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India Equity Research Reports, IPO and Stock News
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Union Budget FY12
In the backdrop of low expectations, the FY12 Budget, even if lacking in
big-bang initiatives, came as a relief. The FM did not ‘rock the boat’
through big changes on taxes and with his Budget underscoring the
commitment to fiscal consolidation, concerns on the elusive capex cycle
should ease; his speech raised some hope of governance focused reforms
as well. Oil & Gas, airlines and retail are negatively impacted, but autos,
banks, capital goods and consumer stocks should see some relief.
Reiterates commitment to fiscal consolidation
‰ The government is targeting a further 50bps fall in fiscal deficit to 4.6% of GDP for
FY12, supported by restraint on expenditure (set to rise only 3% over FY11RE).
‰ The FY12 government borrowing programme, at Rs3.4tn, is flat vis-à-vis FY11.
‰ There is no doubt some under-provisioning for subsidies, particularly on petroleum
products, but a slippage of 40-50bps of GDP will be manageable on this base.
‰ Tax revenue estimates appear fairly reasonable. The Rs400bn target from
disinvestment is a positive statement of intent and appears reasonable, in our view.
No major changes in taxes
‰ Contrary to expectations of a 2ppt hike, excise duties and service taxes were
retained at 10%, which also facilitates a quick transition to a GST regime.
‰ The FM has avoided any significant giveaways on direct taxes, but marginally raised
the exemption limit for individual tax payers from Rs1,60,000 to Rs1,80,000.
‰ The cut in surcharge on corporate taxes to 5%, from 7.5% earlier, will help boost
EPS for high tax paying companies by c.1%.
‰ Some SEZ developers will, however, be hit by levy of MAT (now @18.5%).
Throwing in some hopes on reforms
‰ Scale-up in limit for FII inflow into infra bonds (US$25bn now), approval for FIIs to
invest in domestic mutual funds are long-term positives.
‰ Notwithstanding lack of political consensus, the government has re-iterated their
intent to usher in the GST regime, Direct tax Code during FY12, pushing ahead with
a constitutional amendment and putting in place the IT infrastructure.
‰ Measures towards greater self-regulation, signals on moving ahead with key
financial bills and cash transfer for subsidies by Mar-12 are encouraging.
Sector/stock impact
‰ MAT on SEZ developers/units should be a negative for Reliance industries, DLF.
‰ The absence of excise/customs duty cuts will mean continued uncertainty on oil
PSUs profitability; we rate R&Ms U-PF/SELL and prefer ONGC, Oil India.
‰ Concerns on growth outlook for Banks, capital goods should ease.
‰ Retailers, airlines could see some pressure on margins due to the tax changes
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Union Budget FY12
In the backdrop of low expectations, the FY12 Budget, even if lacking in
big-bang initiatives, came as a relief. The FM did not ‘rock the boat’
through big changes on taxes and with his Budget underscoring the
commitment to fiscal consolidation, concerns on the elusive capex cycle
should ease; his speech raised some hope of governance focused reforms
as well. Oil & Gas, airlines and retail are negatively impacted, but autos,
banks, capital goods and consumer stocks should see some relief.
Reiterates commitment to fiscal consolidation
‰ The government is targeting a further 50bps fall in fiscal deficit to 4.6% of GDP for
FY12, supported by restraint on expenditure (set to rise only 3% over FY11RE).
‰ The FY12 government borrowing programme, at Rs3.4tn, is flat vis-à-vis FY11.
‰ There is no doubt some under-provisioning for subsidies, particularly on petroleum
products, but a slippage of 40-50bps of GDP will be manageable on this base.
‰ Tax revenue estimates appear fairly reasonable. The Rs400bn target from
disinvestment is a positive statement of intent and appears reasonable, in our view.
No major changes in taxes
‰ Contrary to expectations of a 2ppt hike, excise duties and service taxes were
retained at 10%, which also facilitates a quick transition to a GST regime.
‰ The FM has avoided any significant giveaways on direct taxes, but marginally raised
the exemption limit for individual tax payers from Rs1,60,000 to Rs1,80,000.
‰ The cut in surcharge on corporate taxes to 5%, from 7.5% earlier, will help boost
EPS for high tax paying companies by c.1%.
‰ Some SEZ developers will, however, be hit by levy of MAT (now @18.5%).
Throwing in some hopes on reforms
‰ Scale-up in limit for FII inflow into infra bonds (US$25bn now), approval for FIIs to
invest in domestic mutual funds are long-term positives.
‰ Notwithstanding lack of political consensus, the government has re-iterated their
intent to usher in the GST regime, Direct tax Code during FY12, pushing ahead with
a constitutional amendment and putting in place the IT infrastructure.
‰ Measures towards greater self-regulation, signals on moving ahead with key
financial bills and cash transfer for subsidies by Mar-12 are encouraging.
Sector/stock impact
‰ MAT on SEZ developers/units should be a negative for Reliance industries, DLF.
‰ The absence of excise/customs duty cuts will mean continued uncertainty on oil
PSUs profitability; we rate R&Ms U-PF/SELL and prefer ONGC, Oil India.
‰ Concerns on growth outlook for Banks, capital goods should ease.
‰ Retailers, airlines could see some pressure on margins due to the tax changes
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