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Budget Review

2013 - 14

Budget Review

2013 - 14

Budget Review

2013 - 14

ICICI Securities Ltd. | Retail Equity Research

Budget 2013-14: Walking the talk on slippery slope…


Page 2

Walking the talk on slippery slope… Contrary to consensus belief that Budget 2013-14 would put the brakes on the government expenditure pedal, Finance Minister P Chidambaram has accounted for a 16.4% YoY rise in the total expenditure for 2013-14. On a segmental basis, the Budget accounts for ~11% YoY and ~29% YoY rise in non-plan and plan expenditure, respectively. Despite accounting for a 16.4% YoY rise, fiscal deficit for 2013-14 has been pegged at 4.8% of GDP. We understand that the variables that the government is banking on to achieve the set deficit target are a pick-up in corporate tax rate (implicit government GDP estimates for FY14 suggest nominal GDP growth of 13.4%), bump up in service tax collections (one-time settlement of cases pending from April 2007-March 2012) and enhanced disinvestment target of | 40000 crore apart from additional proceeds of | 14000 crore from sale of the residual stake in other PSUs.

Given tepid tax collections in FY13, the government has built in gross tax revenue growth of 19.1% in FY14E. The key reason for accounting robust growth rates is GDP growth rate assumptions of 13.4% for FY14E given FY13E GDP is accounted at 11.7% in the revised budget estimates. Within direct tax revenues, the government has pegged ~17% and ~20% growth rate for corporate tax and individual income tax, respectively. On the indirect tax revenue front, 20% growth in collections is backed by assumptions that service tax collections (assumption of ~36% growth) will provide the boost as voluntary settlement of old service tax dues happens

On the direct tax front, we expect the income tax collection targets to be met, even in a tepid FY13, as income tax collections have surpassed budgeted targets in FY13. With GDP set to recover from record lows and by putting extra surcharge on rich assesses would help achieve the individual income tax collection targets for FY14E. For corporate tax collections, we expect growth of 15% vis-à-vis ~17% YoY growth built in by the government for FY14E. We have built in 12.5% YoY growth in nominal GDP

On the indirect tax revenue collection front, the key swinging variable would be the growth in service tax collections, which we expect to grow by 35% given the allowance of settlement of service tax related disputes. This variable can provide a good upside swing to collections and, hence, contain the deficit for the government. Overall, we expect indirect tax collections at 17.6% for FY14E

The government has budgeted | 40000 crore from disinvestment receipts while another | 14000 crore is also expected to be fetched from strategic sale of Balco, SUUTI and others. This target will be significantly dependent upon global appetite for Indian paper and robust capital market conditions


Page 3

As mentioned in the opening remarks, the government will continue to pedal on the consumption cycle as budgeted expenditure in FY14E is expected to rise 16.4% YoY. The government has provided for a rise in various social welfare schemes like JNNURM (outlay has increased by 2x), MNREGA (22% YoY rise in allocation) while overall allocation to the Ministry for Rural Development has risen by 46% YoY for FY14E

On the subsidies front, we believe calculations for petroleum subsidy have been done in line with the recent oil deregulation and market dynamics. Petroleum subsidy at | 66,000 crore is realistic as our calculations with crude at $110/barrel and | 54.5/$ imply a subsidy of | 72,000 crore, which reinstates our above point. On the other hand, food subsidy (including partial effect of | 10,000 crore for Food Subsidy Bill) is pegged at | 90,000 crore, which we believe has downside risks. Fertiliser subsidy has been accounted at | 64,000 crore. Consequently, for FY14E, the government subsidy figure is pegged at | 2,31,000 crore vs. our estimate of | 2,52,000 crore

Overall, we expect a fiscal deficit of 5.0% in FY14 (a tad higher than 4.8% committed by the FM) as we differ by 100 bps on nominal GDP growth assumptions, differ on 200 bps on corporate tax collections and | 10,000 crore of lower accounting from other economic services (revenue from telecom services).

Moving on…it’s easier said than done As we write, Q3FY13 GDP at 4.5% has touched record lows and indications are clear that Q4FY13 growth would not be exciting. What is the need of the hour is that the government resumes with its policy reform process and capitalises on the ongoing Budget sessions to pass important bills and, at the same time, initiates measures to kick-start the investment cycle. This, we believe, can help the government to revive growth, augment tax revenue resources and enact the script that has been written in today’s Union Budget 2013-14.

