Kredent Consensus Budget Expectations

2nd July 2009

Summary

 This report will provide you with details regarding the expectations form the Budget 2009. In
this we have not tried to showcase the expectations we have from the budget but have
provided the consensus expectations of different brokerage houses/institutions
 We strongly believe that the media hype surrounding the current budget is completely
unjustified, since this is just the first budget the UPA government is delivering after its
reappointment and there are four more to go. The media has tagged this budget to be the
once in a life time event but they fail to understand that Mr. Mukherjee has clearly stated that
implementing reforms takes time
 S&P have already downgraded the outlook for India’s sovereign debt rating from stable to
negative and any further increase in deficit would lead to a cut in India’s rating from BBB-
minus and bringing India to speculation grade from the current investment grade
 Historically markets on most of the occasions have disappointed after budgets and the main
reason is that they expect miracle from budget which have rarely being delivered. So we
expect this budget to be the normal budget with focus to be more on “AAM AADMI” reforms
and some on the privatization and priority areas
Agenda

• Highlights
• Historic Pre/Post Budget Market Movements
• Fiscal Deficits
• Taxation
• Sectoral Consensus Expectations
Highlights
 Fiscal Deficit
• The FM is faced with a fiscal deficit of more than 6%
(combined with sates a fiscal deficit of around 11% of the GDP)
and the target of FY10 may not be too different. Thus to raise
additional funds divestments is PSUs, and relaxation of FDI
norms
• The government could also announce steps to ease supply
side bottlenecks for commodities since inflation is not an
immediate concern
• Though the street is expecting the government to remove
STT, CTT, this move is highly unlikely given kind of exchequer
they are to the government
Year F2008 F2009 Aggregate
Schemes US$bn % of GDP US$bn % of GDP US$bn
Oil subsisdy 19 1.60% 22 1.90% 41
Fertilizer Subsidy 11 0.90% 24 2.10% 35
NREGS 3 0.30% 7 0.60% 10
Farm Loan Waiver n/a n/a 13 1.10% 13
Sixth Pay Com m ission n/a n/a 5 0.40% 5
Additional Fiscal Stim ulus n/a n/a 28 2.40% 28
Total 33 2.80% 99 8.50% 132
Market Movement Post/Pre Budget Month

Where
this
time?
Taxation
No major changes in Direct Tax Rates Expected
Direct & I ndirect Tax FY09 FY08 Growth(%)

Direct Tax 3382.1 3122 8.3

Corporate Tax 2138.23 1929.11 10.8

Personal Income tax 1239.67 1189.04 4.3
FBT 79.97 71.16 12.4
STT 54.08 85.77 -36.9
Indirect Tax 2833.5 2813.3 0.7
Excise Duty 1083.6 1236.1 -12.3

Import Duty 1080 1041.2 3.7

Service Tax 650 513 26.7

 Automobile
Issues Industry wish list Expectations Rationale Impact

Auto sales have begun to

Retaining the cut in excise rebound after a long time.
Excise duty applicable for duty which were part of Govt will be keen to give Neutral if industry
Likely
small cars government stimulus impetus to this key expectations met
package component of
consumption growth

Reduction in excise
Likely, expectation is that To further promote Positive for players
Excise duty applicable for duty.Large cars invite a
the difference would domestic industry and catering to the particular
large cars duty of 21% compared to
contract growth end of the segment
8% for small cars

Government has made it

Extension of deductions to
clear its intention to
R&D deductions for auto auto component makers Status quo to be
gradually do away with Neutral
components maker who source it from abroad maintained
deductions across
for use in India
industries

Govt will be keen to give

impetus to this key
Extension of depreciation For CV's and trucks this is Positive for truck makers if
Likely component of domestic
benefits expected to end in FY10E it materializes
industrial demand and
growth
Research House Consensus

Stocks
• Mahindra & Mahindra
• Tata Motors
 Banking
Issues Industry Wish list Expectations Rationale Impact

Increasing the limit for

Increase the Positive, it will increase
deduction of interest on Increase from Rs 0.15
Likely affordablity of the the demand for home
housing loans(for slef million to 0.25 million
borrowers loans
occupied property)

Increase the FDI limit To provide capital to Positive, it will provide

Liberalizing FDI norms
in insurance sector Likely the insurance capital to fund their
for insurance sector
form 26% to 49% companies insurance businesses

Positive, it will reduce

Tax exemption on Increase attractiveness
Reintroduce 10 (23) G the effective tax rate
Infrastructure likely for lending to
of the income tax act depending on the
Financing infrastructure sector
exposure to this sector

Reduction in the lock in Increase the

Positive as this would
period for savings to Reduce from five years attractiveness of term
help the banks in
quality for tax lock in period to three likely deposits and make it
correcting the asset
benefits(Under section years par with other
liability mismatch
80C) investment instruments
Research House Consensus

