For Private Circulation only

16 March, 2012

UNION BUDGET 2012-13

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UNION BUDGET 2012-13 - OVERVIEW

BUDGET SUMMARY
The Budget 2012-13 tabled in the parliament by Honble Finance Minister Pranab Mukherjee was yet another populist budget where the government has strived to take care of the interest of masses. We rate this budget as negative to neutral for the stock market. The revised fiscal deficit for the year 2011-12 is at 5.9% as compared to 4.6% projected during the last budget speech. However, the fiscal deficit for the year 2012-13 is projected at 5.1%. The growth outlook for the next year is anticipated to be better at 7.6% than current years 6.9%. The government on one hand has announced to provide Rs.15888 crore for capitalization of PSU banks while on the other hand, it has raised the agriculture credit target by Rs.1 lakh crore to Rs.5.75 lakh crore where the banks face largest amount of NPAs. The infrastructure tax free bond targets during 2012-13 has been doubled to Rs.60,000 crore including Rs.10000 crore for NHAI. The Government also has raised the target to build 8800 kms of highway projects during 2012-13 as compared to 7300 kms targeted during FY12. The Government, realizing the fact that 50% of USD 1 trillion required for infrastructure development is expected to come from private investments, has opened up many more sectors like irrigation, dam, canal, soil testing, capex in fertilizer plants under the PPP model to be eligible for Viability Gap Funding (VGF). While the stock market reaction was muted post budget speech, we believe the reduction in STT (Security Transaction Tax) by 20% (from 0.125% to 0.1%) on cash delivery transaction is positive for the market. Other key developments included, the introduction of Rajiv Gandhi Equity Scheme, whereby a deduction of Rs.50,000 for investment in equity market with a lock in period of 3 years for individuals is a positive news. The QFIs access to Indian corporate debt market is also a positive announcement to help cash starved Indian companies. The decision to allow Indian aviation sector to raise ECB subject to an overall limit of $1 billion for working capital is a positive development for debt ridden Indian carriers. The market was disappointed with the continuous high non-planned expenditure especially subsidies. The government plans to spend Rs.1.8 lakh crore on Food, Fuel and Fertilizers during 2012-13 which shows that fiscal deficit will continue to remain higher in the near future. Total non-planned expenditure is estimated to be at 9.7 lakh crore (an increase of 9%) during FY13 while the total expenditure is estimated at 14.9 lakh crore. The Stock Market has also shown nervousness due to the proposed introduction of General Anti Avoidance Rule (GAAR) to reduce the tax defaults and mop up tax revenues. The increase in basic exemption limit to 2 lakh from 1.8 lakh, Rs.10,000 deduction on savings account interest and increase in 20% income tax slab to Rs10 lakh would result into higher disposable income in the hands of individuals. The Government is expected to have shortfall to the tune of Rs.4500 Crore, in tax revenues, as a result of the above mentioned measures adopted for the individual tax payers. We expect other announcements like increase in budgetary allocation towards NRHM, Tax reform (Introduction of GST by August 2012), Disinvestment target of Rs.30,000 crore, Assistance to Delhi-Mumbai Industrial Corridor, PMGSY, RTE-SSA etc are expected to benefit economy and market directly or indirectly.

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UNION BUDGET 2012-13 - OVERVIEW

Economy growth outlook

GDP is estimated to grow by 6.9% in 2011-12, after having grown at 8.4% in preceding two years. India however remains front runner in economic growth in any cross-country comparison. India's GDP growth in 2012-13 expected to be 7.6% +/- 0.25%. Headline inflation expected to moderate further in next few months and remain stable thereafter.

Revenue
Gross Tax Receipts estimated at Rs.10,77,612 crore. Net Tax to Centre estimated at Rs.7,71,071 crore. Non-tax Revenue Receipts estimated at 1,64,614 crore. Non-debt Capital Receipts estimated at Rs.41,650 crore.

Expenditure
Total expenditure for 2012-13 budgeted at Rs.14,90,925 crore Plan expenditure for 2012-13 at Rs.5,21,025 crore is 18% higher than BE of 2011-12. This is higher than 15% projected in Approach to the Twelfth Plan. Non-plan expenditure estimated at Rs.9,69,900 crore Rs.3,65,216 crore estimated to be transferred to States including direct transfers to States and district level implementing agencies. Net market borrowing required to finance the deficit to be Rs.4.79 lakh crore in 2012-13.

Fiscal Deficit
Fiscal deficit at 5.9% of GDP in RE 2011-12 whereas 5.1% of GDP in BE 2012-13.

