What Budget 2012 has for Vijay Mallya, Naresh Goyal, Anil Ambani & other barons in trouble (ET)

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Recent months have been tumultuous for tycoons such as Vijay Mallya and Anil Ambani, who are the faces of the businesses they head. Their once booming businesses have been struggling under the weight of factors ranging from cutthroat competition to a harsh economic environment.


Their companies are grappling with mounting debts, falling profits, fleeing customers and disenchanted employees. Put another way, they are all gasping for breath and fighting for survival. A turnaround, though not impossible, seems difficult due to these multiple problems.

Budget 2012: Change in I-T Act won't impact foreign investment flows, says Pranab Mukherjee (ET)

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Dismissing the criticism of government's decision to amend I-T Act with retrospective effect, the Finance Ministry today said the proposed change will not impact foreign investment flows.

"The apprehension that the retrospective amendments would create negative sentiment for FDI is not correct. FDI comes when there is profitability, FDI does not come only on account of zero tax," Finance Secretary R S Gujral told industry leaders in a post-budget interaction here.


Also See:   Budget at ET: Budget 2012   |   Union Budget |   Live Union Budget Blog   |   Railway Budget   |   Budget News   |   Economic Survey of India

As per the amendment proposed in the I-T Act by Finance Minister Pranab Mukherjee on Friday, all persons, whether resident or non-residents, having business connection in India will have to deduct tax at source and pay it to the government even if the transaction is executed on a foreign soil.

The amendments, once carried out, will have implications on Vodafone which won Rs 11,000-crore tax dispute case against tax authorities in the Supreme Court. It will also impact other similar cases involving taxes to the tune of about Rs 30,000 crore.

Gujral further said a couple of years ago, China had imposed 15 per cent tax on such transactions but it did not impact FDI flows there. The FDI in China increased by 17 per cent in 2010 and 10 per cent in 2011, Gujral added.

He said since the Vodafone transaction was not taxed either of the countries, it is susceptible to 10 per cent tax tax in India.

Buy ITC: Cigarette profits shrug off excise duty increase :: Motilal Oswal

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Cigarette profits shrug off excise duty increase
Best pre-budget return in the stock since 2006
 Cigarette EBIT CAGR 15% since 2000 despite excise CAGR of 5.8% (excluding FY09).
 Non-cigarette EBIT to post 20% CAGR over FY12-14; Outlook positive.
 Strong cash flows and improving payout ratio positive; Maintain Buy.
ITC's stock has appreciated by 4.2% over the past two months, and is the best
pre-budget returns since 2006. This performance is being partly driven by the
strong stock market rally since end December 2011. There are expectations of a
double digit increase in excise duty on cigarettes given the fiscal constraints of
the Central government. However, ITC has given negative returns (after budget)
only on two occasions in the past eight years; as the company has managed to
pass on the increased duties given the superior pricing power. We believe that
any correction in the stock price will provide a good entry point. Maintain Buy.
Expect double-digit hike in excise duty; VAT to increase in a few states: There is
high probability of double-digit hike to combat the inflation impact. However,
very sharp excise increase looks unlikely as revenues suffer due to decline in
volumes. Out of the 6 six states that have announced budgets, only Bihar and
J&K hiked the VAT. There seems little incentive to increase VAT beyond 20% as
differential taxes promote cigarette smuggling from neighboring states.
However we expect another 100-150bp increase in the VAT rate (currently 18.5%).
ITC's price increases are ahead of hikes in duty and taxes: Increases in excise
duty has a cascading impact on taxes as VAT is imposed at post-excise cigarette
rates. We estimate that ITC needs to increase cigarette prices by 2.3% for every
5% increase in excise duty to maintain realizations/stick. The price increase
required to neutralize the impact of a 1% VAT rate increase is ~0.8%. ITC has
been hiking prices at a rate higher than the increase in duties and taxes. We
note that excise duty declined from 55% of sales in FY06 to 44.5% in FY12.
ITC's cigarette segment's EBIT grew 15% even during bad times: ITC's cigarette
segment posted 16.8% EBIT growth in FY11 and is expected to register ~20%
growth in FY12. The company has been calibrating its price hikes and volume
growth to grow its cigarette EBIT by 15% CAGR since 2003 due to its strong pricing
power. It increased prices by ~6% in FY12 so far. We estimate the cigarette
business to register 15.2% EBIT CAGR post FY12. A lower-than-expected hike in
excise duty and higher volume growth could result in higher growth.
Non-cigarette segments' EBIT up 26% in 9MFY12; outlook positive: We expect
non-cigarette EBIT to grow at 20% over FY12-14 led by (1) gradual reduction in
the FMCG losses, (2) 14% EBIT CAGR in paperboard led by capacity expansion,
(3) recovery in hotels, and (4) 15% EBIT CAGR in Agri business led by gains from
new leaf tobacco facility in Mysore. We estimate 17% PAT CAGR over FY12-14.
The stock trades at 22.5x FY13E EPS of INR9.2 and 19.2x FY14E EPS of INR10.8. Buy.

