STATE OF THE MARKETS

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Dalal & Broacha Stock
Broking Pvt Ltd
PREAMBLE
If one expected that this would be a budget which would usher in big bang reforms, he would have been in for
disappointment. But clearly Mr. Jaitley has presented a practical budget with a target of 4.1% deficit at the end of
FY2014-15.
What is more encouraging is the target of reaching 3.5% in FY15-16 and reducing the fiscal deficit to 3.1% by FY17.
There has been no major change in the taxation policies except an increase of basic limit by Rs.50,000 and
enhancing the section 80C limit by Rs.50,000 to Rs.1,50,000.
The other change has been in the increase of dividend distribution tax which now will be calculated on the gross
amount (dividend + tax).
The focus of the government as expected is on improving infrastructure and promoting manufacturing. The investment
allowance benefit has been extended in most cases and in certain cases has been made applicable to investments
starting from Rs.25 crores, thereby benefiting smaller companies as well. The ten year tax holiday for power
projects has been extended for those projects that begin operations up to 31st March 2017.
The budget has also addressed the woe of the banking sector about competition from FMPs and debt mutual funds
for public deposits by increasing effective tax rate on mutual fund investments and raising the holding period for long
term capital gains from 12 to 36 months.
With paucity of funds at the government end, demand for infrastructure funding has to be fulfilled from the banking
sector. The FM has allowed Banks to raise long term funds for infrastructure lending and has also said that it would
get concessional treatment for the requirement of CRR SLR and PSL.
On other policy matters, the government has increased the foreign investment limit in Insurance and defense to 49%
and has promised easier procedural regime.
The only disappointment that one could point out is of course on the retrospective amendment in the income tax act
undertaken in 2012. The section has not been amended.
However, the FM has said that going forward, the Government will not ordinarily bring about any change retrospectively
which creates a fresh liability. He further said that the government is committed to provide a stable and predictable
taxation regime that would be investor friendly and spur growth
Thus, all in all a practical budget that is likely to achieve its goal and could improve sentiments in the coming
months.
Though the budget rarely throws up clear winners, we would definitely say in tennis parlance that it is advantage
Banks & Financial institutions like IDFC.
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BUDGET - 2014 - 2015
Milind Karmarkar ( Head Research )
(022) 6630 8667
Sandeep Shah / Nilay Dalal ( Equity Sales )
(022) 67141420 / 67141443
July 10, 2014
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Dalal & Broacha Stock
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SECTOR IMPLICATIONS
CAPITAL GOODS & POWER SECTOR
" The 10 year tax holiday extended to the undertakings which begin generation, distribution and transmission of
power by 31.03.2017. Positive for power generation companies (NTPC, Adani Power, Reliance Power, and Tata
Projects) and Transmission Company like Power Grid.
" Drinking Water & Sanitation - Rs.20, 000 habitations affected with arsenic, fluoride, heavy/ toxic elements, pesticides
fertilizers to be provided safe drinking water through community water purification plants in next 3 years. Positive for
companies like Va Tech Wabag, L&T
" Smart cities - A sum of Rs. 7,060 cr is provided in the current fiscal for the project of developing "one hundred Smart
Cities'. Positive for L&T.
" Scheme for development of new airports in Tier I and Tier II Cities to be launched. Positive for L&T & Voltas.
" An investment of an amount of Rs. 37,880 cr in NHAI and State Roads is proposed which includes Rs. 3,000 cr for
the North East. Positive for L&T, IRB, ITNL
" Investment allowance at the rate of 15 percent to a manufacturing company that invests more than Rs. 25 cr in any
year in new plant and machinery. The benefit to be available for three years i.e. for investments upto 31.03.2017.
Investment allowance would act as an incentive for capital expenditure.
" Rs. 2,037 cr provided for Integrated Ganga Conservation Mission "NAMAMI GANGE". Positive for Va tech Wabag.
Top Picks: L&T, Cummins India & Kalpataru Power.
FERTILIZERS
" Government has targeted Rs.8 lac cr for agriculture credit for FY15.
" Government has continued with Interest subvention scheme for short term crop loans where banks provide loans
to farmers at a concessional rate of 7%. Farmers get a further incentive of 3% for prompt payment. Govt will provide
institutional finance to landless farmers, for which it has, proposed 5 lakh joint farming groups of "Bhoomi Heen
Kisan" through NABARD. Amount of Rs.500bn has been allocated for Short Term Cooperative Rural Credit.
" Interest subvention scheme and higher credit to agriculture sector will bring more liquidity in the hands of the
farmers. This will allow farmers to increase their spending on pesticides and fertilizer.
" New Urea Policy will also be formulated. However this won't have an immediate impact on companies as New
Urea Policy is linked to gas price, which the government has put on hold as of now. Companies have also put their
investment in urea on hold for clarity on gar pricing
" Government is positive of achieving 4% growth in agriculture in FY15. We believe that apart from New Urea Policy,
which needs gas pricing clarity, the huge credit provision will benefit the farmers which will indirectly be positive for
the industry.
