Budget 2012-13: See limited downside for markets at large says Dolat Cap

Dolat Capital has come out with its report on budget 2012- 13.

• The Budget FY13 proved a classic example of treading the middle path. The Finance Minister managed to gather courage to raise service tax and excise rates, and against that also offered the much need solace on personal income tax and fillip to Infrastructure
• Our key positive takeaways from the exercise are the focus on infrastructure and agriculture. The excise duty and service tax hikes, while temporarily inflationary, will help to raise resources and achieve fiscal consolidation
• Our concerns centre around the under provisioning of subsidies (12% lower than the FY12RE), given that the crude prices continue to display strength. Against that, the assumption of 21% growth in revenue collections may seem ambitious
• Also, we believe that the implicit assumption of 6.4% average inflation for FY13 suggests an imminent fuel price hike. This shall limit headroom for RBI to reduce rates, as was the expectation from April 2012. We believe that this assumption in our estimates and market strategy is now at risk, unless the RBI opts to play extra bold.

• We see limited downsides for the markets at large, given valuations at 13.5x are below the averages. The upside gains, from now on, we expect to be driven by global liquidity (which is supportive), as well as RBI stance. Our stance remains to add to stock positions on corrections
• The biggest beneficiary of the budget has been M&M, having got away without any additional duty on diesel vehicles. The stock has had sharp underperformance (15% YTD vs Nifty), and we believe this now has potential to reverse. Remains one of our top picks in the Auto space
• The biggest losers from the budget have been the upstream players having been subject to an 80% hike in cess. ONGC, Cairn India and Oil India shall witness impact on their earnings
• Our preference remains to play stock specific with primary filters being visibility and sustainability of earnings. Our Top large cap Buys include Axis Bank, Coal India, HUVR, Hero Motocorp, ICICI Bank, Infosys, TCS, PNB, M&M. In the mid cap space, we continue to like Berger Paints, IGL, Ipca Labs, KPIT Cummins, PI Inds, Syndicate Bank, Supreme Inds, Sadbhav Engineering. In small cap we remain positive on Astral Poly & Innoventive Industries
• We maintain status quo on our sector allocations with Over Weight on IT Services, Pharma, Consumer, and Autos. Similarly, maintain Market Weight on Financials, and Under Weight on Metals and Infra.

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