Subsidies
Endeavour to keep central subsidies under 2% of GDP in 2012-13. Over next 3 year, to be further brought down to 1.75% of GDP. Based on recommendation of task force headed by Shri Nandan Nilekani, a mobile-based Fertilizer Management System has been designed to provide end to- end information on movement of fertilisers and subsidies. All three public sector Oil Marketing Companies have launched LPG transparency portals to improve customer service and reduce leakage Subsidy bill for Food, Fuel and Fertilizers is estimated at Rs.75000, Rs.43580 and Rs.60974 crore respectively during 2012-13.

Disinvestment
The government has set a target of Rs.30000 crore to be raise through disinvestment.

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UNION BUDGET 2012-13 - OVERVIEW

Taxes
Service tax rate is increased to 12% from 10%. GST network to be set up as a National Information Utility and to become operational by August 2012 Exemption limit for the general category of individual taxpayers proposed to be enhanced from Rs.1, 80,000 to Rs.2, 00,000 giving tax relief of Rs.2,000. Upper limit of 20% tax slab proposed to be raised from Rs.8 lakh to Rs.10 lakh. Proposal to allow individual tax payers, a deduction of up to Rs.10,000 for interest from savings bank accounts. Proposal to allow deduction of up to Rs.5,000 for preventive health check up. Proposal to provide weighted deduction of 150% on expenditure incurred for agri-extension services.

Sector Spending
A provision of Rs.1,93,407 crore made for Defence services including Rs.79,579 crore for capital expenditure. Allocation for NRHM proposed to be increased from Rs.18,115 crore in 2011-12 to Rs.20,822 crore in 2012-13. For 2012-13, Rs.25,555 crore provided for RTE (Right to Education)-SSA representing an increase of 21.7% over 2011-12.

Agriculture
Target for agricultural credit raised by Rs.1,00,000 crore to Rs.5,75,000 crore in 2012-13. Plan Outlay for Department of Agriculture and Co-operation increased by 18%. Outlay for Rashtriya Krishi Vikas Yojana (RKVY) increased to Rs.9,217 crore in 2012-13. Short term RRB credit refinance fund being set up to enhance the capacity of RRBs to disburse short term crop loans to small and marginal farmers. Allocation for AIBP in 2012-13 stepped up by 13% to Rs.14,242 crore.

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UNION BUDGET 2012-13 - OVERVIEW

The key industry impact analysis is as under.

Infrastructure
Budgetary Measures POSITIVE ON: GVK Power GMR Infra IRB Infra IL&FS Transport Networks Ltd HCC IVRCL etc.. During Twelfth Plan period, investment in infrastructure is to go up to Rs. 50 lakh crore. Tax free bonds of Rs.60,000 crore to be allowed for financing infrastructure projects in 2012-13. First Infrastructure Debt Fund with an initial size of Rs.8,000 crore launched earlier this month. More sectors added as eligible sectors for Viability Gap Funding under the scheme "Support to PPP in infrastructure" IIFCL has put in place a structure for credit enhancement and take-out finance for easing access of credit to infrastructure projects. Outlook: Positive

Power
Budgetary measures Coal India Limited advised to sign fuel supply agreements with power plants, having long-term PPAs with DISCOMs and getting commissioned on or before March 31, 2015. External Commercial Borrowings (ECB) to be allowed to part finance Rupee debt of existing power projects. Proposal to extend the sunset date for setting up power sector undertakings by one year for claiming 100% deduction of profits for 10 years. Full exemption from basic duty provided to certain fuels for power generation. Outlook: Positive

POSITIVE ON: GVK Power Adani Power JSW Energy Torrent Power NTPC Lanco Infra.

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UNION BUDGET 2012-13 - OVERVIEW

Automobile
Budgetary Measures POSITIVE ON: M&M TATA Motors TVS Motors Specified parts required for the manufacture of hybrid vehicles enjoy full exemption from basic customs duty and special CVD with concessional. Excise duty/ CVD of 6%. This concession is being extended to specified additional items and lithium ion batteries imported for the manufacture of battery packs for supply to electric or hybrid vehicle manufacturers. Basic customs duty on Completely Built Units of large cars/ MUVs/ SUVs having engine capacity above a prescribed threshold and whose value exceeds US dollar 40,000 being enhanced from 60% to 75% ad valorem. Increase in excise duty from 22 to 24% on large car. In the case of cars that attract a mixed rate of duty of 22% + Rs.15000 per vehicle, now switch over to an ad valorem rate of 27%. Outlook: Negative to Neutral

