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The Rs 175,600-crore automobile industry has shown signs of recovery across segments, thanks
to the stimulus package and a low consumer base. The industry is expected to grow 12-13% in
2010-11 in value terms, led by commercial vehicle and passenger car sales. Commercial vehicle
volumes are estimated to rise 15-17% in 2010-11 due to sustained economic growth. Exports
will grow 13-14%.

 
 


Budget announcements are unlikely to have a major impact. The overall impact on passenger
cars, two-wheelers and tractors, though, is positive while that on commercial vehicles will be
marginally negative. The reduction in direct taxes for individuals is expected to lead to increased
demand for passenger cars. Rise in disposable income will also offset the expected hike in the
prices of cars. A typical compact car, for instance, is expected to be costlier by Rs 6,000-7,000,
in line with the hike in excise duty.

Commercial vehicle prices will rise as well. Operating expenses are expected to increase by
around 2%, thus negatively affecting transporter profitability. Continued focus on rural
development will marginally benefit two-wheeler and tractor sales.








  

Credit growth in 2009-10 is estimated at 16% year-on-year against 10% as on November 9,
2009, owing to a strong industrial recovery and increase in retail credit, particularly housing and
auto loans. In 2010-11, credit growth is likely to improve to around 19% with expectations of
higher economic growth, revival in exports and continued thrust on infrastructure. Consequently,
banks could hike deposit rates in to meet credit demand, leading to a 20% growth in deposits.

 
 


The government has proposed a Rs 16,500-crore Tier-I capital infusion in 2010-11, which is
significantly higher than Rs 1,200 crore provided in 2009-10. This would preserve the
government's holding in public sector banks as well as provide an opportunity to raise other
resources for credit expansion while maintaining a healthy capital-to-risk weighted asset ratio.
The extension of loan waiver to farmers would postpone recognition of NPAs in banks'
agriculture portfolio in March 2010. The overall impact is neutral.







  

cemand rose 10.9% year-on-year during April-cecember 2009, owing to revival in housing and
increased demand from infrastructure activities. This restricted fall in operating rates to 84%
compared with 85% during the previous year's corresponding period.
Average retail prices rose 3.9% year-on-year during April-cecember 2009. The trend, though,
has been mixed across regions. While prices in the central and eastern regions rose 13% and
12%, respectively, prices in the south fell 7% and remained almost flat in the north and the west.
Average prices are expected to fall 4-5% in 2010-11 due to lower operating rates owing to
significant capacity addition. Consequently, operating margins are expected to fall by 550-700
basis points.

 
 


The Budget is expected to have an overall negative impact due to a 2% hike in excise duty.
Companies are not expected to pass on this increase to consumers due to falling operating rates
following significant capacity addition. Measures to spur housing and infrastructure investments,
though, will have a marginally positive impact on demand.



 





  

Between 2009-10 and 2013-14, investments to the tune of Rs 600,000 crore are expected towards
the development of roads, ports and airports. Investment in roads will account for the lion's share
of close to 84%. Private sector participation is expected to drive investments in the airports and
ports sectors and road projects of NHcP.

Total port traffic is expected to grow 5.6% in 2009-10 due to rise in thermal coal and iron ore
traffic. In airports, domestic passenger traffic is expected to grow 16.8% in 2009-10 driven by
sustained revival in the economy and low ticket prices.

 
 


Higher allocation towards infrastructure sectors and continued takeout financing and refinancing
plans of IIFCL will have a positive impact. Additional deduction available for investment in
long-term infrastructure bonds for individuals will improve fund availability. Additionally,
concession on import duty for monorail projects would reduce capital cost for players. Hike in
minimum alternate tax rate to 18% of book profits, though, will negatively impact financials of
operational BOT projects.

  





  

The first six months of 2009-10 saw moderate growth. The third quarter, though, saw demand for
colour televisions and refrigerators pick up sharply by 19% and 45%, respectively, compared
with a negative growth of 9% and 2% in the corresponding period of the previous year.

Over the past few years, demand for high-value products has been on the rise. LCc televisions,
for instance, now account for a quarter of television sales in value terms. The sales clocked a
growth of 50% year-on-year in April-cecember 2009.

Household appliance sales are expected to see robust growth in 2010-11. Prices are expected to
rise moderately on the back of higher commodity prices.

 
 


The change in income-tax slabs will lead to a significant reduction in tax liability for the salaried
class. The resultant increase in disposable income is expected to boost demand. The hike in
excise duty to 10% from 8% is unlikely to have a major impact, as a significant portion of the
production takes place in excise-free zones.







