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Budget 2012: Sector Expectations from Budget 2012- 13: Dolat Capital

  • Dolat Capital has come out with its report on Budget 2012- 13.

  • Auto: While the auto industry is contemplating of lower growth rate, rising fuel prices, inflationary trends, swelling interest rates, it remains to be seen what Budget 2012 has to offer to the auto sector.The Government could extend the 200% accelerated deduction for R&D expenses (expiring on 31 March 2012) for a longer term. Specific tax breaks for R&D service providers could also be introduced.

  • Two key items to watch for in the auto industry will be the excise duty and a diesel duty hike for FY13. This is in line with PMEAC and petroleum ministry's recommendations as the finance minister raises excise duty by 2% and adds additional diesel duty of Rs 80k. This will be negative for the entire sector.In 2010-11, out of a total of 21.6 lakh passenger cars sold in the country, ~28% was diesel. In 2007-08, diesel cars accounted for ~21% of a total of 12,17,597 units.

Consumer:

  • We expect roll back of standard excise duty from 10% to 12%. Marginally negative for HUVR, Berger Paints and Pidilite. No significant impact on GCPL, Dabur and Marico as excise duty is low for these companiesExcise duty in cigarette expected to be increased by 10-15%. Marginally negative for ITC as the company has already taken price increase ahead of Budget.Time line and Policy announcement with respect to GST. Positive for all FMCG companies.

Finance:

  • Re-capitalization of state-owned banks: A fresh plan to re-capitalize state-owned banks with lesser core capital and for Basel III requirements would aid PSU banksIncrease in foreign direct investments in insurance sector from present 26% to 49%: Expected increase in FDI limit in domestic insurance sector to 49% would facilitate much needed fund infusion for future growthReduction in tenure of term deposits from 5 years to 3 years for tax saving purpose under 80C

  • Bring agriculture sector lending under credit guarantee schemes: State-owned banks would benefit if small ticket loans to agriculture sector brought under credit guarantee schemes. This would help PSU banks containing their NPLs from agriculture sectorOverall, we expect that the budget to be positive for the banking industry at large; we remain positive on Indian banking sector. Our top picks are Axis Bank , ICICI Bank , PNB and Syndicate Bank .

Capital Goods:

  • We expect there could be an imposition of 19% duty on key imported power equipments like BTG for power plants with more p p than 1000 MW generation capacity. This can be a positive for domestic power equipment (BTG) manufacturers like BHEL, L&T and negative for power generating companies like Adani, Reliance Power .

  • We expect 10% hike in capital outlay for defence sector from Rs 698 billion to Rs 768 billion. This will be a positive development for BEL.We expect higher allocation to R-APDRP (Restructured Accelerated Power Development and Reform Programme) due to commencement of 12th Five year plan from FY13. Positive for Power T&D companiesWe expect tax holiday under section 80-IA for power plants is to be extended till March - 2013. Positive for power generating companies

  • We expect a service tax exemption to power generatrion projects. Positive for entire power generation sector.IT: Increase in the Budget allocation for the Technology initiatives/improvements in e-Governance projects like UID and APDRP.Positive for large System Integration IT Companies like TCS , Wipro and HCL Tech .

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