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Budget 2008: Sectors and stocks to watch

Read the impact on stocks of 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.

     Print Edition: March 20, 2008

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.

Automobiles: gearing up

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 Services: Interesting days

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

Cement: Strengthening gains

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

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