Insurance a Corporate Winner from India’s New Budget

July 11, 2014

Indian Prime Minister Narendra Modi’s new government on Thursday unveiled its first budget of structural reforms aimed at reviving growth, winning praise from investors despite a lack of clarity over how it would cap the big fiscal deficit.

Modi’s government, in office for less than two months, said it would raise caps on foreign investment in the defense and insurance sectors, and launch a tax reform to unify India’s 29 federal states into a common market.

The following sectors/companies will benefit or be impacted by the budget proposals:

* Increase in foreign direct investment cap in the insurance sector to 49 percent from 26 percent now will benefit companies such as ICICI Bank Ltd, Max India Ltd, Housing Development Finance Corporation Ltd (HDFC) that have insurance ventures with foreign partners.

* Real estate companies such as DLF Ltd, Unitech Ltd, Phoenix Mills Ltd, Parsvnath Developers Ltd will benefit from the proposal to provide incentives for setting up real estate investment trusts.

* Plan to develop 100 smart cities and increase in allocations to support rural housing will help developers and housing finance companies such as HDFC, LIC Housing Finance Ltd and Dewan Housing Finance Corp Ltd.

* The proposal to allow manufacturing units to sell products via e-commerce platforms is likely to benefit the local units of foreign retailers such as Nike Inc., Marks and Spencer Group and Puma SE.

* Insurance and asset management companies will gain from a proposal to increase the tax exemption limit on certain investments to 150,000 rupees from 100,000 rupees per year.

* Companies such as Larsen & Toubro Ltd, IL&FS Transportation Networks Ltd and IRB Infrastructure Developers Ltd will benefit from plans to increase spending to build roads and ports.

* A proposal to increase excise duty on cigarettes is negative for companies such as ITC Ltd and VST Industries Ltd. Cigarette makers usually pass on any tax hikes to consumers, which may impact sales.

* A more than $2 billion tax dispute between Vodafone Group PLC and the Indian government will likely drag on after the finance minister did not propose revoking a controversial retrospective tax rule change in 2012.

Vodafone said in a statement on Thursday it intended to push ahead with international arbitration to resolve the dispute.

* No change in import duty on gold and silver from the current 10 percent is negative for companies such as Titan Company Ltd and Gitanjali Gems Ltd as some had expected a cut.

(Reporting by India Company News team; Compiled by Devidutta Tripathy; Editing by Sumeet Chatterjee and Miral Fahmy)

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