Download - KBSL_Consensus Budget Expectation
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Summary
This report will provide you with details regarding the expectations form the Budget 2009. Inthis we have not tried to showcase the expectations we have from the budget but haveprovided the consensus expectations of different brokerage houses/institutions
The budget will be important from the perspective of the industry and the individuals becauseit is being touted as the beginning of the end for the fiscal stimulus which was provided last
year to drag the economy out of the fears of recession
What will be important when the Finance Minister delivers the speech this time around iswhat he has in store for the country. From an industrial point of view it would be expectedthat the stimulus measures are allowed to continue while hard run economists would want aroll back of stimulus to make the long term growth story sustainable and reducing the risk of
an increased deficit
We believe that as most of the budgets the MEDIA has hyped this budget too as a gamechanger for the markets and industry. However, in reality is that the government shouldpresent a stringent budget as it is not under any pressure from any allies in presenting aneconomically unviable, politically favorable, aam aadmi budget
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Agenda
Highlights
Fiscal deficit
Rising Subsidy bill
Stimulus measures provided by the Government
Can the stimulus be rolled backPre/Post budget movements
Sectoral Consensus Expectations
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Budget 2010 - Tightrope Walk
- Business Standard
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Highlights
The focus of the Finance Minister would be on improving the fiscal deficit situation
which is being touted as the catalyst for the withdrawal of the stimulusThe street is expecting the FY11 deficit to be around 5.5% of GDP, and hence any
figure above that could highly disappoint the market and can lead to a selling pressure
While issues like FDI relaxations/allowance, and implementation of GST may be
addressed, other critical issues like labor reforms, pension reforms may need broader
political consensus. Direct Tax code is also an issue which might be addressed and
clarification on the framework might be given
The Government is expected to bring down the fiscal deficit by measures such as
revenues from auction of 3G auction, disinvestment and increasing excise duties and
service tax. While disinvestment and spectrum sale will bring in one time revenue, we
expect it certainly to be of much help to a Government which is serious on bringing
fiscal prudence back after the year of low duty structure
The Government is set to continue with its expenditure on social benefit schemes
which act as a measure in improving rural income and bridging the divide between the
rich and the poor. However reforms rolled out to industry are expected to be withdrawn
because demand seems to be back rolling as evident from the fast growng IIP numbers
We expect no major change to come in the tax structure considering GST and Direct
tax Code are being drafted for FY11. The Govt. Stance on MAT will also be underreview but there are no major changes expected in the indirect tax structure
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The FM is faced with the task of bringing
back the fiscal deficit to sustainable levels.
This arduous task would require the FM tocut down on expenditure given on subsidies
and as fiscal stimulus
If the finmin does not roll back the excise
cuts and stimulus packages, then the deficit
position could worsen
The budgetary expenditure will be relived
from the burden of the Sixth Pay
Commission Arrears and the farm loan
waiver which because of being a one time
expenditure wont reflect this time around
However we believe that any decline in theexpenditure will be offset by the increased
spending on public infrastructure specially
roads and highways
The government is also expected to
reduce the fiscal deficit by disinvestment and
revenues from the 3G auction
Fiscal Deficit
Fiscal de ficit as a % of G
0
1
2
3
4
5
6
7
8
FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10
RE
FY11
BE
Source Revenue in Rs. Crore3G Auction 35000NMDC FPO 15300SAIL FPO 18000Coa In ia IPO 10000
Additional Revenue estimated in the FY10
11
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Mounting debt burden of the government
The government has been increasing its debt constantly thus increasing its fiscal deficit toaround more than 6%
Internal debt has increased by around 70% over the five years while external debt hasincreased by around 46% over the same period
The government has been randomly taking debt from IMF, World Bank and other big foreignfinancial institutions, which is directly putting pressure at the budget-deficit and thus on the
economys growth and prosperity
Particulars
(in Rs.00 crore)
2005-06 2006-07 2007-08 2008-09 2009-10
Public Debt 14840.01 16476.90 19203.90 21360.85 24946.20
Internal debt 13897.58 15449.75 18083.59 20144.51 23569.39
External debt 942.43 1027.15 1120.30 1216.34 1376.80
Other Liabilities 7761.43 8909.05 9170.35 9999.90 10008.31
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Stimulus measures provided by the
Government
Excise Duty reduction from 12-14% to 8%
Interest subvention of 2% for labour-intensive export sectors like textiles, leather, gems &
jewellery, marine products and SMEs
Additional funds/incentives provided to support exports
Government authorizes India Infrastructure Finance Company (IIFCL) to raise Rs10,000cr
through tax-free bonds to refinance long gestation infrastructure projects, particularly under the
PPP route
Borrowing limit for State Governments raised by 0.5% (Rs30,000cr) of their gross state domestic
product
Service Tax reduced from 12% to 10%. This had an impact to over half of the countrys GDP as
Service sector accounts for more than 50% of the Indian GDP
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Can the stimulus be rolled back???
