3.57 3.66 3.42 3.54 2.4% -6.5% 3.6%
Revenue Expenditure 13.72 14.67 15.48 17.31 6.9% 5.5% 11.8%
Primary Deficit 1.29 1.08 0.92 0.41 -15.8% -14.6% -55.4% Capital expenditure growth down to
Capital Expenditure 1.88 1.97 2.38 2.47 4.8% 20.9% 3.9% 3.9%
G.Sec.: Net 4.54 4.53 4.41 4.25 -0.1% -2.8% -3.5%
Total Expenditure 15.59 16.64 17.85 19.78 6.7% 7.3% 10.8%
G.Sec. + T.Bills: Net 4.61 4.62 5.09 4.42 0.2% 10.2% -13.2%
Fiscal Deficit 5.03 5.11 5.35 5.34 1.6% 4.8% -0.2%
GDP 112.73
Revenue Deficit 3.57 124.88
3.66 135.67
3.42 150.65
3.54 10.8%
2.4% 8.6%
-6.5% 11.0%
3.6%
Fiscal Primary
Deficit %Deficit
GDP 1.29
4.5% 1.08
4.1% 0.92
3.9% 0.41
3.5% -15.8% -14.6% -55.4%
G.Sec.:
Revenue Deficit Net
% GDP 4.54
3.2% 4.53
2.9% 4.41
2.5% 4.25
2.3% -0.1% -2.8% -3.5%
G.Sec.Deficit
Primary + T.Bills: Net
% GDP 4.61
1.1% 4.62
0.9% 5.09
0.7% 4.42
0.3% 0.2% 10.2% -13.2%
Higher excise duty collections due to
Tax buoyancy 0.74 124.88
GDP 112.73 0.86 135.67
2.00 150.65
1.06 10.8% 8.6% 11.0% successive hikes in excise duty rates
pushed tax buoyancy rate at 2 during
Expenditure Elasticity 0.80 0.62 0.85 0.98 FY16
Fiscal Deficit % GDP 4.5% 4.1% 3.9% 3.5%
Revenue
Source : AxisDeficit
Bank % GDP &3.2%
Business 2.9%Research
Economic 2.5% 2.3%
Primary Deficit % GDP 1.1% 0.9% 0.7% 0.3%

Tax buoyancy 0.74 0.86 2.00 1.06 7

Expenditure Elasticity UNION BUDGET, 2016 - 2017
0.80 0.62 0.85 0.98
ECONOMIC
UPDATE

Revenues buoyed by higher income tax, increased excise collections from petroleum
products and service tax collections

% YoY
Rs. Tr. FY14 FY15 FY16 FY17 FY15 FY16 FY17
A A RE BE
Additional tax of Rs ~140
Gross Tax Revenue 11.39 12.45 14.60 16.31 9.3% 17.2% 11.7% bn due to salary increase
Income 2.43 2.66 2.99 3.53 9.4% 12.5% 18.1% under 7CPC

Corporation 3.95 4.29 4.53 4.94 8.7% 5.6% 9.0%

Clean cess (130 bn), Infra
Excise 1.70 1.90 2.84 3.19 11.6% 49.6% 12.2% Cess (30 bn); and excise
Customs 1.72 1.88 2.10 2.30 9.3% 11.4% 9.8% duty on petrol and diesel
(230 bn much lower than
Service 1.55 1.68 2.10 2.31 8.5% 25.0% 10.0% 630 bn at current rate)
Direct Tax 6.38 6.95 7.52 8.47 9.0% 8.3% 12.6%
Indirect Tax 4.97 5.46 7.04 7.80 9.8% 28.9% 10.8% Additional 0.5% Krishi
Kalyan Cess
Tax Revenues (Net to Centre) 8.16 9.04 9.48 10.54 10.8% 4.9% 11.2%

