Will The Government’s Impetus For Infrastructure Continue In Budget 2017?
Infrastructure to Continue To Be Key Focus Of Government In Union Budget 2017-18
With private investment still subdued, industry bodies like the Federation of Indian Chambers of Commerce and Industry (FICCI) are hoping that the government continues its focus on infrastructure, saying its development is one of the most critical prerequisites to drive economic growth.
Global financial services major Goldman Sachs points out that given constraints on the private sector’s balance sheet, the government’s push to the sector, especially on railways, roads and defence, could continue in financial year 2017-18. It expects the government’s capital spending to increase by 26 percent.
The spending priorities are likely to remain directed towards creating assets rather than giving subsidies.Goldman Sachs’ Budget Preview Report
Higher Capital Outlay On Roads And Highways
The government in Union Budget 2016-17 allocated Rs 57,976 crore towards Ministry Of Roads Transport and Highway (MoRTH), which included Rs 55,000 crore of planned expenditure and Rs 2,976 crore of non-planned expenditure. This was 75 percent higher than the budgeted allocation made in Union Budget 2015-16.
Brokerages houses like Angel Broking and Axis Capital expect the allocation to go up by another 10-20 percent.
Impact: If Finance Minister Arun Jaitley obliges on this front, it would lead to a pickup in the execution of road projects, which will be positive for all road developers such as Ashoka Buildcon Ltd., IRB Infrastructure Ltd., among others.
Increased Capital Outlay For Urban Infrastructure
With an eye on improving urban infrastructure, the government has introduced schemes like Smart City’, Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and ‘Housing for All’ over the past two years. Angel Broking expects the capital outlay in this area to go up by 20 percent from the present figure of Rs 7,205 crore.
To boost rural infrastructure, the government is expected to increase allocation made towards Pradhan Mantri Gram Sadak Yojana (PMGSY). This is expected to rise by 20-30 percent from the previously allocated Rs 19,000 crore, according to an Axis Capital report.
Impact: Additional outlay for both rural and urban infrastructure development is expected to benefit construction stocks such as NCC Ltd. and Simplex Infrastructure Ltd.
Metro Rail
The capital outlay for Metro Rail is expected to double in FY18 from Rs 10,000 crore in FY17, according to the Angel Broking report. This expectation is mirrored by Axis Capital, which expects a 100 percent growth in allocation for metro projects (under the Ministry of Urban Development).
The higher outlay would mean pick up in metro development especially in large number of tier 2 cities where metro development is far below desired levels. While the higher outlay would provide a strong fillip to urban development, it would also provide strong business opportunities to companies engaged in Metro construction. Companies like ITD Cementation, JKumar Infra, NCC, Simplex Infra would significantly stand to benefit.Alok Deora, AVP - Research, IIFL
Larsen and Toubro Ltd. (L&T) which already has a sizeable chunk (Rs 38, 000 crore over the last 3 years) in the urban mass transport system stands to be one of the biggest beneficiaries, according to Edelweiss.
Increased Allocation Towards Railways
The Railway Budget will be a part of the Union Budget for the first time this year. Angel Broking expects a capital outlay of Rs 1,35,000 crore for the Indian Railways. A major chunk of the incremental budgetary spend is expected to be for the Dedicated Freight Corridor, construction of new lines, doubling of lines and towards rolling stock (including engines, coaches, wagons), according to Angel Broking’s Budget preview report.
Axis Capital expects a 20-30 percent increase in the government’s railways budget. “The government allocated Rs 1,21,000 crore towards Railway in Union Budget 2016-17, which was 24.10 percent from Rs 97,500 in 2015-16”, according to the Axis Capital report.
“While there is likely increased outlay towards wage hikes, the recent accidents may necessitate the government to increase outlay towards safety initiatives. Also, likely increase in outlay for increased infra spends – particularly roads/railways/Dedicated Freight Corridor/Urban Infra could help give impetus to demand,” a Deutsche Bank report adds.
Edelweiss adds that budgetary allocation for Railways grew approximately 15 percent over FY12-16.
Impact: Wagon makers like Titagarh Wagon Ltd., ABB Ltd. and Siemens Ltd. stand to benefit the most.
(Expectations have been compiled from reports by Angel Broking, BP Equities, Edelweiss Research, IDFC Securities, Axis Capital, Deutsche Bank, Goldman Sachs, Angel Broking and FICCI)