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India Equity Research Reports, IPO and Stock News
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As expected, the latest Union Budget is neither bold/reformist nor populist. It is a please-all Budget trying to be provide reliefs to all constituencies and be as less controversial
among political parties as possible. The finance minister has chosen the line of least resistance. He has also mentioned at several places about trying for a broad based consensus.
Key issues like subsidy have not been tackled. No attempt has been made to dissuade diesel consumption by way of levying additional excise duty on diesel cars or raising the price
of diesel. This however will have a positive impact on Diesel car manufacturers.
Total subsidy provision has been cut by about 12% while fuel subsidy has been cut by 36%, despite the fact that crude prices continue to rule high and the Government has not
shown any inclination to free fuel pricing or even move towards it. Contrary to expectations, provision for food subsidy has not risen sharply.
As expected, outlay for rural areas has not been raised sharply while that on education, health and sanitation/drinking water and transport been raised decently.
Telecom receipts projected for FY13 include an estimated Rs.40,000 cr + by way of auction of telecom licences and spectrum fees. One hopes that there are no hindrances to
raising this amount and the optimism of the Finance minister is well placed.
Real GDP has been assumed to grow 7.6% while inflation is expected to rise 6.2%. These numbers will be closely watched as recent history shows that on both counts we have
failed to meet targets.
Corporate and income taxes are assumed to grow 13.9% while customs and excise duty collections are assumed to rise 22 and 29% respectively. If growth momentum in India does
not pick up in the next few months, there will be a serious threat to achieving these numbers.
Fiscal deficit has been assumed to be 5.1% for FY13 vs 5.9% in FY12. This target is again a bit aggressive. Government debt is expected to rise to 50.25 lac cr in FY13 from 44.68
lac cr in FY12.
Service tax proposals to raise an extra Rs.19,000 cr – throws up scope of uncertainties, procedural hassles, litigation. Custom and Excise duty hike to raise an extra Rs.27000 cr.
Both will have a regressive impact on inflation and the RBI may have to postpone rate cut by a few more months. Borrowings by the Government will be Rs.4.79 lac crore vs Rs.4.36
lac cr in FY12. This will keep crowding out private sector borrowers and halt fall in interest rates.
The Budget gives a lot of flexibility/approvals to local companies in different sectors to access ECB. Indirectly it recognises the limitation of these sectors to raise money from local
sources.
The Budget has proposed retrospective amendments to overcome effect of adverse judgements. It has also introduced amendments by way of GAAR (General Anti Avoidance
Rule), arms length pricing, transfer pricing for domestic entities. These could create fresh issues for the corporate sector. Foreign companies may not take these amendments kindly
although they cannot afford to ignore Indian market.
While mentioning his targets on divestment, the Finance minister stated about wanting to retain 51% stake. Thereby he gave a socialist touch to the divestment process. Pension
provision has shot up by 12.5% to Rs.63183 cr after remaining flat over two years. This could over years be a problem area.
The Budget has introduced Rajiv Gandhi Equity savings scheme to promote equity culture. If investors are convinced of making money, then it will be of help. However there could
be procedural issues that need to be addressed before the policy is notified. STT has been cut by 20% for delivery transactions but no change has been proposed on non-delivery
transactions. Hence the disadvantage faced the equity stock exchanges vis-à-vis the commodity exchanges has not been removed.
Sectorally,
• Infrastructure - some incremental reliefs have been announced including TDS reduction on ECB.
• Very few reliefs for power equipment manufacturers
• Relief granted to bring down the capital cost for mining projects
• For power industry some measures have been announced including – extension of sunset clause and additional depreciation, coal imports have been allowed at zero
customs duty. However no announcement has come on the much-awaited SEB reforms.
If the RBI starts cutting rates after a couple of months, the impact of the global liquidity by way of QE and LTRO will technically support and push up the Indian markets. The
progress of India is less driven by policies enunciated in the Budget and more by the ground level reforms at the state level, corporate prudence and public aspirations.