Non-Tax Revenues 1.99 1.98 2.59 3.23 -0.5% 30.7% 24.9%

o/w Dividend & Profit 0.90 0.90 1.18 1.24 -0.7% 31.7% 4.7%
Telecom 0.40 0.31 0.57 0.99 -23.7% 87.4% 72.5% Telecom spectrum
auction
Revenue Receipts 10.15 11.01 12.06 13.77 8.5% 9.5% 14.2%

Capital Receipts 0.42 0.51 0.44 0.67 23.0% -14.1% 51.8%

Includes Rs 205 bn from
o/w Disinvestments 0.29 0.38 0.25 0.57 28.5% -32.9% 123.2% SUUTI and others
Total Receipts 10.57 11.53 12.50 14.44 9.1% 8.4% 15.5%

Tax buoyancy 0.74 0.86 2.00 1.06

Source : Axis Bank Business & Economic Research

8
UNION BUDGET, 2016 - 2017
 ECONOMIC
UPDATE

Quality of fiscal consolidation compromised due to 7CPC implementation; food

subsidy seems to be underprovided

Upside from excise collections may surprise with higher than budgeted capital
expenditure
% YoY
Rs. Tr. FY14 FY15 FY16 FY17 FY15 FY16 FY17
A A RE BE
Expenditure 15.59 16.64 17.85 19.78 6.7% 7.3% 10.8%
Plan 4.53 4.63 4.77 5.50 2.1% 3.1% 15.3%
Central Plan 3.40 1.92 2.61 3.08 -43.7% 36.1% 18.0%
Assistance to State Plans 1.13 2.71 2.16 2.42 140.0% -20.2% 11.9%

Non-Plan 11.06 12.01 13.08 14.28 8.6% 8.9% 9.2%

Subsidies 2.55 2.58 2.58 2.50 1.4% -0.2% -2.9% Bringing additional 11
states under Food
o/w Food 0.92 1.18 1.39 1.35 27.9% 18.5% -3.3% Security Act likely to
Fertilizer 0.67 0.71 0.72 0.70 5.5% 1.9% -3.4% push food subsidy by at
least Rs. ~150 bn
Petroleum 0.85 0.60 0.30 0.27 -29.4% -50.2% -10.2%
Interest 3.74 4.02 4.43 4.93 7.5% 10.0% 11.3%
Defence Services 1.24 1.37 1.43 1.63 10.0% 4.7% 13.6%
Jumped on account of
Salary 0.71 0.82 0.89 1.02 15.0% 8.9% 14.9%
implementation of 7CPC
Pension 0.75 0.94 0.96 1.23 25.0% 2.3% 28.9%
Defence Capital 0.79 0.82 0.81 0.86 3.5% -0.6% 6.1%

Revenue Expenditure 13.72 14.67 15.48 17.31 6.9% 5.5% 11.8%

Capital Expenditure 1.88 1.97 2.38 2.47 4.8% 20.9% 3.9% Major drop in Capex
growth to accommodate
Expenditure Elasticity 0.80 0.62 0.85 0.98 7CPC expenses

Source : Axis Bank Business & Economic Research

9
UNION BUDGET, 2016 - 2017
 ECONOMIC
UPDATE

Sources of financing fiscal deficit: Net market borrowings on decline while gross
borrowing still ticks up
Lower short-term borrowings in line with new debt management strategy (bringing
proportion of paper with maturities less than 1 year below 10% from current 10.9%)

Market Loans FY14 FY15 FY16 FY17

Rs. Tr. A A RE BE
Fiscal Deficit % GDP 4.5% 4.1% 3.9% 3.5%
Fiscal Deficit 5.03 5.11 5.35 5.34

Net Market Loans 4.69 4.53 4.41 4.25

Gross 5.64 5.92 5.85 6.00
Repayments 0.95 1.39 1.44 1.75
Buyback | Switch 0.16 0.05 0.39 0.00
Net T.Bills 0.08 0.09 0.69 0.17
Net Market Borrowings 4.60 4.58 4.71 4.42

