The run up to the budget was mixed with markets looking forward to reforms:: CSEC Research

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The run up to the budget was mixed with markets looking forward to reforms. However, markets were left stranded with little coming by way of reforms. Expectations of a hike in indirect taxes were met while a whole gamut of services was brought under the tax net in one swoop. Personal taxes slabs were raised leaving more income in the hands of the common man, albeit marginal. The governments teetered on Direct taxes code by failing to announce a timeline for its implementation. The government reduced targets on disinvestment proceeds to Rs 300bn crore which appear more realistic than the Rs 400bn crore for the previous year; however, even this appears unassailable unless a deal is worked out with the Anil Agarwal group that has offered Rs 170 bn for the Government’s stake in Hindustan Zinc and Bharat Aluminium.

Outlook

The much talked about rate cut is unlikely to come in the upcoming RBI’s policy meet. The RBI is likely to follow inflation rather lead it, given uncertainty in global commodity prices, forex and the loop effects of the hike in excise duty and service taxes. Lack of reforms is yet another dampener, however, various measures in thermal power projects is likely to augur for independent power producers.

With the Sensex at 13 times FY 13 earnings, markets from a valuation standpoint remain reasonable. Crude oil prices, inflationary pressure from hikes in excise duty and forex volatility are amongst the headwinds that the markets face.  Given reasonable valuations and possibility of rate reductions in the later part of the year, we recommend investors to focus on companies with strong balance sheets. Consumer oriented growth stocks can be looked at from an earnings growth point of view.

Regards,

CSEC Research