Banks in India should aim for 20 pc growth: P Chidambaram in ET

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Union Home Minister P Chidambaram today said banks in India should aim at a 20 per cent annual growth rate and that it was not enough to take small steps in that direction.

"Banks needed to grow faster. They should grow by 20 per cent and officials should take efforts in that direction," he said, addressing the 75th year celebrations of Indian Overseas Bank here.

The Minister also stressed the need for banks to give more employment opportunities and open more branches in the country.

Recalling the growth of IOB, he said the bank founder was a visionary and had opened a branch abroad at a time when no bank even thought of foreign trade. "He had a vision. He was prudent and had foresight," he said.

Chidambaram said IOB's business turnover which was just Rs 50 crore in the 1970s when banks were nationalised had now touched Rs three lakh cRore.

He also urged students and others who had availed education and other loans from IOB to pay it back for their benefit and to ensure the growth of the bank.

Industrials: Investment cycle bottoming out but large projects do not pick up significantly:: Kotak Securities PDF Link

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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily12032012.pdf

Industrials
India
Investment cycle bottoming out but large projects do not pick up significantly.
Based on our talks with companies we believe the investment cycle is bottoming out
but large project investments have not yet picked up. A genset OEM said it was seeing
reasonably strong order inflows but a boiler maker (competing with Thermax)
suggested little activity in captive/small IPPs and stiffer competition. L&T succession
ensures continuity, retain REDUCE on a weak cycle and potential margin pressure even
as a correction implies low incremental absolute downside.

MONETARY POLICY REVIEW Maintains pause mode on rates; Highlights upside risks to inflation ::Edelweiss

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After positively surprising with a CRR cut pre-policy, the RBI has acted along expected
lines by keeping rates unchanged at its mid-quarter policy review. If growth was the
highlight of the previous policy, inflation has made a comeback of sorts in the current
commentary. The central bank reconfirmed that the tightening cycle is out of the way
given growth-inflation dynamics and lowering rates would be the next step.
However, upside risks to inflation would dictate the initiation of the rate cut cycle
and the FY13 rate cycle trajectory. This stance once again circles back to the RBI’s
much desired realistic fiscal consolidation road map from the Union Budget
tomorrow. We too look forward to credible measures aimed at limiting fiscal
slippage to ~5.2% of GDP, which might provide the necessary comfort to lower rates
at the next annual policy review on April 17.

India Inc's verdict on Union Budget 2012 (ET video)

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Energy: The regulator wants to regulate :: Kotak Securities PDF Link

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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily12032012.pdf

Energy
India
The regulator wants to regulate. The Petroleum & Natural Gas Regulatory Board’s
(PNGRB) recent proposals/initiatives in the natural gas sector, if implemented, will likely
usher in a more competitive environment in the natural gas sector and benefit endconsumers. However, the proposals may be negative for natural gas companies in LNG
re-gasification, gas marketing and city gas distribution (CGD) businesses given their
current high financial returns. We reiterate our SELL rating on PLNG and negative view
on CGD stocks (IGL, GGAS).  

Swaminathan Aiyar's verdict on Pranab's budget (ET video)

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Gilts plunge as inflation concerns make a comeback in RBI policy :Edelweiss

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Gilts plunge as inflation concerns make a comeback in RBI policy
The RBI kept rates unchanged at its mid-quarter policy review and stated that upside risks
to inflation would dictate the initiation of the rate cut cycle and the FY13 rate cycle
trajectory. The reaction to the RBI commentary on inflation was quite negative as yields
jumped by 8-10 bps. The market seems to be worried on two fronts: inflation posing a
threat to early rate cuts and lack of bold measures in the Budget.
The 10-Y G-Sec closed higher at 8.36% vs the previous close of 8.28%. An in-line budget
can help calm the sentiment and reverse the recent losses – however movement from
there on is likely to be range-bound with a close eye on the inflation risks that the RBI has
underlined today.
The OIS rates moved along the lines of the domestic yields, showing exaggerated
movement on account of inflationary concerns at home. The 1Y OIS ended at 8.17-8.23%
vs 8.03-8.09% while the 5-Y swap ended at 7.56-7.62% vs 7.47-7.53%.
Non-SLR Market
Allahabad Bank placed 3M CD worth INR 5bn @ 11.20%. SBT placed same tenor @ 11.15%
for INR 1bn. Andhra Bank placed 1Y CD worth INR 2.50bn @ 10.58%.
Money Market
The LAF borrowing was at INR 1.35tn which could have been even worse on account of the
advance-tax outflow, if it not had been for the surprise CRR cut last week. Overnight call
WAR was largely unchanged at 8.90% vs 8.89%.

