India’s savings rate has declined substantially from the highs of around 37% to barely 30% in the last few years. This is visible in the faltering deposit growth and high interest rates of banks. Simultaneously savings in physical assets like gold and property has increased. On the one hand, the country needs to lower gold imports to improve the precarious current account deficit. Simultaneously, we also need to increase our savings and investments in order to revive GDP growth. Hence, from several angles it would be appropriate for the budget to try and encourage financial savings and discourage savings in gold. Possible ways to do this would be to increase the limit for tax deductions in respect of financial investments such as ELSS, equities and bank deposits. Also, banks may be allowed to issue to issue tax-free infra bonds.
In general, the budget also always holds importance for banks from the point-of-view of the credible fiscal deficit implications and corresponding implications for market borrowings by the government. If, as expected by us, the budget this time around indeed credibly projects a lower fiscal deficit and market borrowing programme, then it would be positive for banks from the point-of-view of lower government bond yields and interest rates. Secondly, coinciding with the budget, some clarity is possible in coming days on the issue of new bank licenses, wherein if corporates are allowed, which is increasingly appearing likely, that would be a game-changing event for the banking sector. The FM may use the occasion of the budget to provide greater clarity on the likelihood and implications on the economy of large capital investments in the banking sector by corporates.
Steel industry is reeling under pressure due to scarcity of raw materials. Hence, the industry would wish the government to take measures for speedy forest and environment clearance. Also, industry would benefit if railways expand capacity so that higher rates are available for metal/ore transportation, given that transportation costs by roadways is getting expensive, specially with diesel prices expected to go up over the coming 2 years.
Oil & Gas
Upstream and downstream companies would welcome a concrete subsidy-sharing formula for sharing under-recoveries. Also, increase in gas prices would incentivize Oil and gas majors to undertake new exploration to increase gas production in the country.
Union Budget 2012-13 is likely to be a non-event for the Indian IT sector as the wish list remains extremely small. In the last budget, MAT was continued on SEZ units. As per media reports, industry body NASSCOM’s wish list includes removal of MAT on SEZ units, however, we do not expect any material change to the current tax structures. The budget can clarify issues related to dual levy of VAT and Service tax on licensing of software.
In addition, the Indian government has started focusing on e-governance lately, with its various initiatives such as RAPDRP, UIDAI and Sarva Shiksha Abhiyan; this is also a space to look out for if the government decides on increasing the outlay related to these schemes to move towards modernization. Some of the Indian IT companies have bagged some crucial deals under these schemes and have started setting up SBUs to tap the domestic market. Also, increased emphasis on PPP in education and incremental allocation for ICT implementation in schools would benefit companies catering to the K-12 segment, including Educomp Solutions and NIIT. Overall, we expect the Budget to be Neutral for the IT Sector.
1. Status quo on the excise duty front. Considering the fiscal consolidation drive that the government has undertaken over the last few months, there are talks of a possible hike in excise duty by the government. However, we believe that any hike in excise duty by the government at this juncture will be detrimental for the sector as it will suppress the demand.
2. No additional duty on diesel vehicles.
3. Sustained focus on infrastructure development.
4. Higher spends on NREGA and increase in agriculture sector outlay.
5. Increase in income tax slabs.
The Infrastructure sector has underperformed over the last twelve months relative to the BSE Sensex on the back of persistent headwinds faced by the industry- slower-than-anticipated revival in industrial capex, environment clearances and land acquisition issues. Further, a stretched balance sheet and working capital on the back of investment in subsidiaries and delays in payment from clients continues to pose a problem. Moreover, the inflationary pressures, spiraling commodity prices and rising interest rates are also hurting overall profitability of the companies.
However, it is quite apparent that in order to achieve sustainably healthy GDP growth, a proportionate increase in investment in infrastructure is required. The government can ensure this by allocating higher funds to flagship programs of Bharat Nirman, JNNURM, APDRP, AIBP and NHDP for the sector in the budget. Also, simultaneously the government can introduce measures to accelerate the process for facilitating PPP investments such as improving the clearances mechanism, providing tax sops/benefits and channelizing long-term, low-cost funding for infrastructure projects via measures like creation of corporate debt market, dedicated infrastructure debt fund, tapping insurance and pension funds or attracting foreign investment.