However, the achievement of the said deficit target hinges on various ifs and buts:

Expected pick-up in GDP growth

Support from global liquidity and conducive capital markets

Optimum appetite for telecom infrastructure

Consistency in oil deregulation policy

Volatility in commodities (agri and oil based) and forex movements


Page 4

Fiscal performance


Page 5

Fiscal FY13: How have financials stacked up???

Fiscal FY13: How have the financials stacked up ???

Source: Budget documents -cga.nic.in, ICICIdirect.com Research

Sr no Particulars (| crore) FY12 FY13BE FY13RE YoY % FY13IE Comments/ Assumptions

1 Total receipts (2+13+14) 1304365 1490925 1430825 9.7 1462369

2 Net tax receipts (3-12) 629765 771071 742114 17.8 7272833 Tax revenue (Gross) (4+7) 889177 1077612 1038036 16.7 10243424 Direct tax revenue (5+6) 493159 569013 564969 14.6 5572315 Corporation tax 322816 373227 358874 11.2 3600396 Income tax 170343 195786 206095 21.0 1971927 Indirect tax revenue 396018 513219 473067 19.5 4671118 Customs duty 149328 186694 164853 10.4 1646629 Excise duty 145608 194350 171996 18.1 165464

10 Service tax 97509 124000 132697 36.1 12773711 Others 3573 8174 3521 -1.5 924812 (-) Share of states/NCCDs 259412 306541 295922 14.1 297059

13 Non-tax revenue 121672 164614 129713 6.6 131614Non-tax revenues pegged marginally lower than our estimates on account of lower spectrum auction receipts

14 Capital receipts (15+16) 552928 555241 558998 1.1 603472

15 Borrowings 515990 513590 520925 1.0 563499

16 Others 36938 41650 38073 3.1 39973Government has pegged disinvestment proceeds in FY13RE at | 24,000crore

17 Non-plan expenditure 891990 969900 1001638 12.3 1022864Non-plan expenditure higher than budgeted driven by higher food andpetroleum subsidy

18 Plan expenditure 412375 521025 429187 4.1 439504Government resorted to rationalisation of plan expenditure to controldeficit. Same clearly visible in muted plan expenditure vis-à-vis FY12

19 Total expenditure (17+18) 1304365 1490925 1430825 9.7 146236920 Fiscal deficit (1-2-13-16) 515990 513590 520925 1.0 563499

21 Fiscal deficit as % of GDP 5.7 5.1 5.2 5.6

22 Nominal GDP (| trillion) 0.9 1.0 1.0 1.0

Rationalisation of plan expenditure remained a key theme for FM in FY13to attain target of fiscal consolidation (and lower than revised target of5.3%) at 5.2%. Deficit in revised estimates lower than I-direct estimatesmainly on account of lower plan expenditure

Higher than expected service tax has led to higher indirect tax receipt inrevised estimates vis-à-vis I-direct estimates

Revised estimates of direct tax revenue higher than our estimates mainlydriven by higher income tax than government is anticipating

Source: Budget documents -cga.nic.in, ICICIdirect.com Research IE=IDirect estimates, YOY is for FY13 RE over FY12


Page 6

Hits and Misses

Particulars Hit / MissFY13 Budget

EstimateFY13 Revised Estimate Remarks

Inflation Hit

Headline inflation to

moderate and remain stable

Average WPI for FY13: 7.3%

Average WPI inflation for first 10 months of FY13 at 7.45% certainly lower than averageWPI of 9.22% in first 10 months of FY12 but has been volatile and not stabilised. Moreover,CPI has averaged 10.11% in same period, way higher than average of 8.6% in last threemonths (reporting of CPI started from January 2012 onwards) of FY12

Gross tax receipts Miss | 1077612 Crore | 1038036 Crore

Overall tax receipts of government have been far lower than expectation on account ofslowing GDP growth rate. Lower topline growth of corporates has impacted excise andother indirect taxes while higher operational costs and finance charges resulted in lowerincome tax collections

Plan expenditure Hit | 521025 Crore | 429187 CroreIn order to meet its fiscal deficit, government rationalised its planned expenditure inH2FY13

Non plan expenditure Miss | 969900 Crore | 1001638 CroreNon-plan expenditure exceeded budgeted limit mainly due to high petroleum, food andfertiliser subsidy burden