Gilts plunge as inflation concerns make a comeback in RBI policy :Edelweiss

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Gilts plunge as inflation concerns make a comeback in RBI policy
The RBI kept rates unchanged at its mid-quarter policy review and stated that upside risks
to inflation would dictate the initiation of the rate cut cycle and the FY13 rate cycle
trajectory. The reaction to the RBI commentary on inflation was quite negative as yields
jumped by 8-10 bps. The market seems to be worried on two fronts: inflation posing a
threat to early rate cuts and lack of bold measures in the Budget.
The 10-Y G-Sec closed higher at 8.36% vs the previous close of 8.28%. An in-line budget
can help calm the sentiment and reverse the recent losses – however movement from
there on is likely to be range-bound with a close eye on the inflation risks that the RBI has
underlined today.
The OIS rates moved along the lines of the domestic yields, showing exaggerated
movement on account of inflationary concerns at home. The 1Y OIS ended at 8.17-8.23%
vs 8.03-8.09% while the 5-Y swap ended at 7.56-7.62% vs 7.47-7.53%.
Non-SLR Market
Allahabad Bank placed 3M CD worth INR 5bn @ 11.20%. SBT placed same tenor @ 11.15%
for INR 1bn. Andhra Bank placed 1Y CD worth INR 2.50bn @ 10.58%.
Money Market
The LAF borrowing was at INR 1.35tn which could have been even worse on account of the
advance-tax outflow, if it not had been for the surprise CRR cut last week. Overnight call
WAR was largely unchanged at 8.90% vs 8.89%.

RELIANCE INDUSTRIES Niko anticipates drop in KG‐D6 reserves :: Edelweiss

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Niko announced today that it was revising the geological model for KG‐D6
and anticipates a drop in reserves from D1/D3 fields. Niko earlier estimated
gross proved reserves (including undeveloped) at 6.75 tcf (as of Mar 2011).
Implied gross proved reserves at 1.5 tcf as per BP
Niko’s announcement follows BP Plc’s reserve estimate in its 2011 annual report from
which we estimate the implied KG‐D6 gross proved reserves at 1.5 tcf (Dec 2011). RIL’s
implied gross proved reserves as on Dec 2011 (again our estimate based on Mar 2011
Annual Report and 9mFY12 production) in KG‐D6 stands at 6.2 tcf. While we believe
that there are differences as BP is more conservative considering that it has assumed a
gas price of USD4.12/mmbtu compared to Niko’s estimate of USD8.66/mmbtu, the
difference is large enough to explain the difference in reserve estimates of 4.7 tcf.
Worst scenario of 4.7 tcf cut in reserves to trim INR 75/share from SOTP
While Niko has not indicated the quantum of cut in reserves, the difference in
estimates of 4.7 tcf leaves us guessing on the possible range of cut in reserves. We have
been maintaining our fair value for RIL (based on BP Plc valuations) considering that BP
knows more about the block given its expertise and access to data. Moreover, BP Plc in
its Q4CY11 analyst call said it always knew that KG‐D6 production was in a decline
phase. However, we are surprised at the lower reserve estimate by BP and cut in
reserves by Niko, as this scenario increases prospects that BP may have paid more for
exploration upsides which would be known only when the actual drilling takes place
(probably in the next two years). Our interaction with the BP Plc management also
indicated that BP “did not just pay for the proved reserves and does feel that there is
much unproved resource potential in the blocks it now has access to”.
We estimate the impact on fair value because of a 1.0 tcf cut in gross reserves for the
KG‐D6 block in two ways:
• Our DCF analysis leads to a cut in NPV by INR23bn or INR7/share per 1.0 tcf cut
• Assuming BP’s purchase value of USD5.2bn for ~10 tcf KG‐D6 reserves (including
undeveloped satellite fields), it implies a reduction in RIL’s NPV by INR52bn
(USD5.2bn/30% BP stake / 10 tcf reserves * 50 USD/INR * 60% RIL stake). This
equals INR15.9/share per 1.0 tcf cut in gross reserves.
The worst case impact on RIL is that its SOTP may be cut by INR75/share (2nd case).

