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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India strategy
India Budget – Holding on to hope
Event
ƒ Budget FY12 – Holding to hope: The Finance Minister has tried to address
the three main issues of fiscal consolidation, inflation and consumption, but
his assumptions leave a lot to be desired and are dependent on hope of
favourable global economic environment. Fiscal deficit is targeted at 4.6% for
FY12; however, we believe that these numbers seem unrealistic given low
provisions for subsidies. The FM has admitted political compulsions on not
progressing with key reforms which will hinder investment growth. We expect
markets to consolidate from here.
ƒ Key picks post budget: ITC, L&T, JSP and M&M.
ƒ Key sells post budget: ACC (Rs971.05, Underperform, TP: Rs837).
Impact
ƒ Fiscal deficit target of 4.6% for FY12 on unrealistic assumptions: The key
assumptions here are reduction in oil subsidy from US$8.5bn for FY11 to
US$5bn for FY12, while we believe that it will be closer to US$12-13bn based
on our oil price forecasts of US$98/barrel. There is also no increase proposed
in either food or fertiliser subsidies. It is good news if the higher costs are
passed on, but is government ready for the impact on inflation?
ƒ Inflation issues – well understood but no hard decisions: Infrastructure
bottleneck has been rightly identified as the key reason for inflation. Lots of
proposals have been pushed for making funding available for this sector but
no mentions were made to critical reforms on the Land Acquisition Act. Minor
increase in allocations for improving the food supply chain also doesn’t inspire
confidence.
ƒ Consumption – given a boost: Deferment of rollback of the excise duty
came as a surprise especially for autos, cement and ITC. Continued spending
on the social sector, increase in exemption limit for taxes, and increased
interest subsidy for farm loans augur well for consumption.
ƒ Reforms – taking a back seat: GST and DTC (direct tax code) seem to be
making some progress for implementation from FY13, but no mention was
made about key reforms such as FDI relaxation for insurance, retail etc. New
Mining Act was missed for the third year in a row,
Outlook
ƒ Market to consolidate: We believe the Budget is not convincing enough to
dispel concerns over inflation and investment growth. Oil prices remain an
area of concern. The market is most likely to consolidate from here and wait
for direction from improvement in investment growth, and stabilisation of
inflation.
ƒ Our top 10 picks continue to outperform: We recommend selected
exposure to our top 10 stocks, which are leaders in their space and have
much better earnings growth visibility. Our top-10 focus stocks have
outperformed the MSCI India index by 425bp and the Sensex by 210bp
since August 2010.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India strategy
India Budget – Holding on to hope
Event
ƒ Budget FY12 – Holding to hope: The Finance Minister has tried to address
the three main issues of fiscal consolidation, inflation and consumption, but
his assumptions leave a lot to be desired and are dependent on hope of
favourable global economic environment. Fiscal deficit is targeted at 4.6% for
FY12; however, we believe that these numbers seem unrealistic given low
provisions for subsidies. The FM has admitted political compulsions on not
progressing with key reforms which will hinder investment growth. We expect
markets to consolidate from here.
ƒ Key picks post budget: ITC, L&T, JSP and M&M.
ƒ Key sells post budget: ACC (Rs971.05, Underperform, TP: Rs837).
Impact
ƒ Fiscal deficit target of 4.6% for FY12 on unrealistic assumptions: The key
assumptions here are reduction in oil subsidy from US$8.5bn for FY11 to
US$5bn for FY12, while we believe that it will be closer to US$12-13bn based
on our oil price forecasts of US$98/barrel. There is also no increase proposed
in either food or fertiliser subsidies. It is good news if the higher costs are
passed on, but is government ready for the impact on inflation?
ƒ Inflation issues – well understood but no hard decisions: Infrastructure
bottleneck has been rightly identified as the key reason for inflation. Lots of
proposals have been pushed for making funding available for this sector but
no mentions were made to critical reforms on the Land Acquisition Act. Minor
increase in allocations for improving the food supply chain also doesn’t inspire
confidence.
ƒ Consumption – given a boost: Deferment of rollback of the excise duty
came as a surprise especially for autos, cement and ITC. Continued spending
on the social sector, increase in exemption limit for taxes, and increased
interest subsidy for farm loans augur well for consumption.
ƒ Reforms – taking a back seat: GST and DTC (direct tax code) seem to be
making some progress for implementation from FY13, but no mention was
made about key reforms such as FDI relaxation for insurance, retail etc. New
Mining Act was missed for the third year in a row,
Outlook
ƒ Market to consolidate: We believe the Budget is not convincing enough to
dispel concerns over inflation and investment growth. Oil prices remain an
area of concern. The market is most likely to consolidate from here and wait
for direction from improvement in investment growth, and stabilisation of
inflation.
ƒ Our top 10 picks continue to outperform: We recommend selected
exposure to our top 10 stocks, which are leaders in their space and have
much better earnings growth visibility. Our top-10 focus stocks have
outperformed the MSCI India index by 425bp and the Sensex by 210bp
since August 2010.
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