GDP growth rate Miss 7.6% +/- 0.25% 5.0%Finance Minister has revised GDP growth rate for FY13 downwards to 5.0% due to weakglobal economy and lower investment in infrastructure projects

Central subsidies Miss <2.0% of GDP ~2.6% of GDPSubsidy burden has continued to remain higher due to rise in food, fertiliser and petroleumsubsidies led by higher commodity prices

Disinvestment target Hit | 30,000 Crore ~| 24,000 Crore

Despite little success in disinvestment in H1 FY13, government has made up for it insecond half, collecting | 22900 crore already raised through disinvestment in NMDC, OilIndia, NTPC and others. Disinvestment of various companies lined up for FY14 may helpgovernment to broadly meet disinvestment target

DTC implementation Miss

To be implemented at

the earliest Status unclearImplementation of DTC further delayed, with no clear deadline. However, progressexpected to take place by way of gradual realignment of current tax structure with DTC

Re-capitalisation of PSU banks & financial institutions Miss | 15,888 Crore | 12517 Crore Government has till date announced recapitalisation of banks by around | 12517 crore

Fiscal deficit Hit

5.1% of GDP (revised to 5.3%

later) 5.2%

Government has achieved its fiscal deficit target of FY13 mainly due to reduction in planexpenditure, which is reflected in lower GDP growth rate. Though government hassucceeded in meeting its target in current fiscal, it has been done at cost of growth

Source: Budget documents -cga.nic.in, ICICIdirect.com Research


Page 7

FY14 – Expect fiscal deficit of 5.0% vs. government’s target of 4.8%…

Sr no Particulars (| crore) FY13RE FY14BE FY14IE YoY % Comments/Assumptions

1 Total receipts (2+13+14) 1430825 1665297 1657553 16.42 Net tax receipts (3-12) 742114 884078 861879 19.13 Tax revenue (Gross) (4+7) 1038036 1235870 1213914 19.14 Direct tax revenue (5+6) 564969 667159 657562 18.15 Corporation tax 358874 419520 412705 16.9

6 Income tax 206095 247639 244857 20.27 Indirect tax revenue 473067 568711 556352 20.28 Customs duty 164853 187308 188183 13.69 Excise duty 171996 197554 185320 14.910 Service tax 132697 180141 179141 35.811 Others 3521 3708 3708 5.3

12 (-) Share of states in revenues 295922 351792 352035 18.9

13 Non-tax revenue 129713 172252 162374 32.8While government has budgeted ~| 40,000 crore revenue fromtelecom, we build in lower receipts of | 30,000

14 Capital receipts (15+16) 558998 608967 633300 8.9

15 Borrowings 520925 542499 566832 4.1

16 Others 38073 66468 66468 74.6We assume disinvestment proceeds of | 40,000 crore & sale ofresidual stake in other PSU ~| 14000 crore, in line with governmentestimates

17 Non-plan expenditure 1001638 1109975 1121069 10.8

18 Plan expenditure 429187 555322 536484 29.4While government has budgeted ~29.4% YoY growth in planexpenditure in FY14 considering lower base, we build in 25% YoYgrowth in same

19 Total expenditure (17+18) 1430825 1665297 1657553 16.4

20 Fiscal deficit (1-2-13-16) 520925 542499 566832 4.1

21 Fiscal deficit as % of GDP 5.2 4.8 5.022 Nominal GDP (| trillion) 1.0 1.1 1.1

We have built in marginally lower direct tax revenues than budgetedestimates on account of our lower nominal GDP growth estimate of~12.5% vs. 13.4% assumed by government

We expect fiscal deficit of ~5% assuming nominal GDP growth rate of 12.5% in FY14E

We believe service tax receipts budgeted by government (~35.8%YoY) are on optimistic side considering current growth trends.However, amnesty scheme could surprise positively. Therefore,budgeted amount achievable

Source: Budget documents -cga.nic.in, ICICIdirect.com Research , IE=IDirect estimates; YOY is for FY14BE over FY13 RE

Government has pegged the disinvestment target at ~| 54, 000 crore (including | 14000 crore from sale of residual stake in PSU). However, it could be challenging given the weak macro environment

Deviation from government target on account of:

Expectation of marginal revenue shortfall on account of – tax revenue (lower by ~| 22000 crore) and telecom receipt (lower by ~| 10,000 crore)

While the government has budgeted ~| 40,000 crore revenues from telecom, we build in lower receipts of | 30,000 crore. However, uncertainty exist on the same given the current scenario

Plan expenditure – while the government has budgeted ~29.4% YoY growth in plan expenditure in FY14 considering the lower base, we build in 25% YoY growth in the same

Expect ~ 20 bps deviation from government target

4.85.0

0.20.1 0.1

4.2

4.6

5.0

5.4

Govt

Tar

get

Net

Tax

Reve

nues

Non

Tax

Reve

nues

Expe

nditu

re

I Dire

ct E

st.

