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cover story
The finance minister has done a fine balancing act. But what will his proposals really do?
Team Outlook Money
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column
Sumita Kale
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Macro Money
After the budget, three key issues will grab market attention
Rajesh Kumar
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people like us
We talk to people to gauge the way the Budget has been received, and suggest some do’s and don’ts
Sunil Dhawan, Anagh Pal, Ashwini Kumar Sharma, Joyita Chatterjee, Kavya Balaji
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mutual funds
Budget positively impacts most of our 50 recommended funds
Kundan Kishore
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roundtable
Outlook Money editor Udayan Ray and BloombergUTV features editor Vikram Oza seek expert guidance
Outlook Money
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readers’ questions
We answer some of the Budget-related queries readers asked on Facebook, Twitter and the Budget Q&A desk on our website
Outlook Money
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column
Here’s why you should think before you make plans depending on the assumed growth rate
Mohit Satyanand
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column
Here’s why the Budget speech will be inconsequential for taxpayers from the next year
Swami Saran Sharma
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The immediate impact of the Budget on the equity market had been positive. But as time passes by, many stocks that had moved sharply are back to pre-budget levels. The reason—investors are re-evaluating the Budget’s impact on their portfolio. Here, we analyse five key proposals and how OLM’s stock picks will get impacted.
Fiscal prudence. The finance minister has proposed to cut down fiscal deficit to 5.5 per cent of the gross domestic product in FY11 from the estimated 6.9 per cent for the current year. This means less government borrowings and fewer bond issues. As the supply of bonds reduces, their price should increase and the yield come down (ignoring other factors that impact yield). The pressure on banks to mark down the value of their bond portfolio should reduce. So, the proposal has come as a relief to banks, and their stocks have reacted positively.
| OLM picks |
Business |
Budget proposals |
Impact |
| Crisil |
Rating services |
Tax deduction of Rs 20,000 (over and above Rs1 lakh under Sec. 80 C) on infrastructure bonds |
Demand for bonds will encourage companies to issue debt. As all debts are rated, Crisil, being a leader in debt rating, is well positioned to benefit from the expanding debt market |
| Union Bank of India |
Public sector bank |
Government to infuse Rs 16,500 crore in public sector banks |
As the bank’s tier-1 capital-adequacy-ratio (CAR) is below 8 per cent, it is likely to receive capital. This would help it increase lending without compromising on risk, although EPS can be diluted |
| Lower fiscal deficit |
Hardening of yield will be restricted. Lower pressure on
bond-portfolio |
| Debt repayment period extended by six month |
The bank will get some relief as it does not require to recognise NPAs for next two quarters |
| Noida Toll Bridge Co. |
Roadways |
Tax spending on infrastructure
increased |
The company could benefit from projects in the vicinity |
| PGHH* |
Personal hygiene |
Sanitary napkins brought under the net
of excise duty |
Demand largely inelastic |
| Infosys Technologies |
IT |
Higher spending on IT infrastructure for government projects |
Opens new (domestic) market for the company |
| GSK Consumer Healthcare |
Packaged food |
Rollback of excise cut |
Marginal decline in profitability |
| Excise duty on cartons, corrugated boxes reduced from 8 per cent to 4 per cent |
Will benefit the company by saving cost |
| Colgate Palmolive India |
FMCG |
Rollback of excise cut |
Marginal decline in profitability |
Allocation to NREGA remains almost
the same |
Demand attributed to NREGA would be same as last year. No new surprises in volume growth from this side |
| Rallis India |
Agrochemicals |
Higher allocation to farm sector and emphasis on increasing soil productivity |
These will translate into higher demand for agri-chemicals such as fertilisers, pesticides and seeds |
| Rollback of excise cut |
Marginal decline in profitability |
| KS Oils |
FMCG |
Rollback of excise cut |
Marginal decline in profitability |
| Power Finance Corp. |
NBFC |
Lower fiscal deficit |
Hardening of yield will be restricted. It will enable the company to issue bonds at lower rates. |
| Higher allocation for power projects |
Increases lending opportunity in power sector |
| Tax deduction of Rs 20,000 (over and above Rs 1 lakh under Sec. 80 C) on infrastructure bonds |
Higher demand for bonds will help bring down the yield |
| Rural Electrification Corp. |
NBFC |
Lower fiscal deficit |