Chemical & Fertilizers

Budgetary Measures Government has taken steps to finalize pricing and investment policies for urea to reduce India's import dependence in urea. POSITIVE ON: Deepak Fertilizers Coromandel Fertilizers GNFC GSFC Rallis India Full exemption from basic customs duty for import of equipment for expansion or setting up of fertilizer projects up to March 31, 2015. VGF for capex on fertilizer plants. Based on recommendation of task force headed by Shri Nandan Nilekani, a mobile-based Fertilizer Management System has been designed to provide end-to-end information on movement of fertilisers and subsidies. Nation-wide roll out during 2012. Outlook: Positive

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UNION BUDGET 2012-13 - OVERVIEW

Telecom
Budgetary Measures POSITIVE ON: Bharti Airtel Idea TTML Viability Gap Funding (VGF) under the Scheme for Support to PPP in Infrastructure in Telecom Sector. Outlook: Positive

Logistics
Budgetary Measures POSITIVE ON: Container Corporation of India Aegis Logistics Investment linked deduction for container freight station and inland container depots Outlook: Positive

Capital goods
Budgetary Measures POSITIVE ON: Tractors India Ltd. McNally Bharat Basic custom duty proposed to be reduced for machinery and instruments needed for surveying and prospecting for minerals. Reduction of basic customs duty on plant and machinery imported for setting up or substantial expansion of iron ore pellet plants or iron ore beneficiation plants from 7.5% to 2.5%. Outlook: Positive

Retail
Budgetary Measures Channelize efforts to arrive at a broadbased consensus in consultation with the State Governments in respect of decision to allow FDI in multi-brand retail upto 51%. Tax concession for branded ready made garments The Finance Minister indicated that GST network will be set up as a National Information Utility and is expected to become operational by August 2012 Outlook: Neutral

POSITIVE ON:: Shoppers Stop Trent

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UNION BUDGET 2012-13 - OVERVIEW

Aviation
Budgetary Measures Indian Carriers have been permitted to directly import Aviation turbine Fuel (ATF) as actual users. Airline industry has also been allowed to raise ECB for working capital requirement for a period of one year subject to a total ceiling of USD 1 billion. The budget proposes tax concessions for parts of aircraft and testing equipment for third party maintenance, repair and overhaul of civilian aircraft. It has also proposed to reduce withholding tax rate on interest payments on ECBs from 20% to 5% for 3 years for certain sectors as a means to provide low cost funds to stressed aviation sector. It indicated that proposal to allow foreign airlines to participate upto 49 per cent in the equity of an air transport undertaking is under active consideration of the government. Outlook: Positive

POSITIVE ON: Kingfisher Airlines Spice Jet

Banking
Budgetary Measures Infusion of Rs 15888 Cr for recapitalization of PSU Banks, RRBs and financial institutions like NABARD which will help them to maintain their Capital Adequacy Ratio (CAR) at required levels. Development of a central "Know Your Customer" depository in 2012-13 to avoid multiplicity of registration and data upkeep. Priority sector guidelines to be revised. Outlook: Positive

POSITIVE ON: Dena Bank Allahbad Bank Central Bank IDBI SBI

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UNION BUDGET 2012-13 - OVERVIEW

Education
Budgetary Measures Provision of Rs.25,555 crore for Right to Education through the Sarva Shikshan Abhiyan an increase of 21.70% over 2011-12. POSITIVE ON: Core Projects Educomp Everonn Education Zee Learn 6,000 schools proposed to be set up at block level as model schools in Twelfth Plan. Rs.3,124 crore provided for Rashtriya Madhyamik Shiksha Abhiyan (RMSA) representing an increase of 29% over 2011-12. To ensure better flow of credit to students, a Credit Guarantee Fund proposed to be set up. Inclusion in the Negative list of pre-school and school education, recognized education at higher levels and approved vocational education. Outlook: Neutral to Positive

Precious Metals
Budgetary Measures One of the primary drivers of the current account deficit has been the growth of almost 50% in imports of gold and other precious metals in the first three quarters of this year. Levy of excise duty of 1% on branded precious metal jewellery to be extended to include unbranded jewellery. Branded Silver jewellery exempted from excise duty Customs duty on standard gold & Platinum to be raised from 2% to 4%. Customs duty on non-standard gold to be raised from 5% to 10%. Basic duty on gold ore, concentrate and ore bars for refining is being enhanced from 1% to 2%. On the excise side, duty on refined gold is being increased in the same proportion from 1.5% to 3%. Tax collection at source on purchase in cash of bullion or jewellery in excess of Rs.2 lakh. Outlook: Negative