IIP A non‐durable spike :: Edelweiss

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IIP grew sharply by 6.8% YoY in January against a weak, but upwardly
revised 2.5% in December thanks to an unusual spurt in consumer nondurables
(up ~42% YoY). Ex‐non‐durables, IIP contracted 0.8%. Such spikes
in IIP (and its components) make it totally difficult to capture the underlying
trend in the industrial activity. We feel that MoM 3MMA seasonally
adjusted data does a better job in capturing the trend. On this basis, it
seems that the industrial activity has improved in Nov‐Jan period compared
to the extremely weak phase of Jun‐Oct 2011. This is consistent with the
improvement in PMI data. Nonetheless, it is too early to comment on the
nature of the surge as much will depend on the policy action by the
government in the forthcoming budget (and otherwise) and also the pace of
monetary easing throughout the coming year.
IIP growth at ~6.8%, surprises on the upside
IIP growth for Jan 2012 at ~6.8% YoY came in at higher than ours (~2.5%) and market
expectations (~2.1%). This was entirely due to the inexplicable, but stupendous growth in
consumer non‐durables (~42% YoY). Ex–consumer non‐durables, IIP actually recorded a
contraction of ~0.8% YoY on top of the 0.5% decline seen in Dec 11. Clearly, the industrial
activity remains very weak.
However, it must be noted that the monthly (YoY) data is volatile as its gets influenced by
the base effect and therefore, occasionally masks underlying trends. In this regard, we
believe that MoM 3MMA seasonally adjusted data is better suited to capture the
underlying trend. On this basis, IIP data shows a decent expansion in January over and
above a healthy pick up in previous months. Indeed, one can deduce that the industrial
activity is recovering from its extremely weak phase of June‐Oct. This is quite consistent
with the improvement observed in PMI data since late last year and the sequential
improvement in exports.
Mining, electricity show decent sequential growth
Mining activity contracted 2.7% YoY though at a slower pace compared to previous
months. Electricity growth also slowed sharply to 3.2% YoY but it was largely due to a high
base effect. On more stable MoM 3MMA seasonality adjusted (SA) basis, mining and
electricity continued to show positive growth albeit at a slower pace. Manufacturing
showed a strong growth, but the data is clouded by an unusual jump in consumer nondurables
goods production, rather inexplicably.
Among eight core industries, crude oil, natural gas, refinery products and steel were in
contraction zone while cement and coal production registered a healthy growth. Overall,
core sector growth came in at ~0.5% (YoY) for Jan 12 against ~3.1% in Dec 2011.

Not a bad Budget for markets : CIO, Centrum Wealth Management in :Business Line

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To be fair, any critical analysis of Budget should be based on both its proposals and economic environment in which it has evolved. The interest rate cycle and slowdown in the western economies has led to a deceleration in domestic industry. This has led to tax revenues falling, export growth slowing down, divestment targets failing and the subsidy bill soaring.

All leading to the previous budget's fiscal targets being missed. The stressful economic environment still continues. Evaluated in this economic background, this Budget is based on fairly sound ideas.

TAX MORE SERVICES

The service sector GDP still continues to grow over 9 per cent and service tax revenues are growing over 30 per cent. As the service sector accounts for 60 per cent of GDP, bringing the entire service sector except 17 services under the tax net (apart from 200 bps hike in excise duty) alone will contribute Rs 2 lakh crore to the government coffer over 2-3 years.

The Government has also found an innovative way to get the private sector to share the oil subsidy burden. It has done so by increasing the cess on crude oil by 80 per cent at one go. These tax measures would enable the Government to contain magnitude of crowding out of private investments in the country. Bringing back fiscal reform and introducing new parameters like “effective revenue deficits” impose restraints on rulers in taking up wasteful welfare expenses.

SELECTIVE SPENDING

Increasing the overall Plan outlays by 22 per cent, containing growth in non-Plan expenditures to 8.7 per cent and increasing the allocation to the road sector by 14 per cent are positives for capex.

Providing access to external borrowings to part-finance rupee debt of power projects and to the aviation industry for its working capital requirement, and doubling the quantum of tax free infrastructure bonds should provide a boost to the infrastructure sector. The infra sector, which has strong linkages with other industries, will provide boost to falling capex and also to demand for other core industries.

DETERRING GOLD BUYING

Doubling of import duty on gold will curtail the outflow of dollars at least by about $15 billion in 2012-13.

These anticipated savings are quite large; the RBI sold $15 billion in the open market during December 2011 and January 2012, triggering a 7 per cent appreciation in the rupee. This duty hike would not only reduce the trade deficit but may also help strength the rupee.

The Rajiv Gandhi Equity Savings Scheme would not only increase the penetration of stock market investing, but also promote long-term equity investments.

NOT SO BAD FOR STOCKS

While it is true that the hike in excise duties and service tax will be inflationary, it is the “rate of change” rather than absolute price rises which matter most to equity markets.

Due to inflation and consistent rise in oil prices, the base index of headline inflation has gone up by 18 per cent and oil prices up by about 27 per cent in two years.

Given record food grain production and loss of pricing power in the manufacturing sector (manufacturing inflation has fallen by about 200 basis points in the last couple of months), the base effect will kick in. It will ease the pressure on overall inflation.

LOWER RATES

Expected reversal of interest rate cycle by 100-200 bps in 2012-13 and moderation in commodity prices in the wake of the global slowdown will also partly offset margin pressures from duty hikes.