Non-market borrowings
Small Savings 0.12 0.32 0.53 0.22
State PF's 0.10 0.12 0.11 0.12
External Assistance 0.07 0.13 0.11 0.19
Others 0.31 0.74 0.11 0.26
Cash Surplus -0.19 -0.78 -0.22 0.13

Source : Axis Bank Business & Economic Research

10
UNION BUDGET, 2016 - 2017
SECTOR
UPDATES

Sector Key budget measures Impact

Allocation to irrigation tripled to Rs 170 bn in FY17 vs. Rs
53 bn in FY16. Total irrigation allocation at Rs 865 bn over
next 5 yrs (vs. Rs 500 bn earlier)
Higher farm income: Target to double farm income by
Agriculture 2022. Crop insurance, interest subvention, MGNREGS Positive: Agri input companies
allocation and 15% YoY growth in agri-credit
Rural infrastructure: Continued focus on rural roads
(allocation up ~2x from FY13/14 levels) and a common e-
market platform to cover 585 APMCs across India

Pro rural measures to improve farm productivity and spur

rural income growth
Road (urban + rural) capex to increase by ~50% to Rs 1.3
trn Positive: Commercial vehicle cos
Autos
Infra cess (wef 1st March ‘16) of 1-4% on PVs to increase Negative: Passenger car manufacturers
cost of ownership
Defense outlay for MHCVs increased by >75%
Deduction on R&D expenditure reduced

Recapitalization of PSU banks (Rs 250 bn provided, for

now)
Roadmap for consolidation of weaker PSU banks and
privatization of IDBI Bank
Addressing asset quality issues – propose insolvency
and bankruptcy code and incentivize investment in ARCs.
Boost financial position of ARCs by allowing 100% FDI
under automatic route, increase FPIs investment to 100% in
Banking &
Security Receipts (SR), complete pass through of income-
Financial Positive: Corporate lenders and HFCs
tax to investors in SR
Services
Exemption of tax on NPA provisions for NBFCs (up to 5% of
income)
Encouraging affordable housing by increasing tax
exemption on interest paid
49% FDI in insurance and pension sector via automatic
route

Divestment - plan to list PSU general insurance companies

Source: Axis Capital

11
UNION BUDGET, 2016 - 2017
 SECTOR
UPDATES

Sector Key budget measures Impact

Budgetary allocation towards capex up by 21% : Bulk of

the increase in railways (up 24%) and roads (up 24%)
Push on metro rail projects and urban infra: 5 new
metro projects to be awarded in FY17. Allocation for urban Positive: Capital Goods and EPC
Capital
infra projects up by 129% companies
goods
Defense capex the only disappointment: FY16 capex of Negative: Wind equipment cos
14% below budget allocation, and a paltry 6% increase in
FY17 allocation
Wind equipment: Reduction in accelerated depreciation to
40% from 80% from FY18
Demand boost from ~50% increase in road and rural
Cement Positive: Volume growth for cement cos
housing spending

Excise duty on cigarettes hiked by weighted average ~10%.

We estimate ITC cigarette volume to decline by 5% in FY17
Negative: Cigarettes manufacturers
FMCG
Increased investment on the rural side in the form of various Positive: Consumer cos
schemes and increased MNREGA investment to aid FMCG
companies

Increased funds for Roads and Railways

Infrastructure Sunset clause on tax breaks is not a major concern Positive: EPC companies
Measures to revitalize PPP

Source: Axis Capital

12
UNION BUDGET, 2016 - 2017
 SECTOR
UPDATES

Sector Key budget measures Impact

Reintroduction of 70% abatement on service tax on Indian
Railways' haulage charges (effective service tax at 4.2% now
vs. 14% earlier)
Logistics Reduction in abatement rate to 60% vs. 70% earlier for Positive: Train container operators
Container Train Operators - effective service tax increased
to 5.6% (with input service credit) vs. 4.2% (without credit)
earlier

Doubling of clean energy cess to Rs 400/t

Increase in import duty on aluminium to 7.5% vs. 5% currently Neutral for metal and mining companies
Metals
Cut in export duty on low grade iron ore to nil (currently at
10% for fines and 30% for lumps). Duty on high-grade ore
however retained at 30%

