Which stocks to benefit from Union Budget 2011-12?

Union Budget 2011-12:

Indian Finance Minister Mr. Pranab Mukherjee presented the budget for the year 2011- 12 with the focus on sustaining high Economic Growth, Strengthening Infrastructure, Addressing Inflation and giving a boost to the Farm Sector. With the Economy expanding the Government exuded confidence that the GDP Growth Rate during the next fiscal would exceed 8.75%.  Mukherjee also said the government aimed to reduce the fiscal deficit further, to 4.6% in the FY12.

OVERVIEW OF THE ECONOMY:

• GDP in FY11 estimated to have grown at 8.6% in real terms
• Continued high food prices have been principal concern this year.
• Monetary policy measures taken expected to further moderate inflation in coming months.
• Indian economy expected to grow at 8.75% to 9.25% in 2011-12.

Fiscal consolidation: Proposal to introduce the Public Debt Management Agency of India Bill in the next financial year.

Tax Reforms: Direct Taxes Code (DTC) to be finalized for enactment during 2011-12. DTC proposed to be effective from April 1, 2012.

Subsidies:

• Nutrient Based Subsidy (NBS) has improved the availability of fertilizer; Government actively considering extension of the NBS regime to cover urea.
• Government to move towards direct transfer of cash subsidy to people living below poverty line in a phased manner for better delivery of kerosene, LPG and fertilizers.

People`s Ownership of PSUs: Rs 40,000 crores to be raised through disinvestment in 2011-12. Government committed to retain at least 51% ownership and management control of the Central Public Sector Undertakings.

INVESTMENT ENVIRONMENT:

Foreign Direct Investment: Discussions underway to further liberalize the FDI policy.

Foreign Institutional Investors: SEBI registered mutual funds permitted to accept subscription from foreign investors who meet KYC requirements for equity schemes.

POSITIVE for NBFCs like RELCAPITAL , M&M FINANCIAL , BAJAJHLDNG , RELIGARE etc.

To enhance flow of funds to infrastructure sector, the FII limit for investment in corporate bonds issued in infrastructure sector being raised.

POSITIVE for PFC, REC, IDFC , JPASSOCIATE , GMRINFRA , LANCOINFRA

Financial Sector Legislative Initiatives: Amendments proposed to the Banking Regulation Act in the context of additional banking licences to private sector players.

POSITIVE for NBFCs like, RELCAPITAL, M&M FINANCIAL, RELIGARE etc.

Public Sector Bank Capitalisation: Rs 6,000 crores to be provided during 2011-12 to enable public sector banks to maintain a minimum of Tier I CRAR of 8%.

POSITIVE for PSU BANKS like, SBIN, DENABANK , VIJAYABANK , BANKINDIA, BOB , IOB etc.

Recapitalisation of Regional Rural Banks: Rs 500 crores to be provided to enable Regional Rural Banks to maintain a CRAR of at least 9% as on March 31, 2012.

POSITIVE for PUNJAB & SIND BANK

Micro Finance Institutions: India Microfinance Equity Fund of Rs 100 crores to be created with SIDBI. Women`s SHG`s Development Fund to be created with a corpus of Rs 500 crores.

POSITIVE for MICROFINANCE COMPANIES like SKSMICRO

Rural Infrastructure Development Fund: Corpus of Rural Infra Development Fund XVII to be raised from Rs 16,000 crores to Rs 18,000 crores.

POSITIVE for INFRASTRUCTURE SECTOR like JPASSOCIATE, GMRINFRA, LANCOINFRA

Micro Small and Medium Enterprises:

• Rs 5,000 crores to be provided to SIDBI for refinancing incremental lending by banks to these enterprises.
• Public sector banks to achieve a target of 15% as outstanding loans to minority communities under priority sector lending at the earliest.
• Rs 3,000 crores to be provided to NABARD to provide support to handloom weaver cooperative societies which have become financially unviable due to non-repayment of debt by handloom weavers facing economic stress.
• Public sector banks to achieve a target of 15% as outstanding loans to minority communities under priority sector lending at the earliest.

POSITIVE for HDFC , LICHSGFIN , DEWANHOUS

Existing housing loan limit enhanced to Rs 25 lakh for dwelling units under priority sector lending. Provision under Rural Housing Fund enhanced to Rs 3,000 crores.

POSITIVE for LICHSGFIN, HDFC, PUBLIC SECTOR BANKS

AGRICULTURE:

• Removal of production and distribution bottlenecks for items like fruits and vegetables, milk, meat, poultry and fish to be the focus of attention this year.
• Allocation under Rashtriya Krishi Vikas Yojana (RKVY) increased from ` 6,755 crores to ` 7,860 crores.

