Budget Impact for Indian Equities

The FY 2012 Central Budget has not done anything dramatically. It provides incentives to increased infrastructure spending along with increased funding sources, highlights supply side issues in agriculture with an effort to provide solutions.

In the Union Budget for FY12, the government announced a reduction in the fiscal deficit to 4.6% of GDP from an estimated 5.1% in FY11, without any new tax revenue measures. However, it will be difficult for the deficit targets to be met given that it is based primarily on optimistic revenue buoyancy. Market was expecting more substance on the taxation front and more reforms on the subsidy burden to meet the deficit targets.

The budget sops provided to the agriculture lending and housing loans help visibility on loan growth of 20%+. Further, the worry on bond yields spiking eases owing to the lower govt. borrowing program.

No excise duty on sale to UMPP: Positive for BHEL since this improves competitiveness. Iron ore export tariff hike, negative for Sesa Goa: Iron ore export tax on fines has been increased from 5% to 20% and on iron ore lumps has been increased from 15% to 20%.

MAT on SEZ developers and as well as units operating in SEZ hurts: Reliance Industries, Mundra Port, Adani Power, DLF and software
companies. While software companies will see an increased cash outflow but net profit may not be hurt due to deferred tax asset, many of the other companies will even see a net profit hit.