Change in cess rate for E&P companies from Rs

4,500/te (USD 9.4/bl) to 20% ad-valorem (USD 9/bl at crude
price of USD 45/bl)
No change in custom duty structure on crude and petroleum
Positive: Oil marketing cos
products
Negative: Upstream cos
Oil & Gas
FY17 budget provides for incremental revenue of Rs 210 bn
from excise duty for petrol/diesel. This is lower than
estimated incremental revenue of Rs 580 bn assuming flat
excise duties. Thus, the government has kept adequate
buffer to reduce excise in future (if crude rises)

Source: Axis Capital

13
UNION BUDGET, 2016 - 2017
 SECTOR
UPDATES

Sector Key budget measures Impact

R&D exemption limit to be lowered from 200% to 150% from
Marginally negative for companies with tax
Pharmaceuticals 1 April, 2017 to 31 March, 2020 and to 100% from 1 April,
rates higher than MAT
2020

Clean Energy Cess on coal increased to Rs 400/ton from Rs

200/ton: Encouraging structural shift to renewables
Negative for IPPs selling power on
Power Introduction of dispute resolution bill and guidelines for merchant basis
renegotiation of PPP concession agreement could revive Neutral for Power cos
private investment in Infra but the bill will need to be passed
in both houses of Parliament
Hurdle for REITs cleared: No DDT on dividend payment from
SPV to REIT Positive for annuity assets owners;
affordable housing sops beneficial for
Realty Multiple impetus for affordable housing to both buyers and
developers with strong execution track
developers
record
Phasing out tax benefits on SEZs

Excise duty on branded readymade garments of retail sales

price of Rs1,000 or more to attract duty at 2% (with
credit)/12.5% (without credit). Negative for jewellery and apparel cos
Retail
1% (without input tax credit) or 12.5% (with input tax credit)
on gold and studded jewellery.

Source: Axis Capital

14
UNION BUDGET, 2016 - 2017
EQUITY
MARKET
OUTLOOK
AND STRATERGY

• The Union Budget 2016-17 delivered a pleasant surprise by sticking to the pre-
announced fiscal deficit target of 3.5% of GDP as this move is likely to have a
positive impact on the macro economy by preserving stability.
• The Union Budget puts forward Government‘s focus of continuing on the path
towards fiscal consolidation which also makes it easier for the central bank to
continue with its accommodative stance.
• The Budget also underlines the Government‘s determination to provide an impetus
to the economy especially through the infrastructure, rural and financial sectors.
• The Indian economy is poised to grow at a healthy rate in contrast to the global
economy which slowed down from 3.4% in CY 2014 to 3.1% in CY 2015.
• India‘s macroeconomic fundamentals remain intact with improvement in growth,
moderate inflation, improving CAD and robust forex reserves.
• Amidst a global slowdown in economic growth, India continues to be a leading
investment destination.
• Equity market valuations are also reasonable when compared to their long term
Price to Earnings (P/E) averages.
• We recommend investors to accumulate equities from a 3 to 5 years
investment horizon.