A possible political realignment could also help the government push through pending reform measures and economic bills.

Hence, post-budget, the reversal of interest rate cycle, successful implementation of reform measures and robust outlook for rupee would lead to both the domestic equity markets and also inflow of investments by the FIIs hitting record high in the year 2012! The risk to our view would be any major failure of coming monsoon.

(The author is Group CIO, Centrum Wealth Management).

Banks/Financial Institutions: Steady decline in loan growth :: Kotak Securities PDF Link

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Banks/Financial Institutions
India
Steady decline in loan growth. A combination of high interest rates, slowing
economic activity and weak investment climate due to unclear policy actions has
resulted in a slowdown in loan growth. Loan growth for February 2012 decelerated to
16% yoy from 20% in 1HFY12; we note that even sectors like infrastructure, which
drove loan growth in recent years, are slowing down. Lack of new sanctions in 1HFY12
implies loan growth for FY2012-14E would remain modest at about 15%.

Technicals: Wockhardt, BOC, Steel Exchange, Hindalco, Dishman Pharma, Reliance Mediaworks ::Business Line

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Please discuss the medium- and long-term outlooks of Wockhardt and BOC India Ltd.

Anil Kumar Ray

Wockhardt (Rs 582.3): This stock is on steroids since the beginning of this calendar. It reversed from the trough at Rs 251 in the first week of January and did not look back thereafter. It has shattered its long-term resistance at Rs 550 and is currently trading at a new life-time high.

It is obvious that long-term up move is in progress over the last two months. But the need for caution arises from the fact that the index is close to its long-term peak. The zone between Rs 550 and Rs 600 is a potential minefield. Strong move above Rs 600 is required to signal that the stock will now go on to Rs 653. Long-term outlook will stay positive as long as the stock trades above Rs 380.

Investors with short- to medium-term view can take some money off the table and hold the rest with stop at Rs 450.

 

March 19: Tata Steel, Reliance Industries, Infosys, SBI: Outlook -Business Line

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Pivotals - Reliance Industries (Rs 771.9)

Though the stock made good attempt to alter its near-term downtrend by rallying above Rs 810, it failed to sustain its up move last week.

The near-term trend continues to be down. The stock has key medium-term support at Rs 750 and Rs 760 range.

An emphatic decline below this range will be cue for initiating fresh short positions and the stock can trend downwards to Rs 723 and then to Rs 700.

Conversely, an upward reversal from the aforesaid support range will encounter resistance at Rs 795 and then at Rs 810.

Important resistance above Rs 810 are at Rs 830, Rs 848 and Rs 858.

As long as the significant resistance at Rs 810 is not broken out, the stock's near-term stance remains down.

CNX IT Index in long-term uptrend ::Business Line

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CNX IT Index has been on a long-term uptrend ever since it bottomed out from 2,000 levels in the first quarter of 2009.

The index surpassed its 2007 peak at 5,857 during mid-2010 and trended higher until it peaked out in January 2011 at 7,591 levels.

This was followed by an intermediate-term corrective downtrend.

However, it found support at around 5,000 levels in August 2011 and resumed its long-term uptrend.

The index has been on an intermediate-term uptrend since then.

It is currently testing a key resistance at 6,700. A strong rally above this level will pave way for an up move 7,200 and then to 7,600 in the ensuing months.

Conclusive breakthrough of the significant resistance at 7,600 will reinforce the long-term uptrend and take the index higher to 8,000 or to 8,500 in the long term.

But, inability to rally above 7,200 level will pull the index down and confine it to consolidating sideways in the broad range between 6,300 and 7,200.

A downward breakthrough of 6,300 can pull it lower to 5,800 or to 5,500. Next long-term support is at 5,000.

Only a tumble below 5,000 will mar the long-term uptrend and pull the index down to its subsequent support level at 4,500. After a strong run since last August, the stock encountered resistance at around 6,700 in February and is testing this level currently.

Immediate support for the index is positioned at 6,300 levels and an upward movement for this support will take the index higher to 6,700 in the medium-term.

Nevertheless, a decisive breach of the support at 6,300 will pull the index down to 6,100 and then to 5,900.

As long as the index trades above 5,800, its intermediate-term uptrend remains in place.

Strong decline below 5,800 will negate the uptrend and pull it down to 5,500 levels.

On the other hand, conclusive weekly close above 6,700 can strengthen the bullish momentum and take the index higher to 6,900 and 7,100 in the medium-term.

Green signal for infrastructure ::Business Line

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Mr G. R. K. Reddy, Marg Ltd has welcomed the budget proposals to boost investment in the infrastructure sector. Concrete steps have been taken towards funding access through plans for tax-free infrastructure bonds of Rs 60,000 crores, twice that planned in the previous Budget.

