De- coding the Budget FY19, Researched fine print with graphical interpretation for better understanding.

1. Budget FY19 Geared todrive growth in rough terrain
Feb 2, 2018

2. Table of Contents
Ø Macro Economic Background
Ø Budget framework
Ø Market environment
Ø Reforms and initiatives
Ø Takeaway
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Macro Economic Background

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Macro Background: Global
Ø Budget presented in an improving global environment
• Global economy showing increased growth momentum estimated to have grown
by 3.7% in 2017 and growth continuing to move up to 3.9% in 2018.
• Broad based pickup in growth with some 120 economies accounting for 75% of
the global economy
• Recently passed tax changes in the U.S expected to stimulate investment activity
with spill over impacts to the global economy
Ø Risks to global economy broadly balanced.
• On the upside, the cyclical rebound in growth could be even stronger as
increased activity and easier nancial conditions reinforce each other.
• On the downside stretched valuations in various markets and compressed term
premiums could lead to market correction which could slow down growth.
• A possible trigger is a faster-than-expected increase in advanced economy
ination and interest rates as demand accelerates.
• Trade disputes, geopolitical tensions, and political uncertainty also pose
downside risks.
• Furthermore, rising oil and commodities pricing present challenge for net
importing countries somewhat offset with dollar depreciation

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Macro Background: Domes c
Ø Domestic Economy undergoing structural changes:
• Important changes such as JAM (Jan dhan, Aadhar and Mobile), implementation of
GST bill, bankruptcy code and move toward cashless economy playing out
• Real GDP growth expected to be 6.8% in FY18 and expected to rise to 7.5% in FY19.
• CPI has fallen from as high as 11.2% in Nov’12 down to 1.5% in June 17 and now
back up to 5.2% in Dec 17.
• Fiscal decit of 3.5% in FY18 implying no consolidation for current year
• CAD at manageable levels coming in at 1.2% of GDP in Q2FY18 but with upside
risks emanating from commodity price increases
• Rupee has remained stable and foreign exchange reserves have been rebuilt
• Monetary Policy stance no longer accommodative as ination has moved up
Ø Certain Domestic Challenges Remain:
• High levels of NPA’s in Banking system; increased provisioning as the RBI attempts
to clean up balance sheets but recent recapitalization positive for sector
• Private investment continues to be muted
• Leverage levels remain high in Corporate India
• The Rupee’s overvaluation on a REER basis impacting India’s trade competitiveness
5

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Dollar Weakening driving various prices of various assets
6TRUST Private and Confidential
DXYUS Treasury
Brent Crude FTSE World Index
1
1.5
2
2.5
3
3.5
Feb-13
Apr-13
Jun-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
75
80
85
90
95
100
105
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
Jan-18
20
30
40
50
60
70
80
90
100
110
120
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
Jan-18
350
400
450
500
550
600
650
700
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
Jan-18
Source: Bloomberg; Trust Research
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Domes c e onomy facing some challenges
GDP Growth
-2.0
0.0
2.0
4.0
6.0
8.0
General Index Food and Beverages Clothing and Footwear Housing
India CPI
-5
0
5
10
15
20
25
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
Sep-12
Mar-13
Sep-13
Mar-14
Sep-14
Mar-15
Sep-15
Mar-16
Sep-16
Mar-17
Sep-17
Real GDP Growth Nominal GDP GDP Deflator (RHS)
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Centre Fiscal Decit Subsidies State Fiscal Dect
Fiscal Deficit (% of GDP) Real and Nominal Effective Exchange Rate
60
70
80
90
100
110
120
130
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Jun-13
Aug-13
Oct-13
Dec-13
Feb-14
Apr-14
Jun-14
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Oct-15
Dec-15
Feb-16
Apr-16
Jun-16
Aug-16
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
REER NEER

