Immediately before, during and after the Budget presentation, the markets generally tend to go into a tizzy, up one minute, deep down the next. It generally takes a couple of months for the storm surrounding the Budget to subside and for the markets to get back to their regular functioning. This is pretty much the entire impact that the Budget has on the markets.
However, the Budget proposals on duties and corporate taxes could affect specific sectors in different ways. In association with Ernst & Young, India, and Religare Securities, we take a look at nine sectors that are likely to be most affected by the Budget proposals. We also list out some of the stocks in each sector that you might want to consider buying or selling.
However, remember also that the Budget is only a reason to review these stocks. Nothing should take the place of doing your homework and studying the fundamentals of the company and sector you are buying.
The Budget proposals put this sector—two- and four-wheeler companies and auto ancillaries—on the fast track. The cut in excise duty, coupled with the alteration in income tax slabs could spell increased demand.
The key proposals
• Excise duty on small cars, two-wheelers, buses and bus chassis has been reduced to 12% from 16%
• Reduction in CENVAT to 14% from 16% will bring medium- and lightcommercial vehicles under the 14% excise duty bracket
• Excise duty on hybrid cars cut to 14% from 24% and on electric cars to nil from 8%
• The tyre sector is also expected to benefit from the excise duty cut, since over 60% of sales is to the replacement segment
Stock Impact:
Accumulate
Apollo Tyres, Bajaj Auto, Hero Honda, Mahindra & Mahindra, Tata Motors
Hold
Ashok Leyland, TVS Motors, JK Industries
Financial institutions, particularly banks will benefit from the introduction of measures to enhance transparency. Improved adminstrative processes and stamp duty rationalisation across states could pave the way for a seamless national securities market.
The key proposals
• The government has clarified that PSU banks will be partly reimbursed for write-offs over a period of three years. This will help improve liquidity in the system.
• Increase in short-term capital gain tax, introduction of commodity transaction tax and change in treatment of STT to impact broking businesses.
• The steps to expand the corporate bond market would help increase liquidity and market-driven price discovery.
Stock Impact:
Accumulate
SBI, PNB, UBI, BoI, BoB, ICIC Bank, HDFC Bank
Hold
Edelweiss Capital, Motilal Oswal, Indiabulls Financial
The Budget announcements regarding the planned infrastructure projects should have a positive impact on the cement sector. Demand is already buoyant, and prices have moved up significantly since the last Budget, largely due to a demand-supply mismatch.
The key proposals
• Parity has been brought about in the excise duty rates on bulk cement and packaged cement
An excise duty of Rs 400 per tonne or 14% ad valorem (whichever is higher) has been imposed on bulk cement (cement sold for above Rs 190 per 50 kg)
• Duty on cheaper cement bags cut to Rs 350
• Excise duty on clinker has been raised to Rs 450 per tonne from Rs 400
Stock Impact:
Accumulate
Grasim, UltraTech
Buy
India Cements, Shree Cement, Mangalam Cement, Birla Corp
The increase in outlay in key infrastructure sectors such as roads, urban infrastructure and irrigation augurs well for construction companies in terms of healthy order book growth and better revenues.
The key proposals
• Customs duty on project imports reduced to 5% from 7.5%
• Countervailing duty of 4% imposed on specific power projects
Stock Impact:
Accumulate
Jyoti Structures, KEC International, Areva, Thermax, Voltamp
Hold
Crompton Greaves, ABB, Bhel
The reduction in excise duty on packaging to 8% from 16% is likely to bring packaging costs down. Certain sections of the industry will benefit from increased consumer spending thanks to revised tax slabs and excise duty changes.
The key proposals
• Customs duty on cigars, cheroots and cigarillos increased to 60% from 30%
• Excise duty hiked for non-filtered cigarettes (60mm: Rs 546/1,000)
• Customs duty on feed additives/pre-mixes cut to 20% from 30%
• Excise duty reduction on many fast-moving consumer goods
Stock Impact:
Accumulate
ITC, Marico, Colgate Palmolive, Temptation Foods
Hold
Dabur, HUL
The Budget emphasised building the country’s talent pool. The IT sector, being a major recipient of knowledge resources, is expected to benefit in the long run.
The key proposals
• Indian IT companies will set up development centres in SEZs to claim tax benefits
• Excise duty on packaged software increased to 12% from 8%
• The government has planned expenditure of Rs 15,000 crore on training to improve skills
Stock Impact:
Accumulate
NIIT, Jetking, Aptech, Educomp Solutions, Everonn Systems
Hold
TCS, Infosys, Wipro, Kpit Cummins, MindTree Consulting
In a small step towards easing the pressure on oil companies, particularly the downstream sector, the ad-valorem component of the excise duty on petrol and diesel has been removed.
The key proposals
• The new excise duty on petrol is Rs 14.35 per litre; on diesel, the duty is Rs 4.60 per litre
• Central sales tax on “declared goods” including LPG and kerosene has been reduced to 2% from 3%, which will help reduce under-recoveries
Stock Impact:
Accumulate
ONGC, Great Offshore, IGL
Hold
GAIL, BPCL
Budget cuts in excise and customs duties on select drugs will aid all pharma companies, irrespective of size, scale and geography.
The key proposals
• Excise duty on pharmaceutical products cut to 8% from 16%
• Customs duty on specified life-saving bulk drugs cut to 5% from 10%
• Increase in outlay for HIV treatment will be positive for some companies
Stock Impact:
Accumulate
Sun, Glenmark, Aventis, GlaxoSmithKline
Hold
Ranbaxy Labs, Jubilant Organosys, Nicholas Piramal
The impact of the Budget is likely to be neutral. The excise duty cut on wireless data cards is marginally positive, as the effective duty would come down to 4% from 21.6%. The reduction in customs and excise duties on convergence products would benefit services like voice over Internet protocol (VoIP).
The key proposals
• Increased allocation for broadband Internet service centres
• Exemption of excise countervailing duties on wireless data modem cards
Stock Impact:
Accumulate
Tulip IT, Bharti Airtel, Reliance Communication, IDEA Cellular
Hold
Tata Tele, MTNL