The Budget is set in a scenario of rising inflation, tight liquidity, high interest rates, industrial slowdown, delayed reforms and a negative market sentiment. It presents a mixed bag in general.

Power plant projects benefit from access to ECBs, tax holiday for power plants that commence generation by March 31, 2013; the Cascading effect of Dividend Distribution Tax has been eliminated, and will benefit infra companies that typically operate with an SPV model. The delay in implementation of the Direct Tax Code (DTC) and the continuing want of clarity with respect to SEZs is a big disappointment.

CLEAR PLANS

Mr Ayodhya Rami Reddy, Chairman, Ramky Group, said the Budget this year gives a good road map for the infrastructure sector. The government has come up with initiatives to build road infrastructure to the tune of 8,800 kms, and plans to double the quantum of tax-free bonds for financing infrastructure projects.

Mr Zubin Irani, President, UTC Climate, Controls & Security (India), said the Budget has shown some green signals towards infrastructure growth in India, which has fiscal roadblocks in its way. The planned Rs 50 lakh crore investments in infrastructure is indeed worth appreciating, although separate amendments and provisions for real estate sector would have been welcomed. The proposed investments in health and education sectors will further boost the infrastructure. The two-percentage-point hike in excise and custom duties will have a cumulative effect on the cost of construction and impact the revenues substantially and delay housing purchase plans.

A research report by Angel Broking points out that in 2011, the infrastructure sector saw depleting order books and high interest rates, project delays and a shrinking bottom line for most infrastructure companies. It is welcome that infrastructure development has remained high on the agenda of the Government.

Measures such as reduction in the rate of withholding tax on interest payments on three-year ECBs for funding infrastructure projects, encouraging public private partnerships in road construction projects by allowing ECBs for capital expenditure on the maintenance and operations of toll systems for roads and highways, have been taken up. It has added capital investment in irrigation, fertilisers, telecom towers and oil and gas to the list of eligible items for viability gap funding.

Telecom: Bharti's RMS loss to Vodafone and Idea might continue :: Kotak Securities PDF Link

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Telecom: Bharti's RMS loss to Vodafone and Idea might continue
` Setting the context - some interesting numbers and contours of our analysis
` Stemming relative share loss to Vodafone and Idea is a stiff challenge for
Bharti

Economy: Fine line dividing a cut and a pause :: Kotak Securities PDF Link

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Economy: Fine line dividing a cut and a pause
` Growth concerns remain though near term may not be too bad
` Inflation concerns remain on the upside
` Widening trade deficit is a concern
` Interest rate outlook will involve fiscal, currency and crude prices

Market-boosting measures fall short ::Business Line

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The Government's concern for the ailing stock market was evident in the Budget speech. But the proposals related to this segment fall somewhat short of expectations.

SPREADING EQUITY CULTURE

With the view to increase penetration of equity culture and to bring a fresh set of retail investors into the stock market, the Budget proposed Rajiv Gandhi Equity Savings Scheme. This scheme applies only to first-time investors with less than Rs 10 lakh income. 50 per cent deduction can now be availed for direct investment up to Rs 50,000 in stocks by these investors.

While there is no doubt that the equity culture in India needs to spread, drawing novice investors into direct equity investing does not appear prudent. These investors are better off using the professionally managed mutual funds to invest into the stock market. The tax sops could lure one segment of the population but there is a vast majority that steers clear of equities due to the inherent risk and prefers the safety of bank deposits or bonds. Such investors might not be enticed by the one-time tax concession.

Infrastructure: Indian Railways capex `:: Kotak Securities PDF Link

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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily16032012.pdf


Infrastructure: Indian Railways capex
` 20% rise in planned spends on safety, SPV; but physical infrastructure
target not increased materially
` High fixed-cost business; previous strong business improvement was on
increased usage of assets
` Strong FY2013 revenue growth estimate on the back of tariff hike (both
freight and passenger)

Budget...sector that did not get boost ::Business Line

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Fertiliser stocks have been upbeat since the beginning of this year, with key ones such as Coromandel International, Zuari Industries and Deepak Fertilisers gaining 8 to 20 per cent.

But despite the many references the sector earned in the Budget, reform measures critical to the sector's prospects are not part of the exercise.

Measures that could have made a material difference to the sector — a sharp and long-pending hike in urea prices, specifics of the new urea investment policy, a statement on gas allocations — are missing.

In fact, the lower fertiliser subsidy budgeted for 2012-13 and the decision to steadily prune subsidy allocations over three years, don't augur well for the sector.

By not hiking urea prices, the Budget deals a particularly unkind cut to makers of phosphatic fertilisers such as Coromandel Fertilisers, RCF and Zuari Industries.

The per tonne subsidy on phosphatic fertilisers has recently been cut by a third. With players forced to hold their price lines, despite prices ruling at 2-3 times that of urea, offtake may suffer.

