The first paperless Union budget in Indian history saw Finance Minister Nirmala Sitharaman deliver key insights with an increased emphasis on health, energy, and infrastructure.
The Union budget 2021-22 also signalled a boost for other sectors like insurance and clean energy. In addition a huge IPO was also announced. But what does this all mean for investors?
In this story, we’ll look at the key highlights of the Union budget 2021-22 to see if investors and markets stand to benefit from the pros and cons of the Union budget.
How Did The Markets React To The Union Budget 2021?
The stock market rallied after the Union budget 2021-22 was announced. Popular indices Sensex and NIFTY ended the day 5% higher and stocks from banking, financial and real estate sector soared as well.
This was quite a departure from what was seen after the Union budget was announced in 2020. Back then the markets had crashed dramatically with the Sensex ending the day 700 points in the negative.
Can Investors Benefit From The Union Budget 2021?
While no one can predict the future here are some thing we know for sure:
1. There Will Be More FDI For Insurance Companies
FDI limit on insurance companies has been increased from 49% to 74% in the Union budget 2021-22. This can pave the way for more investment in the insurance sector and have a positive impact on the insurance industry as a whole.
2. The Agriculture Sector Will Get A Good Boost
There’s a proposed increase in the agriculture credit of approximately ₹16.5 lakh crore. Moreover, the MSP regime has also been tweaked to ensure more or less 1.5 times the cost of production of commodities.
Companies positioned in the agriculture and allied sector may benefit from this in FY22.
3. Some Good News For The Petroleum & Gas Sector
The Union budget 2021-22 introduced new propositions for the Petroleum and Natural Gas sector that may benefit Gas & Gas distribution companies:
- Extension to the Ujjwala scheme that will cover 1 crore more beneficiaries
- 100 new districts added to the City Gas Distribution Network
- Introduction of Independent Gas Transport System Operator to ensure equal, open access
4. Respite From Bad Loans For The Banking Sector
An Asset Reconstruction Company will now take over bad loans from banks. This can help banks refocus their efforts on handling new loans and other business ventures.
Furthermore, certain PSU banks are lined up to benefit from the announcement of PSU bank recapitalisation of ₹22,000 crores.
5. Big Spends On The Infrastructure Sector
Infrastructure financing received a big boost with the introduction of the National Bank for Financing Development (NaBFID). The proposed ₹20,000 crore Development Finance Institution (DFI) presents a potentially huge positive for the infrastructure sector and other interconnected industries like cement, paint, home loans, etc.
6. Some Sunshine For The Clean Energy Sector
The clean energy sector has positives to look forward to in the form of increased funding allocation:
- Solar Energy Corporation of India (SECI): ₹1,000 crores
- Indian Renewable Energy Development Agency (IREDA): ₹1,500 crores
As a result, clean (renewable) energy stocks may become more promising.
7. Reduced Customs Duty On Gold & Silver
Customs duty on gold and silver has been reduced to encourage gold trade, boost demand and cut down on gold smuggling. Gold and silver investors and commodity traders may benefit from this.
New Customs Duty On Gold and Silver:
|
Parameter
|
Gold
|
Silver
|
Gold Dore bar
|
Silver Dore Bar
|
|
Current Customs Duty
|
12.5%
|
12.5%
|
11.85%
|
11%
|
|
Proposed Customs Duty
|
7.5%
|
7.5%
|
6.9%
|
6.1%
|
But with the reduced custom duty, a new agriculture infrastructure and development cess of 2.5% has been introduced.
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8. The LIC IPO
Life Insurance Corporation of India is pipped to launch an IPO in and around October 2021. 10% of the IPO may be reserved for existing LIC policyholders.
LIC IPO could be one of the biggest IPOs to be launched in India given the current AUM of LIC that stands at ₹32 lakh crore. You can consult a Cube Wealth Coach to know what kind of assets you should invest in.
9. More Privatisation And Disinvestment
LIC isn’t the only government-owned business up for privatisation. The Union budget mentioned that two other public sector banks (names not mentioned) will be privatised in FY22.
Disinvestment may lead to better competition built on the back on new and efficient business models which may present a positive opportunity for retail investors in the future.
10. Tax Boost For Senior Citizens
The Union budget announcement states that senior citizens over the age of 75 who earn a pension and interest income need not file their I-T returns. This is a welcome move and will encourage more senior citizens to consider investments as a source of income.
11. Good News For Auto Giants
The automotive industry may have been happy to hear about the new vehicle scrappage policy introduced in the Union budget 2021-22. The proposed policy aims to phase out old vehicles unfit for modern roads.
Private vehicles older than 20 years and commercial vehicles older than 15 years must pass a fitness test in an automated test centre. The policy may also play a crucial role in reducing pollution.
Thus, there’s a chance that the policy may lead to an increased demand for new vehicles which might be music to the ears of companies in the automotive industry. This will help the automobile industry which is already increasing prices to keep up with emission norms and upgrades.
12. Swachh Bharat To Go Urban
The Union budget revealed that the Swachh Bharat Urban programme has been allocated ₹2,300 crores for FY22. The programme puts a heavy emphasis on sanitation and cleanliness and companies involved in providing smart solutions to achieve this may stand to gain more value in the future.
13. Atma Nirbhar Bharat-Production Linked Incentive Scheme
The Union budget 2021-22 further improved the Atma Nirbhar Bharat-Production Linked Incentive Scheme with a boost of ₹1.97 lakh crores to broadly:
- Increase production at scale
- Encourage better supply chain management
- Facilitate quality and quantity of manufacturing
The scheme aims to make India more self-reliant which may present healthier investment opportunities in the future.
14. New Electricity Distribution Reform Programme
Electricity distribution companies (discoms) are set to receive a boost of ₹3,05,984 crore over the next 5 years to improve the overall model and mitigate losses.
The power distribution sector may thus be one to look forward to in the future. Remember to always consult a Cube Wealth Coach before investing in any sector based stock.
15. New PM Atmanirbhar Swasth Bharat Scheme
The pandemic has shed light on the necessity of solid healthcare and as a result, the new centre sponsored PM Atmanirbhar Swasth Bharat Scheme was announced in the Union budget 2021-22.
The scheme will receive approximately ₹64,180 crores over a period of 6 years while health and wellbeing as a whole were allocated ₹2,23,846 crores.
As a result, pharma and healthcare companies may stand to benefit from the emphasis on health and wellbeing. Investors may want to consult a Cube Wealth Coach to know more.
16. No Rise In Income Tax Or Long Term Capital Gains Tax
There were no new I-T reforms (except for senior citizens) or Long Term Capital Gains tax changes announced in the Union Budget 2021-22.
Read this blog to know all about tax saving mistakes to avoid in 2021
How India's Union Budget Impacts Investors
The stock market cheered the Union budget 2021 and several sectors like infrastructure, banking, and healthcare are expected to receive significant boosts.
Thus, investors may stand to benefit from smart investments with top quality advice from experts like Wealth First and Purnartha that a trustworthy app like Cube Wealth gives you access to.
Download the Cube Wealth app to know more about the best stocks and mutual funds you can invest in according to the impact of the Union budget 2021-22.
