There is an inevitability to any analysis of the Union Budget. In watching and reading the budget analysis, political loyalties come to the forefront, and there is either overt praise or outright ridicule. We stay away from that and try to figure out what the outlay numbers tell us in the FY23 Budget.

Is the budget really focused on capital expenditure?

Well, it depends on how you slice the numbers. As a whole, the capital expenditure or capex (excluding a Rs 51,971-crore settlement of Air India’s dues) for FY22 will turn out to be Rs 5,50,740 crore. The FY23 budget earmarks Rs 7.50 lakh crore for capex, which is a rise of 36.2%. Essentially, the rise in capex is around Rs 2 lakh crore.

To put this in context, the budgeted capex for FY22 was Rs 5,54,236 crore. So, despite claims to the contrary, capex in FY22 is lower than budgeted. Additionally, nearly 24% of the increase in Centre’s revised expected net tax revenues over its FY22 budget numbers went towards paying off Air India’s debt.

Out of the total capex increase of around Rs 2 lakh crore in FY23, 33.3% or 1/3^rd is allocated towards building highways through the Ministry of Road Transport and Highways, and almost all of it through the National Highways Authority of India. Around 10% of the increase will go towards the Ministry of Railways, and nearly 25% to the Ministry of Communication’s Department of Telecom (Rs 48,680 crore). But nearly 92% of this increase in telecom capex is towards a fund infusion into the state-owned telecom BSNL.

With the capex discussion out of the way, let’s dig into some large allocations for schemes and how that impacts stocks.

Roads, roads, and more roads

The emphasis on roads in this Budget is quite remarkable. The government’s focus seems to be on building highways to ramp up demand for investment goods, which in turn should push up job creation and demand for labour. This would also dial up demand in the economy for cement, steel, and other machinery related to building infrastructure, or so goes the old Keynesian economic theory. Essentially, the government should be the spender of last resort.

The budget outlay for NHAI more than doubled in FY23 to Rs 1,34,015 crore. The government also hiked its allocation for building rural roads by nearly 36% to Rs 19,000 crore under its rural roads program, the Pradhan Mantri Gram Sadak Yojana. Finance Minister Nirmala Sitharaman also said the government is looking at another Rs 20,000 crore to be raised through innovative means to help build nearly 25,000 km of highways in FY23.

This focus on road building is expected to benefit companies that are in the road construction space like Dilip Buildcon, PNC Infratech, IRB Infrastructure, GR Infraprojects, Larsen & Toubro among others. Also, cement companies like UltraTech Cement, Shree Cements, ACC & Ambuja Cements, and steel companies like Tata Steel, JSW Steel, and Jindal Steel & Power are expected to benefit from this.

Jal Jeevan Mission sees a 33% rise in outlay, spotlight on solar & wind power grids

One of the political promises of the current incumbent government is to ensure access to clean drinking water for every household in India. This was reflected in there being a dedicated ministry carved out of the existing ones called the Ministry of Jal Shakti (loosely translated as water power).

Although this is a marquee scheme, the Jal Jeevan Mission is expected to see a 10% fall in spending at Rs 45,011 crore vis-à-vis the amount budgeted for FY22. On this base, the government is planning to increase its expenditure during FY23 to Rs 60,000 crore. It will be interesting to see if this target is met during the next financial year.

If it does manage to execute this large outlay, plastic and metal pipe making companies like Astral, Prince Pipes, APL Apollo Tubes, Ratnami Metals & Tubes, Maharashtra Seamless, Jindal Saw    and Finolex Industries could see an outsized benefit. 

With a renewed focus on renewable energy, the government has earmarked Rs 4,354 crore for building solar and wind power grids. As the government moved away from allocating these projects to a public sector player, these grids will likely be bid out. Companies like Tata Power, Adani Transmission, and Kalpataru Power Transmissions could benefit from this.

Some tax changes to give a boost

The government extended the time period to set up new manufacturing units to get a concessional income tax rate of 15% for companies until March 31, 2024. This will allow companies enough time to get the benefit of the subsidized tax rate. This can lead to a surge in capacity addition by companies. In case a listed company wants to set up a new plant, then they will do it through a wholly-owned subsidiary to get the benefit of this.

There is also a parity that has been given to assets of all kinds, including unlisted shares. The surcharge on capital gains on all assets has now been capped at 15%. This will give a boost to the listing of new companies and investments in startups, and reduce the tax burden on employees on the sale of their ESOPs.

In all, this budget could be called an interesting event that doesn’t really alter the fundamentals. Considering the constraints of a pandemic-ridden economy, the focus is to stimulate private investment by spending big. But there was a case to be made for a consumption boost through income tax breaks. This didn’t materialise, and it doesn’t look like a cut in GST is in the offing considering many state governments’ finances are in disarray. One hopes that this exercise in boosting demand for investment goods plays out as expected