15
UNION BUDGET, 2016 - 2017
DEBT
MARKET
OUTLOOK
AND STRATERGY

• The government retained its fiscal deficit target for RE 2015-16 and BE 2016-17 at
3.9% and 3.5%, respectively. Mid-term fiscal consolidation path was also reiterated
with a fiscal deficit target of 3% in FY18.
• The Centre is likely to borrow Rs. 6 lakh crores in FY17 (Rs. 5.85 lakh crores in
FY16). However, the net borrowings in FY17 will be Rs. 4.25 lakh crores (Rs. 4.41
lakh crores in FY16), after considering repayments of past loans and interests.
• Gross supply of Central and State government securities is likely to be at Rs. 9.03
lakh crore in FY17, compared to Rs. 8.90 lakh crore in the current fiscal.
• The RBI through its ―Medium Term Debt Management Strategy‖ document laid
emphasis on increased issuances in the longer end of the curve; the implication of
which would increase the average maturity of debt from 14.9 yrs in FY15 to 16 yrs in
FY18. With demand-supply dynamics likely to be similar to FY16, excess supply of
high duration securities could continue to contribute to yield curve steepness.
• The RBI in its February monetary policy stated that they continue to maintain an
accommodative stance, while keeping an eye on inflation data and the Union
Budget. With the Government committed to walk a tightrope and stick to its fiscal
deficit target of 3.5%, the onus now shifts to RBI on the monetary policy front.
• The budget announced an allocation for infrastructure bonds to the tune of Rs.
31,300 crore by NHAI, PFC, REC, IREDA, NABARD and Inland Water Authority by
raising bonds. Further clarity is awaited on whether these bonds will be tax-free.
• Yields are likely to be range bound in the near term. However, we are positive from a
medium to long term perspective with a pro-active inflation targeting RBI and a
credible government at the Centre.
• Investors who have an investment horizon of at least 18 to 24 months can look
at investing in long term income, gilt funds and dynamic bond funds.
• Short term income funds can be recommended for investors with an
investment horizon of minimum 12 -18 months to benefit from current accruals
and ensuing capital appreciation if yields head lower during this period.
16
UNION BUDGET, 2016 - 2017
DISCLAIMER

DISCLAIMER

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does not guarantee that the information is true, reliable and accurate, not misleading nor does it represent (expressly and impliedly) as
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Report is provided for assistance only and should not be construed as the sole document to be relied upon for taking any kind of
investment decision. Each recipient of this Report should make his/her own research, analysis and investigation as he/she deems fit and
reliable to come at an independent evaluation of an investment in the securities mentioned in this Report (including the merits, demerits
and risks involved), and should further take opinion of own consultants, advisors to determine the advantages and risks of such
investment. The investment discussed or views expressed herein may not suit the requirements for all investors.

Axis Bank and its group companies, affiliates, directors, and employees may: (a) from time to time, have long or short
positions in, and deal (buy and/or sell the securities) thereof, of company (ies) mentioned herein or (b) be engaged in any
other transaction involving such securities and earn commission/brokerage or other compensation or act as advisor or
lender/borrower to such company (ies) or have other potential conflict of interest with respect to any recommendation and
related information and opinions.

The applicable statutory laws, rules and regulations may not allow the distribution of this Report in certain jurisdictions, and persons who
are in possession of this document, should inform themselves about and follow, any such restrictions. This Report is not meant, directed
or intended for distribution to, or use by, any person or entity in any jurisdiction, where such distribution, publication, availability or use
would not be in confirmation to the applicable law, regulation or which would require Axis Bank and affiliates/associates/subsidiaries
companies to obtain any registration or license . Neither Axis Bank nor any of its affiliates, associates, subsidiaries companies, its
directors, employees, agents or representatives shall be held responsible, liable for any kind of consequential damages whether direct,
indirect, special or consequential including but not limited to lost revenue, lost profits, notional losses that may arise from or in
connection with the use of the information or for ant misstatement or error(s) in it.

Prospective investors and others are cautioned and should be alert that any forward-looking statements are not predictions
and may be subject to change without providing any notice.

Past performance should not be considered as a reference to future performance. The disclosures of interest statements if any included
in this Report are provided only to enhance the transparency and should not be construed as confirmation of the views expressed in the
report.

Disclaimer for DIFC Branch:

Axis Bank, DIFC branch is duly licensed and regulated in the Dubai International Financial Centre by the Dubai Financial Services
Authority (―DFSA‖). This Report is intended for use only by Professional Clients (as defined by Rule 2.3.2 set out in the Conduct of
Business Module of the DFSA Rulebook) who satisfy the regulatory criteria set out in the DFSA‘s rules, and should not be relied upon,
acted upon or distributed to any other person(s) other than the intended recipient.

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UNION BUDGET, 2016 - 2017