Pre Budget Expectations 2011-12: Anagram Research

Anagram Research has come out with a report on Pre Budget Expectations 2011-12.

Pre Budget Expectations 2011-12- Sectorwise Expectations:

AGRICULTURE & AGRO COMMODITIES: Agriculture is core sector contributing more than 18% of India's GDP. Rising prices would be in focus in near to medium term. Increased production and higher productivity will help to secure enough supply to curb prices. Agro input industry is very well placed. There is huge scope for the expansion as only 39% of cultivated land is under irrigation. Country is a net importer of fertilizer and India is one of the lowest per hectare consumer of fertilizer and pesticides. Some favorable policy changes will help to utilize huge business potential in time to come.

We expect positive measures to be awarded to the Agri Inputs sectors as the government would like to boost Agriculture growth during the current fiscal. Therefore we expect some pro positive measures to be announced in this forthcoming budget.

AUTOMOBILES: The Indian automobile sector has seen strong demand across segments resulting in 25% YTD volume growth. The small car and light commercial vehicle (LCV) segments is flooded with new entrants and new launches which may hurt profitability given weak pricing. While in two wheelers, M&HCVs and tractors-the competitive landscape remains fairly benign, with limited new entrants. With potential headwinds - an increase in interest rates and higher fuel prices- coupled with a high base we expect growth rates across the automobile sector to taper off, but will remain in double digits. Post correction valuations have become reasonable for investors to enter into quality Auto OEMs and component companies.

BANKING: Amid the uncertainties of elevated price levels, liquidity crunch, delayed deposit growth and pressure of sustaining of margins, the banking sector continued to record robust earnings growth in each quarter. In terms of core activities, the sector has witnessed accelerated growth in loan book as compared to deposit base driven by infra, service and retail sectors.

The Reserve Bank's decision to raise key interest rates for seven times since March 2010 to tackle the inflation issue, has raised the cost of funds for the banking sector. On flip side the overall liquidity condition has remained in deficit mode from the third quarter of current financial year, partly on account of above-normal government cash balances.

The situation is expected to improve with the gradual spending by the government, while the deposit growth is likely to pick up as a result of recent round of deposit rate hike. In such a rising interest rate scenario, the banks with higher level of low cost deposits, prudent asset quality and sufficient capital to fund the growth would get edge over its peers and sustain the margins.

CONSTRUCTION: Construction & Infrastructure investment is the major driver for India in attaining consistent 8-10% GDP growth. The importance of infrastructure for a double digit growth is known to all; however, there is a big gap between infrastructure targets and achievements with slow execution in several sectors. Primary causes for the gap are shortfall in awarding projects, time and cost overruns in construction phase and funding potential shortfalls. It is about time to take rigorous steps in addressing the bottlenecks in construction & infrastructure space, if the government is serious about taking relevant action.
 
Finance Minister's signal to the infrastructure sector was that the sector should try to desist from asking for tax breaks and tax reliefs as the budget has a limited ability to finance the country's infrastructure needs. Hence, the sector this year restricts its expectations from tax breaks and focuses on other crucial aspects of enabling environment for raising capital and project development.

EDUCATION: India is expected to have highest working age population over the next 20-30 years which can propel economic growth in the country; however, India will have the highest number of illiterate adults and a large number of unemployed literate people. Education sector has this big challenge of educating adults and also ensuring employability. At the same time, this also serves as an opportunity for the innovative and capable players in the industry, as education sector along with infrastructure and agriculture is expected to draw the focus of the budget and remain a top priority.

Government has not been successful in educating young India; hence the way forward is setting up a platform of private participation, an environment of funding and development of the sector. The adoption of public-private partnership (PPP) model in the education sector could go a long way in establishing success and creating a sustainable momentum in long-term. While the government

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