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Budget framework

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Budget Framework
*GST included in indirect tax
*If GST collection of Rs. 4,446 bn were to be annualised the collection would reect GST of Rs. 6,669 bn which indicates only a 11.5%
growth in GST in FY 19 estimates on a run rate basis
Actuals
Budget
Estimates
Revised
Estimates
Budget
Estimates
%
Growth
%
Growth
Revenue Receipts 13,742 15,158 15,054 17,257 9.5% 14.6%
Tax Revenue 11,014 12,270 12,695 14,806 15.3% 16.6%
CorporationTax 4,849 5,387 5,637 6,210 16.3% 10.2%
Taxes on Income 3,646 4,413 4,413 5,290 21.0% 19.9%
Indirect Tax 8,598 9,216 9,375 11,187 9.0% 19.3%
Allocation to States 6,080 6,746 6,730 7,881 10.7% 17.1%
Non-Tax Revenue 2,728 2,888 2,360 2,451 -13.5% 3.9%
Capital Receipts 6,010 6,310 7,123 7,165 18.5% 0.6%
Recovery of Loans 176 119 175 122 -0.9% -30.2%
Other Receipts 477 725 1,000 800 109.5% -20.0%
Borrowings and Other Liabilitites 5,356 5,465 5,948 6,243 11.1% 4.9%
Total Receipts 19,752 21,467 22,178 24,422 12.3% 10.1%
GST* 4,446 7,439 67.3%
2018-
2019
Rs. Bn 2016-2017 2017-2018 2017-2018 2018-2019
2017-
2018

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Budget Framework
Budget
Estimates
Revised
Estimates
Budget
Estimates
%
Growth
%
Growth
2018-
2019
Rs. Bn 2017-2018 2017-2018 2018-2019
2017-
2018
Ø RE FY18 reects a deviation to the tune of 30bps in the scal decit but is far higher @
70bps for the revenue decit
Ø This reect scal management due to reduced capex and higher capital receipts due to
disinvestment
Ø However FY 18 was an exceptional year due to the implementation of the new GST era
leading to loss of 1 month revenue
Expenditures
On Revenue Account 16,906 18,369 19,443 21,418 15.0% 10.2%
Interest Payments 4,807 5,231 5,308 5,758 10.4% 8.5%
Grants in Aid for creation of
capital assets 1,657 1,954 1,892 1,953 14.2% 3.2%
On Capital Account 2,846 3,098 2,734 3,004 -3.9% 9.9%
Total Expenditure 19,752 21,467 22,178 24,422 12.3% 10.1%
Revenue Deficit 3,164 3,212 4,389 4,160
% GDP (2.10) (1.90) (2.60) (2.20)
Fiscal Deficit 5,356 5,465 5,948 6,243
%GDP (3.50) (3.20) (3.50) (3.30)
Primary Deficit 549 235 640 485
%GDP (0.40) (0.10) (0.40) (0.30)

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Market Environment

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Macro Market Environment
Indian nancial markets have performed strongly since September 2013. However the
market environment has shifted since the bull market began with important implications
2013-2017 Current
CPI was running as high as 10.5% in Sept 2013
and has steadily declined over time
After reaching its lows of 1.5% in June 2017,
CPI has moved up to 5.2% in Dec 2017.
Reecting the high ination environment policy
rates peaked out at 8% in 2014 but have been
brought down steadily over time 6%
With the pick up in ination policy stance is no
longer accomodative and policy rates have
remained at 6% since August 2017
Liqudity conditions were very tight and have
improved over time with RBI's change in liqudiy
management approach
Benign liquidy conditions that existed afer
demonetisation are starting to reverse
Surplus liqudity pulled down short term yields
resulting in a steep yield curve
The yield curve has now attended
Commodity prices fell signcantly beneting the
scal and current account decits. Oil prices
moved from $110 in Sept 2013 to $30/bbl by
January 2016
Commodity prices have now rmed up moving
from the lows of 2016 upto $70/bbl currently.
FII holdings espeially in debt markets were very
low providing room for signcant inows
Current limits are ~85%utolized leaving little
room for additional inows

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Increased allocation to equities is absorbed by primary issuances
IPO mobilization absorbing Fund flowStructural increase in Equity MF Investment now plateauing
NIFTY EPS CAGR growing at 17% over FY17-20E
77
105
285
170
130
170
60
20 20 10
60
194
651
0
100
200
300
400
500
600
700
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
463
579
622
739
FY17 FY18 FY19 FY20
0
50
100
150
200
250
300
Aug-16
Sep-16
Oct-16
Nov-16
Dec-16
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
- Data shows tapering of Equity MF flow during end of
4QCY17
- However, 2017 had record mobilisation of funds through
IPO, which sucked out liquidity
- With flush liquidity behind us, we believe earnings growth
of CAGR 17% over CY17-20 will keep market afloat.
Source: Bloomberg; Trust Research