(%)


Page 8

Trends in fiscal performance

2956

3194 3671 43

78 4932 56

50 6672

2976

2859

2574 35

53

3960 47

31 5687

0

1000

2000

3000

4000

5000

6000

7000

8000

FY08

FY09

FY10

FY11

FY12

FY13

RE

FY14

BE

| in

billi

on

Direct Tax Indirect Tax

345 386 503 487 506 554 739468 376

442

1517

508 577806

0

500

1000

1500

2000

2500

FY08

FY09

FY10

FY11

FY12

FY13

RE

FY14

BE

(| b

n)

Interest Div & profits Economic srvs

Plan expenditure limits fiscal slippage so far

Trends gross tax revenues….. Plan & non-plan expenditure…..

Non tax revenues….. Trends in subsidy……

• The government has built in gross tax revenue growth of 19.1% in FY14E

• Within direct tax revenues, the government has pegged ~17% and ~20% growth rate for corporate tax and individual income tax, respectively. Given our lower nominal GDP growth vs. the government’s estimate, we build in lower growth of 15% and 18.8% for direct and indirect tax collections, respectively

• On the indirect tax revenue front, 20% growth in collections is backed by assumptions that service tax collections (assumptions of ~36% growth) will provide the boost as voluntary settlement of old service tax dues

• While the government has budgeted ~| 40,000 crore revenues from telecom, we build in lower receipts of | 30,000 given the lukewarm response to spectrum auction led by a weak environment

• Vis-à-vis government’s budget of ~29.4% YoY growth in plan expenditure in FY14 considering the lower base, we build in 25% YoY growth in the same

• On the subsidies front, we believe the calculations for petroleum subsidy have been done in line with the recent oil deregulation and market dynamics. On the other hand, food subsidy (including partial effect of | 10000 crore) has been pegged at | 90000 crore, which we believe has downside risks. Fertiliser subsidy has been accounted at | 64,000 crore. Consequently, for FY14E, the government subsidy figure is pegged at | 231000 crore vs. our estimate of | 252116 crore

313 438 584 638 728 850 900325766 613 623 700 660 660

384685

969 650

0

500

1000

1500

2000

2500

3000

FY08

FY09

FY10

FY11

FY12

FY13

RE

FY14

BE

| in

billi

on

Food Fertiliser Petroleum Others

2051

2752

3034

3790

4124

4292 5553

5076 6087 7211 8183

8920

1001

6

1110

0

0

20004000

6000

800010000

12000

FY08

FY09

FY10

FY11

FY12

FY13

RE

FY14

BE

(| b

illion

)

.

Plan Expenditure Non-Plan Expenditure


Page 9

Gross tax as percentage of GDP…..

5

8

10

13

15

FY07

FY08

FY09

FY10

FY11

FY12

FY13

RE

FY14

BE

(%)

Gross Tax to GDP (%)*

Growth in direct & indirect tax…..

34.7

8.114.9

19.2 18.117.1

38.0

12.7 14.6

20.211.5

(9.9)(3.9)

19.5

(20)

(10)

-

10

20

30

40

50

FY08

FY09

FY10

FY11

FY12

FY13

RE

FY14

BE

Direct Tax (Gr%) Indirect Tax (Gr%)

Growth in plan & non-plan expenditure…

20.7

34.2

10.2

24.9

4.1

29.4

22.719.9 18.5

13.5 12.3 10.88.89.0

05

10152025303540

FY08 FY09 FY10 FY11 FY12 FY13RE FY14BE

(%)

Growth in Plan Expenditure Growth in Non Plan Expenditure

Subsidy as percentage of GDP…..

