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Impact of Budget on Diff. Sectors

Impact of Budget on Diff. Sectors

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Published by: rajat_singla on Apr 01, 2012
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A mixed bag for corporate India
Tue, Mar 2 02:45 PMThough the markets reacted positively to the budget on Friday, it did not bring good news for allcompanies and sectors. Here's an analysis of how it will impact different industries.The stock markets gave a rousing welcome to the budget on Friday, mostly due to what was 'not'announced than what was. The main reason for the optimism was that there were no unpleasantsurprises and some of the negative announcements had already been factored in before thebudget. Auto stocks, for instance, extended gains as the market had already factored in the rise inexcise duty on large cars and sports utility vehicles. On the other hand, a lower fiscal deficit(which will result in lower government borrowing) soothed the stock market's nerves and anoverhauled personal tax structure was a pleasant surprise that promises to boost consumption andbring in the much-needed feel-good factor for retail investors.The government continued incentives for some industries like real estate, infrastructure andagriculture while it cushioned the impact of duty hikes on other sectors by keeping them to theminimum. Though the markets have got something to cheer, after the consolidation over the pastfew weeks, factors like weak global cues could spoil the party in the future. Giving a word of caution, Sunil Godhwani, MD & CEO, Religare Enterprises says, ''The market rallied on verylow expectations from the budget and will fall in line with the real issues ahead which includecorporate earnings growth visibility, growth in domestic consumption and global headwinds.''The budget has also been positive for the hotel industry. Irrespective of the location, two-star orabove hotel categories have been allowed 100 per cent deduction on capital expenses. Currently,only specified categories of the hotels in the national capital region enjoy incentives. These sopswill benefit Indian Hotels and Hotel Leela.
''The budget strikes a balance between growthand fiscal discipline. The direct tax reductions will stimulate demand driven growth whilethe increase in indirect taxes will help meet the deficit target of 5.5 per cent
,'' says RugvedDhumale, assistant V-P, Risk Management Solutions, Mecklai Financial Services.Broadly, the budget is a balanced one with the finance minister laying down a road map to fiscalconsolidation and increased spending on infrastructure. In the coming years, the finance ministeraims to bring down fiscal deficit to 5.5 per cent in 2010-11, 4.8 per cent in 2011-12, and 4.1 percent of the GDP in 2012-13. The budget also allows an additional deduction of Rs 20,000 forinvestment in long-term infrastructure bonds over and above the existing deduction limit of Rs 1lakh on tax savings. This will not only help tax payers but also help in financing infrastructuraldevelopment.Here is an analysis of how specific sectors (and stocks) are likely to be impacted by the measuresannounced in the budget.
SATELLITE TOWNSHIPS AND CITIES TO GET A BOOST DUE TO HIGHERALLOCATION TO RAIL, ROAD AND PORTSInterest rate subvention of 1 per cent for property loans extendedHigher allocation for housing and urban poverty alleviationIncrease in allocation for Rajiv Awas Yojana (RAY) for slum dwellers and urban poorPending projects given another year for claiming deduction on profits under Section 80IB (10)The continuation of one per cent interest rate subvention will help improve volumes in theaffordable housing segment. The higher fund allocation for Rajiv Awas Yojana and Indira AwasYojana should benefit residential segments in both urban and rural centres. The increase inallocation for slum redevelopment to Rs 1,270 crore should give a boost to companies involvedin the rehabilitation business. The permission to use external commercial borrowing money forcold storages will give a boost to industrial and logistics parks. The higher allocation to rail, roadand port infrastructure and impetus to special economic zones (SEZs) will have a cascadingimpact on real estates it will lead to the development of satellite townships and cities.Impact: Should benefit HDIL, Indiabulls Real Estate, Unitech, DLF, Orbit Corporation and DBRealty.PSU BANKS TO GET A MUCH REQUIRED EQUITY INFUSION THAT WILL ENHANCETHEIR GROWTHNet market borrowings to be lowerNew branch licenses to be issued to private players and NBFCsIncrease in allocated amount for capital infusion in PSBsThe finance minister announced that the
RBI might give additional banking licenses toprivate sector players. This step can change the landscape of the banking industry as a hostof Indian corporates like Tatas, Birla group, and some of the older NBFCs have showninterest in the banking business.
Also, the government has announced a provision of Rs 16,500
crore to augment Tier I capital of PSU banks, which is a positive trigger. The government’s
estimated borrowing is expected to come down from Rs 3.97 lakh crore in 2009-10, to Rs 3.45lakh crore in 2010-11. This substantially lowers the concerns of crowding out of privateinvestment.Impact: IFCI, Reliance Capital and IDFC might apply for banking licenses. The capital infusionmeasures may help Dena Bank, Vijaya Bank, IDBI and Bank of Maharashtra to increase theirtier-I capital. The six-month extension for repaying loans under the agri-debt relief schemeshould benefit Bank of Baroda, PNB and Oriental Bank of Commerce.
PROPOSAL TO CREATE A COAL REGULATOR SHOULD MAKE THE PROCESS OFMINE ALLOCATION MORE FAIRIncrease in planned allocation for power sectorKey components of rotor blades exempt form excise dutyProposal to set up a coal regulatorClean energy cess on coal (both domestic and imported)The plan allocation for power sector has been increased by 130 per cent. Excluding RGGVY, theallocation has been increased from Rs 2,230 crore to Rs 5,130 crore, a positive for the powersector. The proposal to set up a coal regulator is also a good sign as delay in coal block allocationand lack of transparency in the mine allocation process is affecting expansion plans of companies. The 61 per cent increase in plan outlay for the ministry of new and renewable energyis seen as a positive development for equipment manufacturers.Impact: Increased power allocation may benefit companies like KEC, Jyoti, EMCO andCrompton Greaves. However, increase in the coal energy cess can have a marginally negativeimpact on coal importing companies like Tata Power, GVK, Lanco and Adani Power. Suzlon isexpected to benefit from the exemption of excise duty on key components for manufacturingrotor blades for wind powerTHE CHANGE IN INCOME TAX SLABS SHOULD INCREASE DEMAND FORCONSUMER GOODSThrust on rural schemesIncrease in peak excise dutyIncrease in excise for cigarettes and tobacco productsThe change in personal income tax slabs and the thrust on rural schemes is a positive for the fastmoving consumer goods companies as it will put more money in the hands of consumers.Increase in the minimum alternate tax (MAT) rate from 15 per cent to 18 per cent is expected tohave marginal impact. Increase in excise duty on cigarettes and tobacco products can lead tohigher prices in the hands of consumers. The increase in peak excise from eight per cent to 10per cent was expe
cted and will have limited impact on the companies’ financials.
 Impact: Increase in peak excise duty and MAT will have limited impact on HUL, Nestle, Dabur,Godrej Consumer Products and Dabur.HIGHER ALLOCATION TO THIS SECTOR SHOULD COUNTER THE IMPACT OF THEINCREASE IN MAT

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