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India Equity Research Reports, IPO and Stock News
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INFORMATION TECHNOLOGY
BUDGET HIGHLIGHTS & IMPACT
n STPI sunset clause not extended beyond FY11
Impact: The sunset clauses for deduction in respect of export profits under
Sections 10A and 10B of the IT Act have not been extended beyond FY11.
Thus, companies will have to start paying profits on income generated from
units operating in software Technology Parks. While this will lead to higher
taxes for companies, it will not be incrementally negative because the sunset
clause was expected to expire on March 2011 and all projections were based
on that assumption.
n MAT for SEZ developers and units operating in SEZs WEF FY12
Impact: Companies operating in SEZs will now have to pay MAT WEF FY12.
This will be incrementally negative for these companies from a cash-flow
perspective. EPS estimates may not be impacted as companies can avail of
deferred tax credit. However, there will be an impact on cash flows of all
companies which is a marginal negative.
n Reduction in surcharge
Impact:This provision will have a marginally positive impact for non-MAT
companies.
The provisions of the Union Budget have a largely neutral impact on the sector,
in our opinion. Changes in surcharge will impact marginally the EPS estimates
for companies. MAT will have an impact in FY12 but marginal. The STPI sunset
clause not being extended beyond FY11 will result in status quo for companies.
The focus on opening up avenues for IT companies in government projects,
promoting higher technical education, so as to meet potential demand for
employees from this sector, are positive over the longer term.
We remain optimistic on the longer term prospects of the industry. The Global
Delivery Model has gained significant acceptance among existing and potential
clients. We believe that, the outsourcing and off-shoring story will gather further
steam in the future and this will see an increased flow of longer term and
larger contracts to Indian vendors. Also, focused smaller companies with
expertise on select verticals will be able to move up the value chain and attract
larger clients, thereby, improving their longer term prospects.
Stock prices of most IT companies have out-performed the markets in the recent
past, in line with the improvement in demand environment. We expect the
sentiment towards the sector to remain positive and the sector to provide decent
returns over the medium term, subject to near term volatility. At current levels,
we prefer larger names like Infosys and TCS; we also retain our positive bias
for select mid-caps like KPIT Cummins and NIIT Technologies.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
INFORMATION TECHNOLOGY
BUDGET HIGHLIGHTS & IMPACT
n STPI sunset clause not extended beyond FY11
Impact: The sunset clauses for deduction in respect of export profits under
Sections 10A and 10B of the IT Act have not been extended beyond FY11.
Thus, companies will have to start paying profits on income generated from
units operating in software Technology Parks. While this will lead to higher
taxes for companies, it will not be incrementally negative because the sunset
clause was expected to expire on March 2011 and all projections were based
on that assumption.
n MAT for SEZ developers and units operating in SEZs WEF FY12
Impact: Companies operating in SEZs will now have to pay MAT WEF FY12.
This will be incrementally negative for these companies from a cash-flow
perspective. EPS estimates may not be impacted as companies can avail of
deferred tax credit. However, there will be an impact on cash flows of all
companies which is a marginal negative.
n Reduction in surcharge
Impact:This provision will have a marginally positive impact for non-MAT
companies.
The provisions of the Union Budget have a largely neutral impact on the sector,
in our opinion. Changes in surcharge will impact marginally the EPS estimates
for companies. MAT will have an impact in FY12 but marginal. The STPI sunset
clause not being extended beyond FY11 will result in status quo for companies.
The focus on opening up avenues for IT companies in government projects,
promoting higher technical education, so as to meet potential demand for
employees from this sector, are positive over the longer term.
We remain optimistic on the longer term prospects of the industry. The Global
Delivery Model has gained significant acceptance among existing and potential
clients. We believe that, the outsourcing and off-shoring story will gather further
steam in the future and this will see an increased flow of longer term and
larger contracts to Indian vendors. Also, focused smaller companies with
expertise on select verticals will be able to move up the value chain and attract
larger clients, thereby, improving their longer term prospects.
Stock prices of most IT companies have out-performed the markets in the recent
past, in line with the improvement in demand environment. We expect the
sentiment towards the sector to remain positive and the sector to provide decent
returns over the medium term, subject to near term volatility. At current levels,
we prefer larger names like Infosys and TCS; we also retain our positive bias
for select mid-caps like KPIT Cummins and NIIT Technologies.
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