  

Average prices for Brent crude oil stood at $68.4 a barrel in April-January 2010 compared with
$92.6 in the corresponding period of the previous year. Reflecting the revival in global demand,
gross refining margins (GRMs) averaged $6.6 a barrel ² a year-on-year growth of 21.8%.

 
 


Subsidy on petroleum products will be disbursed as cash to oil marketing companies (OMCs).
We believe this would significantly reduce working capital stress on OMCs. Increase in customs
duty across crude oil and petroleum products would translate in higher duty protection for
refiners. The resultant increase in refinery gate prices for retail auto and cooking fuels, if
absorbed by OMCs, would translate in a rise of almost Rs 11,000-14,000 crore in under-
recoveries in 2010-11P. Further, additional central excise on petrol and diesel of Re 1 per litre
each, if passed on to the end consumer, would have no implication on the profits of OMCs.
Retail selling prices would rise Rs 1.25 a litre. However, if retail prices are adjusted to reflect the
hike in customs duties, the required hike in petrol and diesel retail prices would be to the tune of
Rs 2.4-2.6 a litre.






  

curing the Eleventh Plan, the estimated capacity addition is seen at about 46.5 GW compared
with the government's target of 78.7 GW. curing this period, demand for electricity is expected
to grow 7-8%. Private companies are putting in place generation capacities and have also been
awarded transmission projects and distribution circles under the franchisee route. In 2009, prices
for short-term power (merchant power) were volatile. Prices were very high during the first half
of the year, but have fallen since.

 
 


The budgetary allocation for the sector, excluding Rajiv Gandhi Grameen Vidyutikaran Yojana
(RGGVY), has been raised to Rs 5,130 crore from Rs 2,230 crore. The hike in minimum
alternate tax to 18% would have a neutral impact, as it would be passed on to end-users. A clean
energy cess of Rs 50 per tonne will be levied on domestic and imported coal. As fuel costs are
passed on to consumers, power tariffs are expected to rise by 2-3 paise a kwh. There will be a
marginal pressure, though, on companies which sell power in the open market.






  

The industry has experienced a faster-than-expected recovery from the global economic
slowdown. comestic demand, which had fallen 1.2% year-on-year in 2008-09, rose 6.5% in
April-September 2009.

criven by strong growth in infrastructure and automobiles, domestic demand is expected to

register a compounded annual growth rate of 10-11% from 2008-09 to 2010-11. Profitability of
companies is expected to rebound in 2009-10 owing to improved prices and lower raw material
contract prices. In 2010-11, profitability is likely to remain stable as any rise in raw material cost
is expected to be passed on to consumers, owing to an improved demand-supply scenario.

 
 


The Budget impact is expected to be neutral. The 2% hike in central excise duty is expected to be
passed on to consumers, thereby pushing up prices by Rs 500-750 a tonne. The expected rise in
the cost of manufacturing due to the levy of cess on coal (Rs 50 a tonne) is also likely to be
passed on. The focus on increasing infrastructure investments in railway, urban infrastructure
and housing is likely to lend support to steel demand.






  

Following the addition of a record 130 million mobile phone subscribers in 2008-09, the pace of
addition accelerated further in 2009-10. In the first nine months, the industry added 133 million
subscribers, led by a sharp decline in tariffs and the growing use of multiple SIM cards, taking
the total subscriber base to 525 million. Growth in subscriber base is expected to continue in the
near term and may touch approximately 700 million by 2010-11.

 
 


The increase in minimum alternate tax to 18% from 15% will negatively impact the profitability
of telecom service providers. Exemption from basic, countervailing duty and special additional
duty on components and accessories of mobile handsets has been extended to include battery
chargers and head phones. The government has also extended the exemption of special additional
duty to mobile phones not imported in the pre-packaged form. These measures will cause mobile
handset prices to fall further. The impact, though, is expected to be marginal as handsets and
accessories are already affordable.







  

Although the domestic market has shown some recovery, 2009-10 continues to be a challenging
year due to the ongoing slump in exports. comestic demand is expected to grow 6-7% annually
in 2009-10 and 2010-11. While there are incipient signs of recovery in the US and EU markets,
revival in exports would be slow. Across different segments, margins continue to remain under
pressure owing to overcapacity and competition.

 
 


The extension of 2% interest subvention on pre- and post-shipment export credit till March 31,
2011, will help small exporters reduce interest costs. The hike in excise duty on man-made fibres
and yarns will increase polyester prices by Rs 1.50 to Rs 2 a kg, but the manufacturers will be
able to pass the hike, as polyester continues to be cheaper than cotton.
Also, the government announced a one-time grant of Rs 200 crore to Tamil Nadu for the
installation of a zero-discharge system to reduce environmental pollution at the Tirupur cluster.
This will help knitwear exporters in the long term.