1.5

2.3 2.2 2.22.4

2.6

2.0

1.0

1.5

2.0

2.5

3.0

FY08

FY09

FY10

FY11

FY12

FY13

RE

FY14

BE

Subsidy as %age of GDP

• Govt. estimates gross tax as percentage of GDP to go up to 10.9% in FY14E. Moreover, the percentage seems close to originally indicated target mainly on account of muted GDP growth

• Subsidy burden as a percentage to GDP is expected to come down to ~2% as diesel price hike and muted fertiliser prices have ensured lower allocation to petroleum and fertiliser subsidy for FY14

• Plan expenditure (after a muted FY13) is expected to shoot up by 29.4% YoY, which we believe is optimistic

• Within direct tax revenues, the government has pegged ~17% and ~20% growth rate for corporate tax and individual income tax, respectively. Given our lower nominal GDP growth vs. the government’s estimate, we build in lower growth of 15% and 18.8% for direct and indirect tax collections, respectively

• On the indirect tax revenue front, 20% growth in collections is backed by assumptions that service tax collections (assumptions of ~36% growth) will provide the boost as voluntary settlement of old service tax dues


Page 10

Disinvestment proceeds and other receipts – key lever to achieve fiscal deficit target…

10,089

3737826113 26263

136722

38708 40644

62972

-20,00040,00060,00080,000

100,000120,000140,000160,000

FY07

FY08

FY09

FY10

FY11

FY12

FY13

RE

FY14

BE

Proceeds from Economic Services (| crore)

• H2FY13 saw a pick-up in disinvestment

activities wherein so far, the government has garnered | 22,924 crore from sale of minority stakes in some PSUs. It has pegged the FY13 target at ~| 24,000 crore

• Riding on the successful disinvestment

activities and limited scope to rev up other avenues of receipts, the FY14 Budget saw an increased budgeted disinvestment proceeds of ~| 54,000 crore (including | 14000 crore from sale of residual stake in PSU). However, it could be challenging given the weak macro environment

3879

5

2458

1

2284

6

2400

0

4000

015

000

1549

3

534

566

-

11,000

22,000

33,000

44,000

55,000

FY07

FY08

FY09

FY10

FY11

FY12

FY13

RE

FY14

BE

(| c

rore

)

Disinvstment Proceeds Sale of residual stake in PSUs (RHS)

We had expected the government to earn receipts of | 7000 crore from spectrum auctions in FY13 including | 1724 crore from November auctions. However, no applications were received for auctions in 1800 MHz band and 900 MHz band while SSTL was the sole bidder for 800 MHz band. The government could end up garnering only | 3749 crore from the forthcoming auctions as SSTL would possibly bid in only 11 circles and only for two blocks. With the deferred payment option and adjustment of license fees paid in 2008, the government could end up with zero cash receipts from these auctions in FY13. Also, the one-time spectrum fee, which was supposed to fetch the government | 28022 crore is currently sub-judice and any revenue from it could spill over to FY14. Hence, we expect overall cash receipts for the government to be at | 1,724 crore only in FY13 The government has budgeted a revenue of | 40847 crore from the telecom sector in FY14, which includes one-time spectrum fees, license fees, spectrum usage charges and cash receipts from auction. We expect revenue from one-time spectrum fees and spectrum auctions in 1800 MHz and 900 MHz band at possibly a reduced reserve price to accrue to the government. We have factored in receipts of | 10,000 crore from auctions and one-time spectrum fees in FY14 as against the government target of ~ | 20,000 crore. This would result in net proceeds from telecom at ~| 30,000 crore in FY14E


Page 11

Fiscal deficit – Sensitivity to disinvestment and crude prices

Sensitivity to disinvestment

Disinvesment proceeds (| crore) 30,000 54,000Fiscal Deficit (%) 5.2 5.0Deviation from base case 21 bps 0

FY14IE (| crore)

For FY14, we have assumed a disinvestment target of | 54,000 crore (including | 14000 crore from sale of residual stake in PSU), in line with budgeted disinvestment proceeds. However, it could be challenging given the weak macro environment. A decline in disinvestment target by | 24,000 crore from the base case could lead to a slippage in our fiscal deficit estimates by 21 bps from our base case.

Sensitivity to oil subsidy We have assumed an oil subsidy burden of ~| 72,000 crore (vs. government target of | 65,000 crore), considering average crude oil prices at US$110/barrel, exchange rate of | 54.5/US$ and government’s share of 55.3% in gross under recoveries (| 1,30,206 crore). An extremely positive scenario (i.e. exchange rate of | 50/US$ and average crude price of US$90/barrel) would help the government in bringing down fiscal deficit by 51 bps from our base case. In contrast, it would impact the fiscal deficit negatively by 52 bps if crude inches up to US$130/barrel along with exchange rate of | 58/US$.