• To improve rice based cropping system in this region, allocation of ` 400 crores have been made. Allocation of ` 300 crores to promote 60,000 pulses villages in rained areas.
• Allocation of ` 300 crores to bring 60,000 hectares under oil palm plantations. Initiative to yield about 3 lakh Metric tons of palm oil annually in five years.

Allocation of ` 300 crores for implementation of vegetable initiative to provide quality vegetable at competitive prices

• Allocation of ` 300 crores to promote higher production of Bajra, Jowar, Ragi and other millets, which are highly nutritious and have several medicinal properties.
• Allocation of ` 300 crores to promote animal based protein production through livestock development, dairy farming, piggery, goat rearing and fisheries.
• Allocation of ` 300 crores for Accelerated Fodder Development Programme to benefit farmers in 25,000 villages.
• Credit flow for farmers raised from ` 375,000 crores to ` 475,000 crores in 2011-12.
• Interest subvention proposed to be enhanced from 2% to 3% for providing short-term crop loans to farmers who repay their crop loan on time.

• In view of enhanced target for flow of agriculture credit, capital base of NABARD to be strengthened by ` 3,000 crores in phased manner.
• Rs 10,000 crores to be contributed to NABARDˇ¦s Short-term Rural Credit fund for 2011-12.
• Approval being given to set up 15 more Mega Food Parks during 2011-12.
• Augmentation of storage capacity through private entrepreneurs and warehousing corporations has been fast tracked.

Infrastructure and Industry:

• Allocation of ` 214,000 crores for infrastructure in 2011-12. This is an increase of 23.3% over 2010-11. This also amounts to 48.5% of total plan allocation.
• IIFCL to achieve cumulative disbursement target of ` 20,000 crores by March 31, 2011 and ` 25,000 crores by March 31, 2012.
• To boost infrastructure development, tax free bonds of ` 30,000 crores proposed to be issued by Government undertakings during 2011-12.

National Manufacturing Policy:

• National Mission for hybrid and electric vehicle to be launched.
• Capital investment in fertiliser production proposed to be included as an infrastructure subsector.

Financial Assistance to be made available for metro projects in Delhi, Mumbai, Bengaluru, Kolkata and Chennai.

POSITIVE for POWERGRID , RPOWER , NTPC

Exports:

• Self assessment to be introduced in Customs to modernize the Customs administration.
• Proposal to introduce scheme for refund of taxes paid on services used for export of goods.
• Jodhpur to be included for the development of a handicraft mega cluster.

Bharat Nirman:

• Allocation for Bharat Nirman programme proposed to be increased by ` 10,000 crores from the current year to ` 58,000 crores in 2011-12.
• From 1st April, 2011, remuneration of Anganwadi workers increased from ` 1,500 per month to ` 3,000 per month and for Anganwadi helpers from ` 750 per month to ` 1,500 per month.

Education:

• Allocation for education increased by 24% over current year.
• Rs 21,000 crores allocated, which is 40% higher than Budget for 2010-11.
• Connectivity to all 1,500 institutions of Higher Learning and Research through optical fiber backbone to be provided by March, 2012.

Health: Plan allocations for health stepped-up by 20% at ` 26760 Crores.

POSITIVE for PHARMACEUTICAL COMPANIES like SUNPHARMA, DRREDDY, CIPLA

Scope of Rashtriya Swasthya Bima Yojana to be expanded to widen the coverage.

Financial Inclusion: Target of providing banking facilities to all 73,000 habitations having a population of over 2,000 to be completed during 2011-2012.

Environment and Climate Change:

• Rs 200 crores proposed to be allocated for Green India Mission from National Clean Energy Fund.
• Rs 8,000 crores provided in current year for development needs of Jammu and Kashmir.
• Provision of ` 164,415 crores, including ` 69,199 crores for capital expenditure to be made for Defense Services in 2011-12.

• Gross Tax receipts are estimated at ` 932,440 crores.
• Non-tax revenue receipts estimated at ` 125,435 crores.
• Total expenditure proposed at ` 1,257,729 crores.
• Increase of 18.3% in total Plan allocation and 10.9% in the Non-plan expenditure.
• Fiscal Deficit brought down from 5.5% in BE 2010-11 to 5.1% of GDP in RE 2010-11.
• Fiscal Deficit kept at 4.6% of GDP for 2011-12.
• Fiscal Deficit to be progressively reduced to 3.5% by 2013-14. Effective Revenue Deficit estimated at 2.3% of GDP in the Revised Estimates for 2010-11 and 1.8% for 2011-12.
• Net market borrowing of the Government through dated securities in 2011-12 would be ` 3.43 lakh crores.