1. FMCG sector would hope for concrete announcements regarding the roll-out of GST. Implementation of GST would result in uniform taxation for products and services across the country and also abolish cascading effect of tax. GST would also result in reducing the overall tax burden on products and services thereby propelling demand.
2. FMCG sector would also be hoping for announcements regarding employment and other social schemes which would result in higher disposable income thereby boosting demand.
3. Cigarette makers would be hoping for no hike in excise duty on cigarettes.
1. Cement sector which is currently reeling under low demand and increase in costs would hope that there is no increase on excise duty on cement and steel in the budget.
2. Cement sector would be hoping for some announcements on infrastructure projects such as road, freight corridor, irrigation etc, which would boost cement demand.
The power sector is currently beset with a plethora of problems such as fuel shortage (both coal and gas), poor financial position of SEBs, among others. The government has already taken steps like framing of SEB restructuring policy and giving approval to imported coal price pooling to address some of these issues. :
As per Section 80-IA, power generation companies are eligible for 100% deduction of the profits for 10 consecutive years during the first 15 years of operations. The benefit under this section was available only until FY2012 which was extended by government by 1 year till FY2013. Extension of the benefits beyond FY2013 will be of a major advantage to project developers, as it will substantially reduce their tax burden.
Key expectations of the media sector from this budget include:
Roadmap for implementation of GST: It will enable companies to benefit from uniform, simplified and single-point taxation across product categories.
Radio Phase 3 auction: It is expected to add 839 new frequencies and allow a radio broadcaster to own more than one channel. TRAI has recommended the government to consider halving channel separation to 400 KHz, thereby doubling the number of channels. This is expected to augur well for overall radio industry.
During the past few quarters, the capital goods sector has been bearing the brunt of slowdown in global economies and sluggish domestic industrial growth. A number of factors have led to this domestic slowdown; these are structural (policy inaction and unavailability of resources like land and fuel) and cyclical (overcapacity, high interest rates and inflationary pressures) in nature. Hence, the number of projects that have been stalled and cancelled has increased. Besides, competition from Chinese players remains a threat in the already poor ordering scenario in the BTG space.
The BTG companies expect imposition of duty on imported solar equipment
Higher Fund allocation to various programs, including APDRP and RGGVY, would provide a fillip to transmission line players.
“Tata Motors (TTMT) 1QFY2013 results were largely in-line with our estimates on the top-line front; however bottom-line (adjusted for forex loss) was slightly lower-than-expected due to higher tax rate (primarily at JLR) and higher interest expense. For 1QFY2013, consolidated top-line registered a strong 30.1% yoy growth to `43,324cr aided by 57% yoy growth in JLR revenues. JLR results were driven by robust 34.4% yoy increase in volumes led by Evoque and strong demand in China where volumes grew 91% yoy during the quarter. Standalone revenues, however, declined 8.9% yoy as volumes and realization witnessed a decline of 3.6% and 5.7% yoy, respectively. On a sequential basis, operating margins remained stable at 13.3% led by improvement in raw-material expenses (down by 150bp). However increase in employee expenses (160bp qoq) restricted margin expansion. Operating margins at JLR jumped 110bp yoy led by strong volume performance (Evoque, Jaguar XF 2.2), favourable forex and richer geography mix. Standalone EBITDA margin remained weak at 6.6%, down 170p yoy on higher discounting and marketing spends in PV business and lower operating leverage benefits.
Led by strong operating performance, consolidated net profit (adjusted for forex loss) surged 30.6% yoy to `2,685cr. While adjusted net profit was broadly in-line with street estimates, it was slightly lower than our estimates on account of higher tax-rate and higher interest expense. Tax rate for the quarter stood at 27.3% as against 15% in 1QFY2012 and 20% in 4QFY2012. Higher tax-rate was due to higher tax outgo at JLR. Tax-rate at JLR came in at 29.1% vs. 12.7% in 1QFY2012.”