50 52 54 56 58 90 (515.1) (448.5) (381.8) (315.2) (248.5) 95 (431.4) (361.4) (291.4) (221.4) (151.3) 100 (347.6) (274.3) (200.9) (127.6) (54.2) 105 (263.9) (187.2) (110.5) (33.8) 43.0 110 (180.1) (100.1) (20.0) 60.0 140.1 115 (96.4) (13.0) 70.4 153.8 237.3 120 (12.6) 74.1 160.9 247.6 334.4 125 71.1 161.2 251.3 341.4 431.6 130 154.9 248.3 341.8 435.2 528.7

…Impact on fiscal deficit

US $ exchange rate

Aver

age

Crud

e pr

ices

(In

US$)

(In bps)

Source: ICICIdirect.com Research

50 52 54 56 58 90 25,114 38,713 52,313 65,913 79,512 95 42,199 56,482 70,765 85,049 99,332 100 59,285 74,251 89,218 104,184 119,151 105 76,370 92,020 107,670 123,320 138,970 110 93,456 109,789 126,123 142,456 158,789 115 110,542 127,558 144,575 161,592 178,609 120 127,627 145,327 163,027 180,728 198,428 125 144,713 163,096 181,480 199,863 218,247 130 161,798 180,865 199,932 218,999 238,066

FY14E Gross underrecoveries under different scenarios…

(| crore)US $ exchange rate

Aver

age

Crud

e pr

ices

(In

US$)

Source: ICICIdirect.com Research


Page 12

Other key highlights of Budget FY14

No change in income tax slabs. Relief of | 2000 for tax payers in the bracket of | 2 lakh-| 5 lakh

10% surcharge on persons with taxable income over | 1 crore

Duty free import of gold increased to | 50,000 for male passengers and | 1 lakh for female passengers

India’s first women’s bank to be set up by October, 2013

Increase in surcharge from 5% to 10% on domestic companies whose taxable income exceed | 10 crore. Additional surcharges to be in force for only a year

In all other cases such as dividend distribution tax or tax on distributed income, current surcharge increased from 5% to 10%

TDS at the rate of 1% on the value of the transfer of immovable properties where consideration exceeds | 50 lakh. Agricultural land to be exempted

A final withholding tax at the rate of 20% on profits distributed by unlisted companies to shareholders through buyback of shares

Proposal to increase the rate of tax on payments by way of royalty and fees for technical services to non-residents from 10% to 25%.


Page 13

Sectoral Impact


Page 14

Sectoral Impact

Key announcement Impact Our ViewExtension for JNNURM and increase in budget to | 14873 crorein order to facilitate purchase of 10,000 buses

Positive Announcement would have positive impact on M&HCV passenger carriermanufacturers like Ashok Leyland and Tata Motors

Continuance of farm loan interest subvention scheme Positive The help to farmers would aid farm segment growth, which has been belowexpectations and, thus, re-ignite some rural demand. Positive for tractormanufacturers like M&M and Escorts

Concession period for electric/hybrid vehicles increased till endof FY14. Reduction in excise duty on lithium ion battery packsfor electric/hybrid vehicles from 10% to 6%

Positive This would be positive for primarily M&M and other manufacturers of electricvehicles

Increase in excise duty from 27% to 30% on non-taxi SUVs Negative Negative for M&M and Tata Motors (have a sizeable presence in the UV segment)

Key announcement Impact Our ViewCapital allocation of | 14000 crore for PSU banks Negative We believe budgetary allocation of | 14000 crore for PSU bank re-capitalisation is on

lower side as SBI alone needs | 4000-6000 croreHigh gross borrowing of | 6.29 lakh crore may keep G-secyields firm

Negative The gross market borrowing pegged at | 6.29 lakh crore for FY13-14E on higher sidethan estimated. This may keep G-sec yields and interest levels in economy remainsticky at elevated levels

Interest subvention scheme for short-term crop loans to becontinued

Positive Interest rate subvention for short-term crop loans to be continued and a farmer whopays on time will be able to get credit at 4% per annum. Budget has proposed toextend this scheme to private banks. This will benefit private banks in achievingpriority sector lending

Additional deduction of interest up to | 1 lakh for person takingfirst home loan up to | 25 lakh during period 1.4.2013 to31.3.2014