Hardening of yield will be restricted. It will enable the company to issue bonds at lower rates |
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Higher allocation for power projects |
Increases lending opportunity in power sector |
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Tax deduction of Rs 20,000 (over and above Rs1 lakh under Sec. 80 C) on infrastructure bonds |
Higher demand for bonds will help bring down the yield |
| Bank of Baroda |
Public sector bank |
Government will infuse Rs 16,500 crore
in public sector banks |
The bank’s tier-1 CAR is already above 8 per cent. It is less likely that it will receive any capital infusion |
| Lower fiscal deficit |
Hardening of yield will be restricted. Less pressure on bond portfolio |
| Debt repayment period is extended by six month |
The bank has already recognised NPAs on debt relief scheme. No impact from this announcement |
| Hindustan Dorr-Oliver |
Infrastructure |
Increased allocation for infrastructure
projects |
Greater opportunities |
| Aventis Pharma |
Pharma |
No specific announcement |
Neutral |
| Corporation Bank |
Public sector bank |
Government will infuse Rs 16,500 crore
in public sector banks |
Bank’s tier-1 CAR is already above 8 per cent. It is less likely that it will receive capital infusion |
| Lower fiscal deficit |
Hardening of yield will be restricted. Lower pressure on bond-portfolio |
Debt repayment period is extended
by six month |
The bank has already recognised NPAs on debt relief scheme. No impact from this announcement |
| Cummins India |
Industrial machinery |
Higher allocation for Jawaharlal Nehru National Urban Renewal Mission and other infrastructure spending |
Opens up the market for the company |
| Honeywell Automation |
Industrial |
Higher expenditure on development of clean energy and infrastructure projects |
Larger market for the company |
| ITC |
FMCG |
Double-digit hike in excise on different segments of cigarettes |
Volume growth would suffer if price is hiked |
| Investment-linked tax benefit for hotels |
The company will get tax benefit on development of new hotels of two-star category and above |
| Income tax slab changed |
Leaves more disposable income in hands of the consumer—a positive development for the company |
| Opto Circuits |
Medical equipment |
Minimum alternate tax increased from
15 per cent to 18 per cent |
Negative impact on the company’s cash flow |
Duties imposed on medical equipment
have been simplified |
Overall price of medical equipment should come down |
| Rolta India |
IT |
Minimum alternate tax increased from
15 per cent to 18 per cent |
Negative impact on the company’s cash flow |
| Geodesic |
IT |
Minimum alternate tax increased from
15 per cent to 18 per cent |
Negative impact on the company’s cash flow |
| Navneet Pub. |
Publishing |
Increase in allocation to primary education |
Increased demand for educational materials |
| Axis Bank |
Private bank |
Lower fiscal deficit |
Hardening of yield will be restricted. Lower pressure on
bond-portfolio |
| IPCA Laboratories |
Pharma |
Increase in tax deduction on in-house
R&D expenditure |
Positive impact on bottomline |
| Zydus Wellness |
Pharma |
Income tax slab changed |
Leaves more disposable income in hands of consumer—a positive development for the company |
Rollback of excise duty reduction. The excise duty on non-petroleum products now stands at 10 per cent from the earlier 8 per cent. This will impact all manufacturing firms as they pay an excise duty on their products. Companies have two options—first, they bear the cost of higher excise duty and take a hit on their margin; second, they pass on the cost to consumers. In this case, if their products are highly price sensitive, the demand may get affected. The excise duty on petrol and diesel has also been increased by one rupee per litre. Oil marketing companies immediately increased the retail prices of petrol and diesel.
Concession on income tax. The income tax slab for personal income has been raised. This means more disposable income for consumers. This could boost demand for sectors like FMCG, automobiles and consumer durables.
Boost to infrastructure. The Budget proposes to increase expenditure on infrastructure. This will benefit companies involved in project development and the capital goods industry. Investment up to Rs 20,000 in infrastructure bonds has been made tax-free. The demand for such bonds will increase and companies will find it easy to finance infrastructure projects. Banks will benefit indirectly from this move. Infrastructure financing causes an asset-liability mismatch on their balance sheets. New bonds will reduce some of their burden to finance infrastructure projects.
Subsidies in cash. The government will compensate the under-recovery of oil marketing and fertiliser companies through cash and avoid issuing bonds. These bonds looked good on the companies’ books, but they were short of cash to meet daily needs.
kumargautam AT outlookindia.com