IIP growth in FY09 over FY08 as seen in the chart below shows that industry has grown and thestimulus has been successful
Thestronger IIP numbers are an evidence of the fact that growth has picked up and now is the timewhen the measures infused to provide liquidity will be withdrawn slowly to cushion any expected
downfall and also bridge the deficit
Inflation has also started creeping its head up again with Food price Inflation at 17.43% in January and
Wholesale Price Index (WPI) creeping to 8.56% in January
The Government is also bearing the burden of increasing fuel subsidies, fertilizer subsidies and other
non plan expenditure which are rising to astronomical levels and a parity needs to be drawn in the
revenue and expenditure structure to sustain long term growth which the Finance Minister would also
know better
Particulars August September October November December
FY09-10 1 0 .4 0 % 9 .1 0 % 1 0 .3 0 % 1 1 .7 0 % 1 6 .8 0 %
FY08-09 1 .7 0 % 6 % 0 .1 0 % 2 .5 0 % -2 %
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Sectoral Consensus View
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Automobile
Issues Industry wish list Expectations Rationale Impact
Increase in excise duty No increase in exciseduty
Likely, Hike in excise dutyfor automobiles
Auto sales have beenstrong during FY10
Negative
Allocation of funds underJNNURM
Increase in JNNURMfunding for urban and ruraltransport
Likely Government thrust onimproving public transport
Positive for players incommercial vehicle
segment
Extension of depreciationbenefits
For CV's and trucks this isexpected to end in FY10E
Unlikely Sales of Cvs have startedto revive
Negative for truck makers
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Research House Consensus
Stocks
10
6
2
0
1
2
3
4
5
6
7
8
9
10
Hike in excise duty forautomobiles
Increase in JNNURMfundingfor urban and rural transport
No extension of depreciationbenefits: For CV's and trucks
this is expected to end in FY10E
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Banking & NBFCs
Issues Industry Wish list Expectations Rationale Impact
To extend theprepayment periodfor 'agricultural debt
waiver and debtrelief scheme'
Prepayment period tobe extended furtherfrom December 31,
2009
Unikely To reduce the agriNPAs
(especially PSUbanks)
Positive, as itwould reduce
the recognitionof agri NPAs
Liberalizing FDI normsfor insurance sector
Increase the FDI limitin insurance sectorform 26% to 49%
Likely To provide capital tothe insurance
companies
Positive, it will providecapital to fund their
insurance businesses
Capitalisation of PSB's Capitalisation of PSB's Likely Enable capitalstarved PSU banks to
meet theirgrowth requirements
Positive for smallbanks
Tax free bonds To allow power financecompanies to float tax
free bonds
Unlikely To make it easier for finance companies to
raise money
Positive
Tax breaks for housing
companies
Increasing tax breaks forhousing companies from20% to 40%
Unlikely To improve profitability
of the companies
Negative
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Research House Consensus
Stocks
4 4
76
3
0
12
3
45
6
78
9
10
Pre payment
period to be
extended from 31st
Dec, 09
To allow power
finance companies
to float tax free
bonds
Capitalisation of
PSB's
Hike in FDI
insurance limit
from 26% to 49%
Increasing tax
breaks for housing
companies from
20% to 40%
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Cement
Issues Wish list Expectations Rationale Impact
Excise duty No increase in exciseduty
Excise dutyconcessions to beremoved
Hike in excise duty willboost government
revenue collection andreduce the fiscal
deficit
Negative , it is difficultfor manufacturers to
pass the hike toconsumers due topoor monsoons aswell as impending
oversupply
Import duty on coaland coke
Remove import duty of5% on gypsum, petcoke & coal
Expected to beabolished
Enhance theefficiencies of the
cement companies
Results in saving thepower cost for the