The markets have understandably reacted negatively to the Union Budget. They could further drift downwards for the next couple of session’s post, which they would be driven by
the other local and global triggers.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
As expected, the latest Union Budget is neither bold/reformist nor populist. It is a please-all Budget trying to be provide reliefs to all constituencies and be as less controversial
among political parties as possible. The finance minister has chosen the line of least resistance. He has also mentioned at several places about trying for a broad based consensus.
Key issues like subsidy have not been tackled. No attempt has been made to dissuade diesel consumption by way of levying additional excise duty on diesel cars or raising the price
of diesel. This however will have a positive impact on Diesel car manufacturers.
Total subsidy provision has been cut by about 12% while fuel subsidy has been cut by 36%, despite the fact that crude prices continue to rule high and the Government has not
shown any inclination to free fuel pricing or even move towards it. Contrary to expectations, provision for food subsidy has not risen sharply.
As expected, outlay for rural areas has not been raised sharply while that on education, health and sanitation/drinking water and transport been raised decently.
Telecom receipts projected for FY13 include an estimated Rs.40,000 cr + by way of auction of telecom licences and spectrum fees. One hopes that there are no hindrances to
raising this amount and the optimism of the Finance minister is well placed.
Real GDP has been assumed to grow 7.6% while inflation is expected to rise 6.2%. These numbers will be closely watched as recent history shows that on both counts we have
failed to meet targets.
Corporate and income taxes are assumed to grow 13.9% while customs and excise duty collections are assumed to rise 22 and 29% respectively. If growth momentum in India does
not pick up in the next few months, there will be a serious threat to achieving these numbers.
Fiscal deficit has been assumed to be 5.1% for FY13 vs 5.9% in FY12. This target is again a bit aggressive. Government debt is expected to rise to 50.25 lac cr in FY13 from 44.68
lac cr in FY12.
Service tax proposals to raise an extra Rs.19,000 cr – throws up scope of uncertainties, procedural hassles, litigation. Custom and Excise duty hike to raise an extra Rs.27000 cr.
Both will have a regressive impact on inflation and the RBI may have to postpone rate cut by a few more months. Borrowings by the Government will be Rs.4.79 lac crore vs Rs.4.36
lac cr in FY12. This will keep crowding out private sector borrowers and halt fall in interest rates.
The Budget gives a lot of flexibility/approvals to local companies in different sectors to access ECB. Indirectly it recognises the limitation of these sectors to raise money from local
sources.
The Budget has proposed retrospective amendments to overcome effect of adverse judgements. It has also introduced amendments by way of GAAR (General Anti Avoidance
Rule), arms length pricing, transfer pricing for domestic entities. These could create fresh issues for the corporate sector. Foreign companies may not take these amendments kindly
although they cannot afford to ignore Indian market.
While mentioning his targets on divestment, the Finance minister stated about wanting to retain 51% stake. Thereby he gave a socialist touch to the divestment process. Pension
provision has shot up by 12.5% to Rs.63183 cr after remaining flat over two years. This could over years be a problem area.
The Budget has introduced Rajiv Gandhi Equity savings scheme to promote equity culture. If investors are convinced of making money, then it will be of help. However there could
be procedural issues that need to be addressed before the policy is notified. STT has been cut by 20% for delivery transactions but no change has been proposed on non-delivery
transactions. Hence the disadvantage faced the equity stock exchanges vis-à-vis the commodity exchanges has not been removed.
Sectorally,
• Infrastructure - some incremental reliefs have been announced including TDS reduction on ECB.
• Very few reliefs for power equipment manufacturers
• Relief granted to bring down the capital cost for mining projects
• For power industry some measures have been announced including – extension of sunset clause and additional depreciation, coal imports have been allowed at zero
customs duty. However no announcement has come on the much-awaited SEB reforms.
If the RBI starts cutting rates after a couple of months, the impact of the global liquidity by way of QE and LTRO will technically support and push up the Indian markets. The
progress of India is less driven by policies enunciated in the Budget and more by the ground level reforms at the state level, corporate prudence and public aspirations.
The markets have understandably reacted negatively to the Union Budget. They could further drift downwards for the next couple of session’s post, which they would be driven by
the other local and global triggers.
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