Positive To increase demand for housing finance and be more beneficial to midcap housingfinance companies such as Gruh Finance, GIC Housing & LIC Housing Finance

STT rate reduced on equity futures, MF/ETF redemptions at fundcounters, MF/ETF purchase /sale on exchanges. However,commodity transaction tax proposed to be levied on non-agricultural commodities futures contracts

Positive Shall help improve volumes and hence positive for broking companies. CTT to impactcommodity volumes and hence negative for players like MCX

A multi pronged approach is proposed to increase thepenetration of insurance in the country like opening of branchesin Tier II cities & below, KYC of banks being sufficient to acquireinsurance policies, banks to be permitted to act as insurancebrokers etc

Positive Positive for insurance sector from medium to long term perspective. Bank can alsobenefit as it can offer all insurer's products

Clarification regarding section 36(1)(viia) of the Income Tax Actin respect of rural advances

Negative Earlier double counting of deduction used to happen under the section which after theclarification would be avoided

Auto & Auto ancillary

Banks & NBFCs


Page 15

Sectoral Impact

Key announcement Impact Our ViewIncentives to semi conductor wafer fabrication manufacturingindustries including zero customs duty

Positive New orders opportunity for L&T

Pushing state governments for speedier planning of financialrestructuring of the DISCOM

Positive Positive for companies in T&D sector and companies like BGR Energy with significantexposure to SEBs

Key announcement Impact Our ViewIncrease in specific excise duty on cigarettes, cigars, cherootsand cigarillos by 18%

Neutral for ITC & VST Industries

Increase in excise duty would be passed through prices increases (I-direct estimate:~10% price increase in order to maintain similar EBIT margin/cigarette). The priceincrease could however decelerate the volume growth

Increase in royalty and fee for technical services to non-residents from 10% to 25%

Neutral for HUL Increase in tax rate would entail higher tax payment by Unilever on royalty receivedby it from HUL; having no impact on HUL

Allocation to rural development schemes increased 46% to |80,149 crore. MSP of agricultural products increased

Positive for FMCG Companies

Higher earnings and development in Rural India would aid in increasing consumptionof branded FMCG products. Rural India is higher growth segment for FMCGcompanies. Dabur, HUL, Marico and Jyothy Laboratories, which have a high ruralcontribution in sales would be key beneficiaries

Key announcement Impact Our ViewNew road orders from projects in NE states of India, and 3,000km of new road projects in western states to be awarded

Positive New orders opportunity for road developers like IRB Infra, Sadbhav Engineering, etc

Proposal to set up independent regulator in road space Positive Independent regulator would ensure clarity in terms of regulation of service quality,assessment of concessionaire claims, etc. Positive for road developers such as IRB,Sadbhav Engineering, etc

Key announcement Impact Our ViewAllocation of | 532 crore in FY14E for modernisation of IndianPost

Positive Bodes well for Infosys as it executes the contract

Incentives to semi conductor wafer fabrication manufacturingindustries including zero customs duty

Positive ER&D outsourcing spends could rise

Proposed 17% YoY increase in education spending to | 65867crore

Positive NIIT could be key beneficiary as it has PPP with national skill development council

FMCG & Consumer Durables

Capital Goods

Infrastructure

IT


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Sectoral Impact

Key announcement Impact Our View839 new radio frequencies to be auctioned in FY14 Positive Positive for radio industry, which has been grappling with limited capacity;

Companies like ENIL, Sun TV to benefitImport duty on set top boxes increased from 5% to 10% toencourage domestic manufacturing

Negative Would result in increase in set top box cost by ~| 60-100 for digital cable and DTHplayers

Key announcement Impact Our ViewGeneration based incentive reintroduced for wind energyprojects and | 800 crore allocated for this purpose

Positive Positive for companies producing wind power & would benefit Hindustan Zinc in ourcoverage Universe, which has installed wind power capacity of 274 MW

Devising PPP policy framework with Coal India Positive Over long to medium term horizon, move expected to aid Coal India to increaseproduction

Reduction in export duty from 7.5% to 0% on certain sub-headings of galvanised steel sheets

Positive Move expected to benefit domestic steel manufacturers by making their productsprice competitive in global markets. Move will benefit SAIL, Tata Steel & JSW Steelin our coverage universe

Levy of export duty of 10% on bauxite Positive Will lead to increased availability of bauxite for domestic aluminum manufacturers.Will benefit Sterlite Industries in our coverage universe