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UNION BUDGET 2012-13 - OVERVIEW

Media
Budgetary Measures POSITIVE ON: Eros International Inox Balaji Telefilms Inclusion of entertainment services in the Negative list. To exempt the industry from service tax on copyrights relating to recording of cinematographic films. Outlook: Neutral to Positive

Housing & Housing Finance

Budgetary Measures Setting up of a credit guarantee trust fund. Foreign loans for low-cost housing projects. To allow external commercial borrowing for power, housing, and road construction companies. POSITIVE ON: DLF Unitech DHFL HDFC LIC Housing Finance Sale of residential property exempted from capital gains if invested in equity or equipment of an SME. Tax deduction at source on transfer of immovable property (other than agricultural land) above a specified threshold. Allow ECB for low cost affordable housing projects. Set up Credit Guarantee Trust Fund to ensure better flow of institutional credit for housing loans. Enhance provisions under Rural Housing Fund from Rs.3000 crore to Rs.4000 crore. Extend the scheme of interest subvention of 1% on housing loan up to Rs.15 lakh where the cost of the house does not exceed Rs.25 lakh for another year. Enhance the limit of indirect finance under priority sector from Rs.5 lakh to Rs.10 lakh. The National Housing Bank (Amendment) Bill, 2012 - To take forward the process of financial sector legislative reforms, the Government proposes to move the following Bills in the Budget Session of the Parliament. To raise Rs.5,000 crore for National Housing Bank Outlook: Neutral to Positive

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UNION BUDGET 2012-13 - OVERVIEW

Cementry Measures
Budgetary Measures POSITIVE ON: Grasim Unitech Ambuja Cements Madras Cenent Excise duty rationalized for packaged cement, whether manufactured by mini cement plants or others. Outlook: Positive

FMCGeasures
Budgetary Measures POSITIVE ON: ITC Godrej Consumer Marico Dabur India Excise duty on all raw food products cut to 6% on merit rate. Excise duty on processed food products cut to 6%. A new centrally sponsored scheme titled "National Mission on Food Processing" to be started in 2012-13 in co-operation with State Governments. Increase in basic excise duty on cigarettes of more than 65mm length by adding an ad valorem component of 10% to the existing specific rates. Outlook: Neutral

Pharmaceutical and Healthcare

Budgetary Measures POSITIVE ON: Glenmark Pharma Dr. Reddy Cadila Healthcare Piramal Health Extension of concessional basic customs duty of 5% with full exemption from excise duty/CVD to 6% specified life saving drugs/vaccines. An increase in allocation for NRHM to Rs.20,822 crore in 2012-13. Deduction of up to Rs. 5,000 for preventive health check up. National Urban Health Mission is being launched. Outlook: Neutral

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UNION BUDGET 2012-13 - OVERVIEW

Metal, Mineral & Mining

Budgetary Measures Exemption from basic customs duty and a concessional CVD of 1% to steam coal till 31st March, 2014. Reduction of basic customs duty on plant and machinery imported for setting up or substantial expansion of iron ore pellet plants or iron ore beneficiation plants from 7.5% to 2.5%. Exemption from basic customs duty to coal mining project imports. Reduction of basic customs duty on coating material for manufacture of electrical steel from 7.5% to 5%. Reduction of basic customs duty on nickel ore and concentrate and nickel oxide/ hydroxide from 2.5% or 7.5% to Nil. Increase of export duty on chromium ore from Rs.3000/ tonne to 30% ad valorem. Increase of basic customs duty on non-alloy and flat-rolled steel from 5% to 7.5%. Outlook: Positive

POSITIVE ON: Coal India Sesa Goa Cairn India GMDC

Oil and Gas

POSITIVE ON: ONGC Indraprastha Gas Petronet LNG GAIL Budgetary Measures Oil & gas sector made eligible sectors for Viability Gap Funding (VGF). Cess on crude petroleum oil produced in India revised to Rs.4,500/MT. Fuel subsidy bill pegged at a Rs. 43,580 Cr. LNG exempt from the customs duty. Outlook: Positive

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Retail Research Team Name Alpesh Porwal Rajesh Gupta Ankit Gor Kunal Doshi Megha Hemdev Designation SVP & Head (Retail) Research Analyst Research Analyst Mutual Fund Analyst Trainee Analyst

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