cement companies.Marginally positive
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Stocks
Research House Consensus
7
3
0
1
2
3
4
5
6
7
8
9
10
Excise duty concessions to be removed Remove import duty of 5%on gypsum, Pet coke &
coal
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Construction
Issues Wish list Expectations Rationale Impact
Roads and social
infrastructure
Increase in outlay under
JNNURM for funding ofroads and social
infrastructure
Unlikely To facilitate investment
in the roads sector andimprove connectivity in
the country
Positive
Section 80IA Extension of Section80IA benefits foranother 15 years
Unlikely To maintainattractiveness of thesector
Positive
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Research House Consensus
Stocks
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Capital Goods & EngineeringIssues Wish List Expectation Rationale Impact
Import Duty on ChineseEquipment Increase in import duty onChinese Equipment Unlikely This will help domesticcompanies againstinvasion of cheap Chinese
Equipment
Positive
Allocation for RGGVY andAPDRP Increase in allocation forRGGVY and APDRPscheme to achieve UPAsobjective of Power for All
by 2012
Likely This will accelerate theinvestment into the sector;implementation will be the
key issue
Positive
Increase in excise duty No increase in excise duty Likely, Hike in excise dutyfrom 8% to 10%
To shore up indirect taxrevenues
Negative
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Research House Consensus
Stocks
4
5
4
0
1
2
3
4
5
6
78
9
10
Increaseinimport duty on
ChineseEquipment
Increaseinallocationfor
RGGVYandAPDRPschemetoachieveUPAs objectiveof
Power for All by 2012
Hikeinexciseduty from8%to
10%
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Issues Wish list Expectation Rationale Impact
FDI limit FDI liberalized for DTH services Likely Higher FDIinvestment will leadcompanies to access
low cost of capital
Positive
Customs duty on SetTop Boxes
Reduction ofCustoms Duty of 5%-
Nil levied on Set TopBoxes
Unlikely To bring broadcastingequipment like set
topboxes on par withrates applicable on
telecomequipment and
provide a fillip toplatforms like DTH
that use set topboxes
Positive
Media
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Stocks
Research House Consensus
7
1
0
1
2
3
4
5
6
7
8
9
10
FDI liberalised for DTH services Reduction of Customs Duty of 5%-Nil levied on
Set Top Boxes
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Metals & Minings
Issues Wish list Expectation Rationale Impact
Excise duty increase Industry wishes that thereis no roll back on the
reduction in excise duties
Likely ,Excise duty onsteel may be raised from
8% to 10% or 12%
Marginal impact expectedas domestic steel demand
remains very strong onaccount of revival in auto
sales and thrust oninfrastructuredevelopment
Negative
Export duty on iron ore
lumps and fines
5% increase in export duty
on both iron ore lumpsand iron ore fines
Unlikely Government just 2 months
back increased exportduty on iron ore lumps to10% and iron ore fines to
5%. Exports havemoderated post that sofurther hike in near term
looks unlikely
Positive for steel
companies not havingbackward iron ore
integration as input costwill go down
Negative for Ironore exporters as they can
not pass on the hike
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Research House Consensus
Stocks
65
0
2
4
6
8
10
Likely increase in excise duty on steel from 8% to 10%
or to 12%
5% increase in export duty on both iron ore lumps and
iron ore fines
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Oil & Gas
Issues Wish list Expectation Rationale Impact
Tax benefits Clarity on tax benefitsto the natural gas
production from NELP& CBM blocks
Unlikely To facilitate investment in the sector
and provide moreclarity to thecompanies
Positive
Service Tax Removal of Service
Tax being charged onE&P activities
Unlikely Long pending demand
of the industry sincelevy of service tax isagainst the spirit of
