Angel Broking gave their reading of the announcements made in Union Budget 2011 and its implications on various sectors.
Automobile: Overall, the Union Budget 2011-12 is positive for the Automobile sector as the central excise duty has been kept unchanged. Further, special incentives has been announced for companies manufacturing hybrid vehicles in India. Moreover, broader measures like increased focus on rural and infrastructure spending would support long term growth of the sector.
IT: The Union Budget 2011-12 was a low key affair for the Software Sector. The Budget did not mention extension of fiscal benefits under the STPI Scheme for Export of Software Services, which is due to expire in FY2011. Plan allocation for School Education increased by 24% to Rs 52,057cr in FY2011-12. This would boost business opportunities for the IT-Education companies in terms of ICT and PPP in K-12 and Vocational Segments. viz. Educomp, Everonn and NIIT. Overall, the budget was Neutral for IT sector.
Infrastructure: The Union Budget 2011-12 continued to lay stress on infrastructure development, as the allocation for the sector has been increased by 23% yoy to Rs 2,14,000cr which is 48.5% of the planned expenditure. Further, steps like tax free infra bonds worth Rs 30,000cr by various government undertakings, creation of infra debt funds are positive for the sector. Also, MAT rate has been hike from 18% to18.5% which would nullify the benefit from surcharge reduction from 7.5% to 5%. The tax benefit under Section 80IA and Rs 20,000 investment in Infrastructure Bonds has been extended by one year.
Metals & Mining: Export duty on export of iron ore has been raised to ad valorem 20% on lumps as well as fines. Currently, lumps are taxed at 15% and fines are taxed at 5%. This is negative news for iron ore exporters such as Sesa Goa (~90% of total sales from exports) and NMDC (~15% of total sales from iron ore exports). Nevertheless, no imposition of mining tax (26% at PBT) is a positive for mining companies as well as steel companies with captive mines.
Pharma: The Budget is neutral for the pharmaceutical sector. Allocation to Ministry of Health & Family Welfare have been increased by 20% to 26,760 crore for FY2012 from Rs 22,300 crore. There was no extension provided on the weighted deduction on the in-house R&D which stands at 200% and available till FY2012 only, which was a disappointment for the Pharma companies actively involved in R&D activities. Although MAT has been increased to 18.5% from 18%, it would be totally nullified by the decrease in the surcharge to 5% from 7.5%. MAT levied on the SEZ developers would impact the companies that were placed to benefit from the same. There were no indications on the extension of the EOU benefit which is available only till FY2011, which could be a negative for the sector, especially companies that have been not or have been slow in expansion through SEZ.
Capital Goods: The Budget 2011-12, though it did not have many significant direct measures for the Capital Goods sector, it sent a positive signal with regards to the continued impetus being provided to the Infrastructure and Power Sector of the country. As regards the specific demand by BHEL and L&T to increase import duty on foreign equipment, which cited the lack of a level playing field for domestic manufacturers, the Finance Minister has ignored the same and kept the rates unchanged. However, parallel excise duty exemption for domestic suppliers producing capital goods needed for expansion of existing mega or ultra mega power projects have been granted.