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PE expansion driven by unprecedented net inows
EPS Vs. PER expansionEquity investment by FII and DII (Rs bn)
Mid cap PE rerated much more than Large caps
- FII investments into India were strong in 2013-14, while
they were much lower in the latter part
- FDI investments picked up with a lag but again saw a YoY
dip in 2017.
- Domestic liquidity ensured buoyancy in the markets.
- However, over the last 5 years, PE re-rating of mid-caps
was significantly higher compared to that of the large
Caps
- Hence, with the liquidity tightening, interest rates going
up, we believe Equities will be driven more by earnings
rather than further re-rating
CY13 CY17 CAGR
Midcap Index 6705 17822 27.7%
Midcap EPS 433 349 -5.2%
PER 16 51 34.7%
1136 976
183 201
530
-519
1605
460
-436
1493
-1000
-500
0
500
1000
1500
2000
2500
3000
CY13 CY14 CY15 CY16 CY17
Source: Bloomberg; Trust Research
Nify 6304 10530 13.7%
Nify EPS 389 465 4.6%
Nify PER 16.2 22.6 8.7%

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Reforms and Ini a s

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Reforms & initiatives: Infrastructure
Ø Capital infusion to boost infrastructure spending: projects worth Rs. 9.46 lakh crore
have been facilitated and fast tracked
Ø Total outlay on Infrastructure (including railway) at Rs. 5.97 vs Rs. 4.97 lakh cr in
FY17
§ Focus on rural connectivity by developing 35,000 km with cost of Rs. 5,350bn
§ Railways spend Rs.1,485bn vs Rs.1,310bn in FY18 (YoY growth of 13%)
§ Dedicated fund of Rs. 110bn to double line tracks for Mumbai city
§ Rs. 170bn allocated for development of metros in Bangalore
§ 99 Cities under Smart Cities mission with an outlay of Rs. 2.04 lakh cr
Ø Initiative for water supply & Sanitation
– Rs. 776bn approved for state level plans for 500 cities. Water supply & sewage
work contracts worth of Rs. 194bn & Rs. 124bn has been awarded
Ø Thrust on expanding Airline transport
– Efforts to make 56 unserved airports & 31 helipads to become operational
Ø Beneciaries
– Cement, construction, cables & equipment companies & engineering companies

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Reforms & initiatives: Housing
Ø Impetus for Affordable Housing
§ Under Prime Minister Awas Scheme Rural, 51 lakhs houses built in FY18
§ 51 lakh houses to be constructed exclusively in rural areas during FY19
§ In urban areas the assistance has been sanctioned to construct 37 lakh houses
§ Incremental allotment for PMAY (Urban) for FY19BE is Rs. 250b
Ø Beneficiaries
§ Would uplift the growth in Cement, Construction materials, Consumer
durables(Cables, Switchgears)
§ Demand for Housing Finance companies will increase

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Initiatives for Financial Sector
Ø Improving the Financial Sector Ecosystem
§ Steps for expanding investment horizon from ‘AA’ to ‘A’ grade bonds.
§ Amendments in Indian Stamp Act in relation to stamp duty on nancial
securities transaction.
§ Approved listing of 14 CPSE’s & disinvestment started in 24 CPSE’s
§ National Insurance, Assurance Company & Oriental India Insurance to be
merged into single entity and subsequently listed.
§ Divestment target for FY19 set to Rs. 800bn vs Rs. 1,000bn in FY18
§ RRBs allowed to raise capital from market to enhance Rural credit
§ Empowered RBI to institutionalize an uncollateralized deposit facility
§ Separate policy for hybrid instruments benecial for startups & VC rms
§ Propose to increase the target of amount sanctioned to Rs. 3,000bn (+23%YoY)
under ‘Pradhan Mantri Mudra Yojana (PMMY) from Rs. 2,440bn in FY18 to
support MICRO SME
§ Introduced Long term capital gains tax
Ø Key Takeaway
§ Disinvestment enabler to boost capital infusion for Infrastructure spending