NELP regime
Positive
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Stocks
Research House Consensus
3 3
0
1
2
3
4
5
6
78
9
10
Clarity ontax benefits tothenatural gasproductionfromNELP&CBMblocks
Removal of ServiceTax beingchargedonE&Pactivities
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PharmaceuticalsIssues Wish list Expectation Rationale Impact
Tax exemption for
R&D expenses
Increase in weighted
average exemption
from 150% of R&D
spend to 200%
Unlikely To encouragecompanies to focus on
R&D
Positive
Infrastructure Status Infrastructure statusfor Healthcare
Industry
Unlikely Increase the pace of investment into the
industry by existing aswell as new players
Positive
Life saving drugs Concessional rates or
removal of duties forcategories of lifesaving drugs
Unlikely To increase
investment in thesector
Positive
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Research House Consensus
Stocks
4
3
4
0
1
2
3
4
5
6
78
9
10
Increaseinweighted
averagefor R&Ddeduction
Infrastructurestatus for
HealthcareIndustry
Concessional rates or
removal of duties for
categories of lifesavingdrugs
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Power
Issues Wish List Expectation Rationale ImpactExtension of benefits Extension of benefits
given to the sectorbeyond 2011
Unlikely To facilitateinvestment in the
sector
Positive
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NTPC
PowerGrid
Stocks
Research House Consensus
4
0
1
2
3
4
5
6
7
8
9
10
Extensionof benefits giventothesector beyond2011
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Real Estate
Issues Wish List Expectation Rationale ImpactExemption on loan& interest payments
Increase inexemption limit for
interest payments &loan repayments
Unlikely To improve demandfor real estate
Positive
Low cost housing
projects
Restoration of
exemptions underSection 80 IB (10) for
lower and mid-housing projects
Likely Improve
infrastructure in Tier2& Tier 3 estate
Positive
Housing for theeconomically
weaker section
Focus on affordablehousing for weaker
sections of the
society
Likely To garner funds for infrs sector
Positive
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Research House Consensus
Stocks
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Hotels
Issues Wish List Expectation Rationale ImpactInfrastructure Construction to be
given infrastructurestatus
Likely To increaseinvestment in the
sectoe
Positive
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Research House Consensus
Stocks
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Telecom
Issues Wish List Expectation Rationale ImpactLicence free Implementation of a
uniform free licencefree regime
Unlikely To improveprofitability of the
already hurtcompanies
Positive
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Research House Consensus
Stocks
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FMCG
Issues Wish List Expectation Rationale Impact
Improvement inrural demand for
goods
Expenditure inflagship rural
schemes for socialuplifment of the rural
people
Likely To increase theincome of the rural
households
Positive
Excise duty forcigarettes Excise duty hike incigarettes Likely Increasing therevenue of theexchequer
Negative if over 5%
Increasing theexcise on FMCG
Hike in excise dutyon FMCG products
Likely Increasing revenuefor the exchequer
Negative
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Research House Consensus
Stocks
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Information Technology
Issues Wish List Expectation Rationale Impact
Extension of taxbenefits
Extension of taxbenefits under
Section 10A/10B(STPI Tax
Exemption beyondFY11)
Likely To improveprofitability of the IT
companies
Positive
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Research House Consensus
Stocks
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Disclaimer
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