Urea makers who undertake expansion projects (Tata Chemicals, Zuari) may be the only beneficiaries of the Budget.

But even for them, clarity on gas allocations or feedstock costs would have been welcome.

Better brace for the Direct Taxes Code ::Business Line

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With the Budget moving ahead on the Direct Taxes Code, you should DTC-proof your investment.

Direct Taxes Code? Nah! That will take a while, we all thought. But tweaks in the Budget on the personal taxes front indicate that the DTC is slowly, but surely making its way in.

With the tax savings season in full swing, make note of these changes. They could be a big influence on your investment strategies.

Economy: Economic Survey 2012: Emphasis on need for fiscal consolidation :: Kotak Securities PDF Link

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Economy: Economic Survey 2012: Emphasis on need for fiscal consolidation
` Economic Survey remains optimistic on India's medium-term growth
prospects
` Fiscal consolidation key to favorable growth-inflation dynamics
` Important reforms required to boost manufacturing activity

Budget Ups & Downs - Sectors that got a boost… ::Business Line

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Stocks in the power generation sector have jumped 43 per cent this year on expectations of committed supply of coal from Coal India. The market was also expecting a revival package for State Electricity Boards in the current Budget. This did not happen but the outlay for strengthening the distribution sector through Accelerated Power Development and Reform Programme has been increased by 42 per cent.

Additionally, power generation companies walked away with plenty of other goodies from the taxman on Budget day. Come next fiscal, they will enjoy an extended tax holiday, benefit from accelerated depreciation and enjoy better access to relatively low cost external commercial borrowings. They might also get some respite from the galloping cost of imported coal, with the Budget gifting the sector with a nil customs duty on coal.

The cut in customs duty and countervailing duty can be expected to provide some relief in terms of recovery of costs as it would roughly translate into 15-16 paise of savings in variable costs for the generation companies. Adani Power, JSW Energy and Tata Power are some of the beneficiaries.

That there has been no rise in import duty on power equipment also means that players can keep their cost of generation at bay even if coal prices rise. Companies such as Lanco Infratech, Adani Power and Reliance Power, which have placed orders with Chinese equipment makers, would have suffered from any such hike.

CIGARETTE PRODUCERS

After a searing run last year, the stock prices of cigarette makers ITC and VST Industries lost steam in the months leading to the Budget, expecting steep excise hikes. But actual hikes turned out to be manageable. The Budget imposed a new 10 per cent duty on half the retail price of a pack of cigarettes. This will be in addition to current fixed excise charge of between Re 1 and Rs 2.1 per cigarette. The charge will add 20-25 per cent to the excise outgo. So why did the markets send cigarette producers such as ITC and VST Industries soaring? Pricing power.

In the six months leading up to the Budget, ITC undertook price hikes of 10-15 per cent on its various cigarette products. This means that it will be able to hold on to margins after the newly imposed excise without any need to take further increases.

In the nine months ended December 2011, ITC's tobacco segment operating profits grew by 20- per cent, outpacing the 12.5 per cent increase in revenues.

Cigarette makers, in fact, have almost doubled sales between 2006 and 2011 despite sedate volume growth.

While customers may go easy on purchases of their favourite brand for a bit following a price hike, they are back puffing a more expensive pack in no time. The government knows this and investors have rewarded this.

GREEN SIGNAL FOR AUTO

Auto stocks have been slow movers recently on fears of an additional duty or disincentive to diesel vehicles, which are a fast growing segment. However, this has not materialised. Therefore, despite the excise duty hikes, the auto sector has been a big gainer.

Now that this is behind us, the overall excise duty hikes becomes easier to handle for these companies. This is because of the pricing power that the sector holds. The last nine months are an example, where despite a moderation in growth, companies raised prices periodically to pass on input price increases. Many have already announced price increases after the Budget and the rest can expected to follow suit. Although this may impact demand in the short-term, profit margins should hold. The pick-up in volumes in the last two months along with a stabilisation in raw material prices, plus an expected reduction in interest rates, will be just what the doctor ordered for the industry in 2012-13. Mahindra and Mahindra could be the biggest beneficiary from the Budget, what with utility vehicles already showing double-digit volume growth so far in 2011-12.

Maruti Suzuki is also expected to proceed with its plans to set up a new diesel engine plant to cater to the increasing demand for its diesel vehicles. They currently bring in 28 per cent of the company's revenues.

Budget Views from Brokers ::Business Line

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The Budget has put us on the path of fiscal consolidation, and if followed by expenditure reforms, it would give a big boost towards achieving a higher non-inflation-based growth trajectory.