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Rural thrust to have positive implications across sectors
Ø Agri-Market Infrastructure Fund of Rs. 20bn for developing agricultural infrastructure
Ø MSP for all crops to be increased by 1.5x production cost
Ø Rs. 14.3tn to provide livelihood to rural India through Infrastructure spending
Ø Aiming for housing for all the poor by 2022, and construction of 20mn toilets
Ø Credit for agricultural activities up 10% to Rs. 11tn
Ø Allocation of Rs. 1tn over 4 year for schools to help Scheduled Tribe population
Ø Formation of National Health Insurance Scheme to benet 100mn poor families (~500mn
beneciaries) who will be having an annual medi-claim benet of Rs0.5mn per family for
secondary/tertiary hospital care
Beneficiaries:
Ø Thyrocare Technologies, Healthcare Global Enterprises, Apollo Hospital, Insurance Companies,
Kaveri Seed, UPL, Dhanuka Agritech, Affordable Housing Companies

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Income Taxes – no signicant benets
Ø Individual taxes
§ No change in taxation slabs.
§ Standard deduction of Rs. 40,000 allowed in lieu of the present exemption of
transport allowance and medical expenses.
§ Exemption of interest income on deposits and RDs increased to Rs. 50,000 for senior
citizens
§ Raised limit of deduction for health insurance premium to Rs. 50,000 for senior
citizens
Ø Long term capital gain taxintroduced
§ 10% tax on long term capital gains exceeding Rs1 lakh from 31st Jan 2018 without
indexation benets. Tax on distributed income by equity oriented MF at 10%.
Ø Corporatetaxes
§ Income tax for companies with annual turnover of up to Rs. 2.5b @25% vs 30%
Ø Key takeaway:
§ Focus on benets for senior citizens, salaried tax payers and SME.
§ Tax participants in equity investemnt

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Indirect Taxes
Customs Duty
Ø Food processing and FMCG
§ Increased BCD (basic customs) on fruit and vegetable juices from 30% to 50%
§ Crude/ rened edible vegetable oils like Safower seed oil, Saffola oil, Coconut oil, Palm
Kernel/Babassu, Maize corn oil increased from 12.5/20% to 30/35%
Ø Automobiles
§ Increased BCD (basic customs) on truck and bus radial tyres to 15% from 10%
§ Specied parts/accessories of motor cars and bikes to 15% from 7.5%
§ CBU and CKD imports of motor vehicles increased by 5%
Ø Jewelry and Electronics
§ Increased BCD on imitation jewelry and cellular mobiles to 20% from 15%
§ Cut and polished colored gemstones and diomands to 5% from 2.5%
§ LCD/LED/ OLED panels and TVs increased to 15% from 7.5/10%
§ Wrist watches, pocket watches and other increased from 10% to 20%
Ø Textiles
§ Silk fabrics BCD increased from 10% to 20%
Key takeaway:
§ Increase in customs duty will aid revenue collection by Rs. 200b while giving thrust to
domestic manufacturing under Make in India mission

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Indirect Taxes
Social welfare surcharge as a duty of customs on imported goods
§ Levied 10% of aggregate duties of customs on imported goods to nance education,
housing and social security
§ Abolition of Education Cess and Secondary and Higher Education Cess on imported
goods
§ Levied 3% on Motor spirit c.k.a. petrol and high speed diesel oil
§ Levied 3% on Silver and Gold (including silver plated with gold or platinum), unwrought
or in semi-manufactured form, or in powder form

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Takeaways

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Capital market takeaways
Ø Equity Markets
§ Budget is full of good intentions and step in the right direction.
§ Extra budgetary spends will kick start capex cycle
§ PE multiple expansion phase of bull market to be followed by earning expansion
§ Net ow to equity markets tapering as IPO’s are gaining momentum and equity
mutual fund ows are slowing
§ Even after LTCG equity is still a better asset class in terms of providing returns
Ø Debt
§ Credit growth to taper in tighter monetary environment with banks becoming
more competitive than NBFC’s
§ Ination trough is behind us, rates moving higher.
§ SBI raising bulk deposit rates by 200bps in the last few months
§ NBFC’s to witness pressure on NIM’s
§ Flattening yield curve