Levy of 4% excise duty on silver manufactured from smeltingzinc or lead

Negative Negative for domestic silver manufacturers like Hindustan Zinc, which manufacturesilver as by-product during smelting of zinc & lead

Duty on steam coal, bituminous coal equalised to 2% customduty & 2% CVD

Negative Negative for domestic metal manufacturers who are dependent on imported steam(thermal) coal for running their captive power plants & will tend to increase coalcosts with corresponding increase in power costs. In our coverage universe, negativefor Sterlite Industries, Hindustan Zinc & JSW Steel

Key announcement Impact Our ViewReview of change in exploration policy from production sharingto revenue sharing

Positive This will reduce ambiguity & result in expedition of investment. Positive forcompanies like ONGC, Oil India, Reliance Industries & Cairn India

Gas pricing policy to be reviewed Selectively Positive/ Negative

ONGC, Oil India & RIL would be beneficiaries if guidelines are implemented. Wouldnegatively impact gas consumers like Indraprastha Gas, Gujarat Gas & GAIL (wouldalso negatively impact petchem business

Stalled NELP blocks to be cleared Positive Move would increase investment in exploration activities. Positive for upstreamcompanies

Metals & Mining

Oil & Gas

Media


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Sectoral Impact

Key announcement Impact Our ViewExtension of tax holiday u/s 80-IA of Income Tax Act forprojects in power sector by a year to 31.3.2014

Positive Positive for companies like NTPC, which will be able to take income tax advantage onprojects that commence within specified date

Extension by one year of concessional rate of 15% dividend taxon dividend received from foreign subsidiaries.

Positive Positive for companies like Tata Power, which receives dividends from internationalsubsidiary.

‘Generation-based incentive’ reintroduced for wind energyprojects

Positive Positive for companies like Tata Power

Key announcement Impact Our ViewAdditional tax break of | 1 lakh (along with current level of | 1.5lakh) for first time home loan buyers for loans up to | 25 lakh

Positive Positive for low cost housing developers

Rate of abatement in service tax in premium real estate projects(over 2000 sq ft area) reduced from 75% to 70%

Neutral Developers expected to pass on cost to buyers

Key announcement Impact Our ViewReduction in duty on specified machinery for manufacture ofleather and leather goods, including footwear, from 7.5% to 5%

Positive Will benefit listed shoe makers like Bata, Liberty Shoes, Relaxo Footwear, etc

Concrete steps towards rolling out GST: (a) To set aside | 9,000crore as compensation to states for CST; (b) to present Draft Billon GST in Parliament in next few months

Positive Rolling out of GST positive for domestic retailers like Pantaloon Retail, Shoppers Stop,Trent, Vmart, etc. as companies will avoid double duties paid currently.

Retail

Real Estate

Power


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Sectoral Impact

Key announcement Impact Our ViewFurther allocation of | 2,400 crore under ongoing TechnologyUpgradation Fund

Positive Companies that wish to expand capacities will be able to access funds at cost 5%lower than market; positive for textile players like Alok Industries, Vardhman Textiles,Raymond, Arvind, etc.

Allocation of | 50 crore for setting up of apparel parks underscheme for Integrated Textile Parks

Positive Companies that participate in these parks will get benefits like lower tax rates andincentives on exports. Positive for listed apparel companies like Kewal Kiran Clothing,Zodiac, Arvind, Raymond, Provogue, Bombay Rayon Fashions, Alok Industries, etc.

Zero excise duty on cotton and 12% excise duty at spun yarnstage

Positive Apparel players had witnessed a slowdown in demand on the back of many factors,one of which was imposition of excise duty two years ago. With excise duty beingremoved, companies will be able to make significant savings and same will bepassed on to consumers, thereby boosting demand. Positive for apparel players likeKewal Kiran Clothing, Welspun, Shoppers Stop, Pantaloon Retail, Page Industries,Lovable Lingerie, Raymond, Provogue, Zodiac, etc.

Textiles


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Pankaj Pandey Head – Research [email protected] ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC Andheri (East) Mumbai – 400 093 [email protected] Disclaimer The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities Ltd (I-Sec). The author may be holding a small number of shares/position in the above-referred companies as on date of release of this report. I-Sec may be holding a small number of shares/position in the above-referred companies as on date of release of this report. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This report may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Actual results may differ materially from those set forth in projections. I-Sec may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject I-Sec and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

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