Budget 2012: What Stock Market expects

 Lalit Thakkar-MD Institution, Angel Broking shares his views on what the stock market is expecting from the Budget 2012.

“In my view, the most important budget takeaway to watch out for would be to see some action on the mining and land acquisition bills. Importantly, we are now getting to hear the right noises from PMO, with steps being taken and pre-active dialogue being engaged in with the industry to address policy issues and I’m optimistic of further reforms on this front. Moreover, pick-up in infrastructure ordering activity by government bodies in roads, ports, power transmission, etc. is another low-hanging fruit, wherein already, ordering activity by NHAI and Power Grid is reasonably robust, but it would an even bigger positive to see faster traction across segments.

Also, as far as spending is concerned, I think the government also acknowledges that the fiscal deficit is too high and so may not indulge in any big-ticket spending. I think in the times of high inflation, it makes sense for the Government to spend less, as making those funds available to the private sector would lead to more efficient use of resources. So, for me, the single most important thing to watch out for will be a credible commitment from the government to bring the fiscal deficit under control, so that there can be more money in the hands of the private sector to invest into the economy.”

Sector wise Expectation

Capital Goods

• The BTG capacities in India have been increasing significantly during the last year post the expansions undertaken by BHEL and Larsen & Toubro. In addition, companies like BGR Energy, Thermax and Bharat Forge are also in the midst of setting up new facilities for manufacturing power equipment. Amidst the backdrop of the ongoing capacity expansions, the Indian power equipment manufacturers have been demanding imposition of customs duty to ensure a level playing field, while the IPP developers have been lobbying for cheaper imports. Going by the inclination of the GoI to encourage domestic manufacturing, it might consider this industry demand in the upcoming budget.

• Additionally, fund allocation to the various programs including the APDRP and RGGVY would continue to provide a fillip to the transmission line players.

Infrastructure

• Given that the Infrastructure sector plays a vital role in achieving the desired run rate of economic growth, we expect some announcements to come through, viz. higher allocation to flagship programs of Bharat Nirman, JNNURM, APDRP, AIBP and NHDP.

• Land acquisition and environment clearance are the two major bottle-necks hampering timely execution of projects. Hence, roll out of policies to expedite these procedures would lend a fillip to the sector.

Banking

• The most important thing for the banking sector this time around would be fiscal prudence from the government. If the fiscal expenditure and deficit is restrained, this would create headroom for the RBI to cut rates and would be a big positive for banks.

• Banks would also like the government to reduce the lock-in period on tax-saving FDs to 3 years to make it on par with tax-saving mutual funds.PSU banks would be looking for further budget provisions for additional equity capital support to them

Automobile

• Excise duty rates likely to be maintained at current levels – 10% for small cars, two-wheelers, three-wheelers and M&HCV’s and 22% + `15,000 for petrol powered big cars and UV’s.

• Possibility of additional excise duty on diesel passenger vehicles (except small cars). Kirit Parekh Committee has recommended `80,000/unit additional duty on diesel powered vehicle.

• Tax incentives for green/hybrid cars.

Real Estate

• Increasing tax benefits to individual home buyer with an increase in the interest on the deduction limit of home loans -- under Section 24 of the Income Tax Act and also lowering & standardizing stamp duty across the country.

• Tax benefits or appropriate subsidies for promoting green projects which would reduce carbon footprints and increase investments in green projects. The sector currently contributes nearly 5% of the total global carbon emission.

• Extending tax benefits for construction and development of affordable housing in the country and tax holidays for housing projects under section 80IB (10) of the I-T Act which could attract more investments in affordable housing and integrated townships. This will contribute to the development of infrastructure around the cities and help reduce demand and supply for affordable housing.