Stocks
• AXIS BANK
• BANK OF BARODA
• INDIAN BANK
• PUNJAB NATIONAL BANK
• UNION BANK
 Cement

Issues Wish list Expectations Rationale Impact

Negative , it is difficult
Hike in excise duty will for manufacturers to
Excise duty likely to be
No increase in excise boost government pass the hike to
Excise duty increase from 8% to
duty revenue collection and consumers due to
12%
reduce the fiscal deficit monsoons as well as
impending oversupply
55% abatement on
Indirect tax collection
Abatement on excise excise duty as against
Status quo maintained may be impacted Neutral
duty no abatement allowed
negatively
currently
Results in saving the
Abolish import duty on Enhance the power cost for the
Import duty on coal and Expected to be
coal and pet coke as efficiencies of the cement
coke abolished
against 5% currently cement companies companies.Marginally
positive
Bring cement and coal
Reduction in Railway in railway freight
Status quo maintained   Neutral
freight charges classification 130 and
140 respectively
 Research House Consensus

Stocks
• Shree Cements
• Prism Cements
• India Cements
• ACC Ltd
Construction
Issues Wish list Expectations Rationale Impact
Simplification of policy
Simplifying procedures
and regulatory
for implementation; Simplification of projects Positive for players
framework for faster
higher allocation in to attract more players having adequate
implementation.
Roads budget; change the and will enhance experience and net
Increaseing VGF cap for
revenue model on modernisation and worth to bid for the
supporting non viable
annuity basis for select upgrading of highways project
projects;Higher
projects
budgetary allocation
Faster environmental
Positive for players
clearances;Higher fund
Will increase fund Results in increase level having expertise in
Irrigation allocation through
allocation of irrigation irrigation and water
accelerated irrigation
projects
benefit programme
Positive for most of the
Inline with governments construction companies
Urban Infrastructure Higher fund allocation Increased fund
focus of infrastructure focused on urban
Development through JNNURM allocation
creation infrastructure
development
DDT exemption is likely
Extension of tax
to benefit many Positive for players
Introduction of Section exemption on inter
Likely to be extended companies since most carrying out projects in
80M corporate dividends
of them have multi layer separte SPV structure
further one step down
holding structure
Research House Consensus

Stocks
• IVRCL
• Simplex Infra
• Nagarjuna construction
• Sunil Hitech
• Unity Infraprojects
Capital Goods
Issues Wish List Expectation Rationale Impact
Imposition of 10%
customs duty on import of
power plant equipment for To promote investment in
Status quo to be
Customs duty both the projects awarded power sector and increase No impact
maintained
through the international generation capacity
compettive bidding route
and mega power plant
Import duty on certain
Not to be included in
capital goods like Status quo to be To retain the viability of
sensitive list for zero duty Positive
boilers,rolling mills, maintained the capital good sector
under WTO obligations
hydraulic turbine etc
Interest on infrastructure To garner funds for
Infrastructure bonds bonds to be included Likely development of Positive
under 80C infrastruture sector
The planning commission
has proposed setting up a
national Electricity fund
Positive for T&D
with a corpus of Rs 1000 To garner funds for
equipment companies like
Funding bn-1500 bn to finance Likely development of
ABB, Areva, Siemens and
development of power infrastruture sector
Crompton
T&D network by state
utilities so as to reduce
T&D losses
Impact on rural To make power available Positive for transformer
Rural Electrification Likely
electrification to continue to all makers
Research House Consensus

Stocks
• Crompton Greaves

• Voltamp

• BHEL

• L&T

• Blue Star

• Hind Dorr Oliver

• AIA Engg
FMCG

Issues Wish List Expectation Rationale Impact

Marginal increase in Source for cash for
To maintain excise
Excise duty excise duty on funding the welfare Negative
duty on cigarettes
cigarettes programs
Focus on rural sector Positive steps for
Boost the inherent
through employment employment
Focus on rural sector strenghts of the indian Positive
generation and generation and
economy
infrastructure spending infrastructure creation
More money in the
To be increased above hands of consumer
Tax exemption Likely to be increased Postive
Rs 1.5 lakh leads to higher
spending for FMCG
Dividend distribution Reduction in Dividend Status quo to be Future revenue
No Impact
tax distribution tax maintained Implications
Rationalize across the
Status quo to be Future revenue
VAT food processing No Impact
maintained Implications
industry
Some tax concession Will help companies to
Tax incentives Tax incentives Positive
to be announced invest in R&D
Research House Consensus

Stocks
• ITC
• HUL
• Britannia
 Information Technology

Issues Wish List Expectation Rationale Impact

This job generating
Extension of tax
Tax exemption U/S and export oriented
exemption beyond Likely Positive
10A/10B sector has faced
FY10
numerous headwinds
To boost
FBT Abolition of FBT Likley competitiveness of the Positive
export oriented sector
Multiple tax incidences With likely forward
Subsuming of VAT
for packaged and movement on GST,
and service tax
customised IT Status quo govt may subsume the Marginally positive
incidence to a single
software on same on GST
levy
commercial use implementation
Time frames and
Nation wide Will ensure long term
scalable programs and
broadband rollout and likely competitiveness in the Positive
to be announced and
focus on skill building industry
implemented
Research House Consensus