The Union Budget 2012 has been a tightrope walk between triggering a roadmap for fiscal consolidation and managing development & popular sentiment. The increase in Service Tax and excise duty were anticipated, and has resulted in some fiscal respite. The introduction of the Rajiv Gandhi Savings scheme is good for the equity market, by way of increased long-term investor participation. In addition, reduction in STT on delivery has added to the investors' return potential for equity.

In future, the Budget will have to be followed by a decrease in subsidy, in tune with the Budget estimates. The market will require the Government to take the fiscal consolidation roadmap ahead with possible increase in oil / petrol prices, which will be crucial to providing RBI headroom for a significant rate action. Until then, it is up to the Government.

Strategy: Taxing times:: Kotak Securities PDF Link

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Strategy
Taxing times.  India’s current weak fiscal position may necessitate certain harsh steps
such as higher tax rates in the short term. In the medium term, we propose options to
improve India’s flagging tax-to-GDP ratio, such as (1) speedy implementation of GST
and DTC, both delayed inordinately, (2) removal of most tax exemptions (for companies
and individuals), (3) increased compliance and (4) innovative methods to tax undisclosed
income.

India Inc left to fend for itself ::Business Line

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With a higher impost on companies, limited giveaways to consumers and a tight rein on government spending, this Budget has no magic prescription to lift India Inc from its current slump. Overall, it may be status quo for leading companies, while mid- and small-size companies may be worse off than before.

PRICING POWER

To start with, Corporate India has limited ability to absorb the higher excise duty and service tax imposed in the Budget. The 2 per cent increase in excise duty will affect two-thirds of the companies in the listed universe.

Higher excise duty is normally passed on to consumers by way of product price increases, but this appears difficult this time around. Steadily rising input costs and interest rates have already forced a series of price increases by manufacturers. They may be wary of taking further hikes, even if it amounts to less than 2 per cent of sales.

Evidence of this: The top 500 companies closed the latest December quarter with a 5 per cent drop in profits year-on-year, despite a healthy 26 per cent sales growth.

History suggests that sectors with thin profit margins such as steel, auto components, textiles, tyres will find it difficult to take price hikes. So will those faced with weak demand such as durable goods makers. Sectors such as FMCGs and cement may enjoy pricing power.

WHITHER SPENDING?

Also, this Budget, unlike previous ones, does not put much money into the hands of the consumer. There is no big-ticket spending on social schemes to drive rural sales. Giveaways on personal tax too are not generous, at a mere Rs 4,600 crore.

Some of the proposals may well shrink the consumer wallet — for instance, the Rs 18,660 crore addition expected from the wider service tax net.

Finally, despite appeals for help from the many distressed sectors in India Inc (infrastructure, realty, airlines, capital goods), special sops have been doled out only to a few such as power generation.

Budgetary provisions on the General Anti-Avoidance Rule and tax status of foreign investors too may not be conducive for the stock market.

Overall, the Budget seems to have focussed on putting government finances back in shape. India Inc will have to fend for itself.

Economy: February WPI - favorable base masks simmering inflationary trends:: Kotak Securities PDF Link

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Economy
Inflation
February WPI – favorable base masks simmering inflationary trends. Headline WPI
in February edged up to 6.95% from 6.55% in January, close to our expectations of
6.90% (consensus 6.70%). The rise was largely on account of primary articles inflation
(6.28% versus 2.25%), as the moderating trend in food inflation reversed.
Manufactured products inflation eased to 5.75% from 6.49%, but mostly on a
favorable base as, on an mom basis momentum was higher. Further, December
headline WPI was revised to 7.74% from 7.47% (provisional). We continue to expect
the RBI to wait till April 17 to start cutting the repo rate by 25 bps.

Budget evokes mixed response ::Business Line

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“The 2012 Budget presented by the Finance Minister has shaken the international investor community. The Budget proposes a number of regressive, retrograde and extraterritorial provisions that would significantly increase tax costs and alter the dynamics of cross-border transactions and M&As.

Sizzling Stocks - United Breweries; Shoppers Stop ::Business Line

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Sizzling Stocks

 United Breweries (Rs 544.4)

United Breweries sizzled last week shooting 41 per cent to register its new high at Rs 644. But it witnessed selling pressure and lost half its gain to finish the week with 19 per cent gain.

The volume traded was extraordinary in the previous week. The stock is currently testing its long-term key resistance at around Rs 600.

Failure to move above this level will pull the stock down to Rs 500 and then to Rs 465.

Its intermediate-term uptrend that has been in place since October 2011 will stay in place as long as the key support at Rs 465 holds.

A strong dive below Rs 465 can drag the stock down to Rs 400 and then to Rs 350 in the forthcoming months.

If the stock's immediate support at Rs 500 arrests any short-term corrective decline, it will be positive for the stock from a long-term perspective. In that case, the stock can move higher to Rs 577 or to Rs 600.

INDEX OUTLOOK - It's business as usual ::Business Line

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