Passive fiscal consolidation to continue: Anand Rathi Sec

Passive fiscal consolidation to continue:

Fiscal consolidation to continue: FY12 budget is not likely to see any one-off revenue bonanza as in FY11. On our assumption of 16.5% growth in tax revenue and 9.6% growth in total expenditure, we estimate the fiscal deficit at 4.5% in FY12.

Market borrowing to be low: In FY12, net market borrowing is likely to be Rs 3.5trn. However, the carrying forward, from FY11 to FY12, of a substantial cash balance (~Rs 700bn) would substantially reduce the need for market borrowing in FY12.

Emphasis on agriculture: The major focus is likely to be on agriculture, with special emphasis on improving productivity through greater investment, technology use and innovation.

Modestly positive for most sectors: While most sectors – Cap Goods, Consumer, Oil & Gas, Cement, Construction, Financial Services, Pharmaceuticals, Power and Technology – expect modest positive impact of the budget, the Auto sector is likely to be impacted negatively.

Stock ideas: We expect positive impact of the budget on Oil PSUs, Educomp , Everonn and NIIT .

Macro: Budget FY12 – Passive fiscal consolidation to continue- The FY12 budget throws up many challenges for the Finance Minister. While economic growth has bounced back, high and sticky inflation is the main macro concern. The FY11 fiscal deficit is likely to be 4.7%, lower than the budgeted 5.5%, due to high tax revenue, healthy one-off revenue from the 3G auction and higher-than estimated nominal GDP. While no major jump in revenue is likely in FY12, expenditure, especially on the social sector, is likely to be elevated. In view of the likely large cash transfer from FY11, we expect the fiscal deficit to decrease further, to 4.5% of the GDP in FY12.

Sectoral Expectation:

Autos: We expect a hike in excise duty, of 0-2%, back towards the original pre-stimulus levels. This would affect all auto companies. We think this could be slightly offset by the expected increased allocations to MGNREGA, JNNURM as well as other rural development schemes, which would further galvanize CV, tractor and two-wheeler demand. Overall, we expect the impact of the FY12 Budget to be marginally negative.

Capital Goods & Infrastructure: We expect the thrust on the infrastructure sector to continue and measures are expected to ease funding constraints. Extension of Sec 80 IA benefits beyond Mar’ 11 is also expected. We expect greater allocation of funds in the power transmission and distribution sector, with a focus on rural electrification and APDRP. Increase in fund allocation for Defence and renewable energy is also likely.