Direct Taxes:

• Exemption limit for the general category of individual taxpayers enhanced from ` 160,000 to ` 180,000.
• Exemption limit enhanced and qualifying age reduced for senior citizens.
• Higher exemption limit for Very Senior Citizens, who are 80 years or above.
• Current surcharge of 7.5% on domestic companies proposed to be reduced to 5%.
• Rate of Minimum Alternative Tax (MAT) proposed to be increased from 18% to 18.5% of book profits.

Additional deduction of ` 20,000 for investment in long-term infrastructure bonds proposed to be extended for one more year.

POSITIVE for IDFC, IFCI, REC, PFC

Lower rate of 15% tax on dividends received by an Indian company from its foreign subsidiary. A net revenue loss of ` 11,500 crores estimated as a result of proposals.

Indirect Taxes:

Central Excise Duty to be maintained at standard rate of 10%.

POSITIVE for CIGARRETTE COMPANIES like ITC, VST and AUTO STOCKS like M&M, ASHOKLEY, MARUTI, TATAMOTORS etc.

• Reduction in number of exemptions in Central Excise rate structure.
• Nominal Central Excise Duty of 1% imposed on 130 items entering in the tax net.
• Lower rate of Central Excise Duty enhanced from 4% to 5%.
• Optional levy on branded garments or made up proposed to be converted into a mandatory levy at unified rate of 10%.

NEGATIVE for AVIATION STOCKS like JETAIRWAYS , KFA, and SPICEJET

All individual and sole proprietor tax payers with a turn over upto ` 60 lakh freed from the formalities of audit.

• Proposals relating to Service Tax estimated to result in net revenue gain of ` 4,000 crores.
• Tax on all services provided by hospitals with 25 or more beds with facility of central air conditioning.

Hotel accommodation in excess of ` 1,000 per day and service provided by air conditioned restaurants that have license to serve liquor added as new services for levying Service Tax.

NEGATIVE for HOTELS like INDHOTEL, EIH, HOTELEELA , TAJGVK

Agriculture and Related Sectors:

• Basic Custom Duty reduced for specified agricultural machinery from 5% to 2.5%.
• Basic Custom Duty reduced on micro-irrigation equipment from 7.5% to 5%.

De-oiled rice bran cake to be fully exempted from basic Custom Duty. Export Duty of 10% to be levied on its export.

Manufacturing Sector: Rate of Export Duty for all types of iron ore enhanced and unified at 20 % ad valorem.

NEGATIVE for SESAGOA , NMDC Full exemption from Export Duty to iron ore pellets.

POSITIVE for JINDALSTEEL , GPIL, ISPAT

Basic Custom Duty on two critical raw materials of cement industry viz. petcoke and gypsum is proposed to be reduced to 2.5%.

POSITIVE for CEMENT STOCKS ULTRATECH , AMBUJACEM , ACC

Cash dispensers fully exempt from basic Customs Duty.

Environment:

• Full exemption from basic Customs Duty and a concessional rate of Central Excise Duty extended to batteries imported by manufacturers of electrical vehicles.
• Concessional Excise Duty of 10% to vehicles based on Fuel cell technology.
• Exemption granted from basic custom duty and special CVD to critical parts/assemblies needed for Hybrid vehicles.
• Reduction in Excise Duty on kits used for conversion of fossil fuel vehicles into Hybrid vehicles.

Basic Customs Duty on solar lantern reduced from 10% to 5%.

Infrastructure: Full exemption from basic Customs Duty to bio-asphalt and specified machinery for application in the construction of national highways. Parallel Excise Duty exemption for domestic suppliers producing capital goods needed for expansion of existing mega or ultra mega power projects.

POSITIVE for POWERGRID, RPOWER, NTPC

Other Proposals:

• Jumbo rolls of cinematographic film fully exempted from CVD by providing full exemption from Excise Duty.
• Concessional basic Custom Duty of 5% and CVD of 5% available to newspaper establishments for high speed printing presses extended to mailroom equipment.
• Proposals relating to Customs and Central Excise estimated to result in a net revenue gain of ` 7,300 crores.
• Scope of exemptions from basic Customs Duty for work of art and antiquities extended to apply for exhibition or display in private art galleries open to the general public.
• Exemption from Import Duty for spares and capital goods required for ship repair units extended to import by ship owners.

Relief measures proposed for raw pistachio, bamboo for agarbatti, lactose for the manufacture of homoeopathic medicines, sanitary napkins, baby and adult diapers. Out right concession to factory-built ambulances from Excise Duty.

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