Stocks
• Mphasis
• HCL
• Infosys
Logistics
Issues Wish list Expectation Rationale Impact
Foreign airlines would Help the aviation
Allow foreign airlines
be allowed to take companies to reduce
FDI in aviation to take stakes in Positive
49% stake in debt improve
Domestic airlines
domestic airlines efficiences
To be reduced form
Sales tax on ATF(Air Staus quo to be Future revenue
30% in some states to No impact
Turbine Fuel) maintained implications
4%
Reduction in
Centralised toll Road map to be stoppage time would
Toll Policy Positive
mechanism outlined lead to to greater
efficiency
Some more initiatives Some firm steps for
Infrastructure related to be taken for faster better infrastructure
key thrust area Positive
to roads and ports development of the related to ports and
roads and ports roads
Some firm steps for
Fixed schedule for
Dedicated rail freight better infrastructure Boosting trade
implementation to set Positive
Corridor related to ports and activities
up corridor
roads
It would lead to
Modernization of
Modernization of rail Some firm steps for quicker turnaoound of
terminal and rail Positive
freight implementation container and non
handling facilities
container cargo
Research House Consensus

Stocks
• Container Corporation
• Gateway Distriparks
• Mundraport
• Redington
 Media
Issues Wish list Expectation Rationale Impact
Service
tax:Broadcaster are
Broadcaster expect Positive for
subject to levy of Classification for print
parity to be drawn Status quo will be broadcaster and
service tax @12.24% in industry status is
betwwen the print and maintained ngative for print
unlike the print media different
electronic media companies
that is exempt from the
levy of service tax
Reduction in FBT from
20% bto 5% for
Expected to be High Administrative
FBT personnel working for Postive
removed cost
print & electronic
media companies
CVD(Counter Vailing
To be made nil duty to provide a filip to
Duty):8% levied on Likely Positive
items platforms like DTH
digital set top boxes
To bring broadcasting
SAD(Special
equipment like set top
Additional Duty):4% To be made nil duty Positive for DTH
Likely boxes on par with
levied on digital set top items players
rates applicable on
boxes
telecom equipment
Research House Consensus

Stocks
• Jagran Prakshan
• UTV
• Zee News
 Metals & Minings
Issues Wish list
Industry wishes that there
Excise duty increase is no roll back on the
reduction in excise duties
Infrastructure spending
Continue with great thrust
push up
Positive adequate
protection to the domestic
Safeguard duty imposition
firms against imports of
cheap steel products
Coal sector deregulation Deregulation
Expectation Rationale Impact
Governments revenue
collection has been badly
Likely ,Excise duty on hit which in turn badly
steel may be raised from impact infrastructure Marginally negative
8% to 10% or 12% development and
ultimately hit steel
demand
To anable India to deal positive for steel
with the global economic companies with higher
Likely crisis and aim at leading exposure to long products
the economy to a 7% plus and sponge iron
growth in the coming year producers
China has recently
introduced 9% rebate on
export of HRC and its
likely negative impact on Positive for steel
Likely impostion of 5-10%
Indian steel companies companies with exposure
safeguard duty on HRC
can be negated with this to falt products
action.Positively impacts
governments revenue
collection
Big positive for companies
To help plug the growing
with captive coal mines
demand supply gap as it
Likely and those interested in
would boost India's
entering the lucrative but
domestic coal output
restrictive
Research House Consensus

Stocks
• Sesa Goa
• SAIL
• Tata Steel
• JSW
 Oil & Gas
Issues Wish list Expectation Rationale Impact

Allowing marketing At current price there is

companies to Road map to be laid under recovery of Rs 6
Oil price deregulation Neutral
determine retail fuel down per litre on petrol and
prices Rs 2 per litre on diesel

APM gas is sold ar

Positive for ONGC and
APM gas sgould be Some hike in APM gas 50% discount to the
APM gas pricing negative for APM gas
sold at market rates prices price of reliance KG
users
basin gas
Tax holiday for city gas
distribution and
Tax holiday Some relief likely Increased production Positive
production of natural
gas
Abolition of MAT on
Status quo to be Future revenue
MAT exploration & No Impact
maintained implications
production companies
Declared goods status Status quo to be Future revenue
Reduce Sales tax No Impact
to natural gas maintained implications
Research House Consensus

Stocks
Pharmaceuticals
Issues Wish list Expectation Rationale Impact

Exemption under
To encourage
section 80, for
Tax exemption u/s 80 Likely companies to focus on Positive
promoting R&D in this
R&D
sector

Funds to support
small and medium Scheduling up a fund Likely To encourage SMEs Positive
enterprises
Research House Consensus

Stocks
• Dishman Pharma
• Glenmark Pharmaceuticals
Power

Issues Wish List Expectation Rationale Impact

Interest on
infrastructure bonds To garner funds for
Infrastructure bonds Likley Positive
to be included under infra sector
80C

Removing witholding
Neutral for NTPC but
Withholding tax tax imposed on Likley
positive for UMPPs
foreign borrowings

Further relaxation of To garner funds for

ECB relaxation Likely Positive
borrowing limits infrs sector

To maintain
Extension of benefits
801A tax benefit Likely attractivenessof the Positive
beyond 2010
sector
Research House Consensus

Stocks
• NTPC
• PowerGrid
Disclaimer

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