Top Picks : Rallis India, PI Industries, Dhanuka Agritech
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FMCG & CONSUMER GOODS
" Hike in excise duty on cigarette in the range of 11-72%. Hike for filter cigarette below 65mm is 72%, for cigarette
above 65 mm to 75mm the hike is in the range of 17% to 11%. Neutral impact on ITC as the hike was estimated to
be ~100% and factored in the price.
" Excise duty reduced from 12% to 6% on footwear in the range of Rs 500 to Rs 1000. It's Positive for Bata.
" The basic customs duty on fatty acids, crude palm stearin, RBD and other palm stearin, specified industrial grade
crude oils has been reduced from 7.5 per cent to Nil for the manufacture of soaps and oleo-chemicals; the basic
customs duty on crude glycerin from 12.5 per cent to 7.5 per cent and crude glycerin used in the manufacture of
soaps from 12.5 per cent to Nil. Positive for HUL, Godrej Consumer and Jyothy Laboratories.
" Cut in excise duty on food processing and packaging machinery from 10% to 6% positive for Britannia, Nestle and
Glaxo Consumer.
Top Picks: Bata & Britannia
IT
" Though there is no direct provision affecting IT industry, below are some points that we consider could supplement
the industry indirectly.
" "Digital India "will include broadband connectivity at village level; training and access of services through IT
enabled platforms& E-Kranti for government service delivery and governance. The facility of Electronic Travel
Authorization (e-Visa) will also provide an impetus to IT services.
" Project of developing "100 Smart Cities ", which we believe will be conceived on the framework of information &
communication technologies. The budget has also proposed for providing virtual classrooms and online courses.
" Government emphasis on e-governance will propel greater use of IT systems & services. We remain positive on
CMC and TCS as they have a legacy of carrying out IT transformational projects.
Top Picks : CMC & TCS
BANKING & FINANCE
" Increase in FDI limit in Insurance sector may lead to better value unlocking for holding companies: The composite
cap in the insurance sector to be increased up to 49% from 26% with full Indian management and control through
the FIPB route. Positive for ICICI Bank, HDFC etc.
" Re-iterating commitment to infuse Rs 240,000 crore as equity by 2018: The Budget acknowledges the requirement
of Rs 240,000 crores capital infusion in PSU banks by 2018 for Basel-3 compliance.
o We believe that the speech indicates there may be public issues which will be crucial for banks starved of
capital. The above measures should be mildly positive for PSU Banks which will be one step closer to
raising funds from the Equity Markets to address their capital needs.
" Infrastructure sector: Banks are encouraged to extend long term loans to infrastructure sector with flexible structuring.
Banks are permitted to raise long term funds for lending to infrastructure sector with minimum regulatory pre-
emption such as CRR, SLR and Priority Sector Lending (PSL). This will ease further capital flow towards the
infrastructure segment.
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Dalal & Broacha Stock
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" Six new Debt Recovery Tribunals to be set up: Will be beneficial for the entire sector troubled with NPAs and
stressed assets and help with recoveries.
" Rural Housing & Affordable housing provided impetus:
o Allocation for National Housing Bank increased to Rs. 8,000 crore to support Rural housing.
o Extended additional tax incentive on home loans shall be provided to encourage people, especially the
young, to own houses.
o A sum of Rs. 4000 crores for NHB from the priority sector lending shortfall with a view to increase the flow
of cheaper credit for affordable housing to the urban poor / EWS / LIG segment is provided
o NBFCs like Gruh Finance, Repco Home Finance, etc. would be benefitted by the increase in NHB allocation
and thrust on rural & affordable housing
" Capital gains tax rate increased, applicable on MF units (except Equity MFs): The rate of tax on long term capital
gains were increased from 10% to 20% on transfer of units of Mutual Funds, other than equity oriented funds.
Income and dividend distribution tax to be levied on gross amount instead of amount paid net of taxes.
o This we believe will lead to flow of capital back to banks as deposits, since any gains on less than three
years parking of money in Debt MFs will be taxable at 20%, making it less attractive proposition.
Top Picks: Bank of Baroda, State Bank of India, HDFC, ICICI Bank, Gruh Finance, Repco Home Finance
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Dalal & Broacha Stock
Broking Pvt Ltd
Disclaimer
This document has been prepared and compiled from reliable sources. While utmost care has been taken to ensure that the facts
stated are accurate and opinions given are fair and reasonable, neither the Company nor any of its Directors, Officers or Employees
shall in any way be responsible for the contents. The Company, its Directors, Officers or Employees may have a position or may
otherwise be interested in the investment referred in this document. This is not an offer or solicitation to buy, sell or dispose off any
securities mentioned in this document.
For Further details
Contact Email ID Contact No Sector
Mr Milind Karmarkar milind.karmarkar@dalal-broacha.com 022 67141445 Head Research
Mr Sandeep Shah sandeep.shah@dalal-broacha.com 022 67141420 Head Institution Sales
Mr Nilay Dalal nilay.dalal@dalal-broacha.com 022 67141443 Institution Sales
Mr Lalitabh Shrivastawa lalitabh.s@dalal-broacha.com 022 67141450 Banking, Capital Goods
Mr Chinmay Gandre chinmay.gandre@dalal-broacha.com 022 67141448 Capital Goods
Ms Purvi Shah purvi.shah@dalal-broacha.com 022 67141446 Pharmaceuticals
Mr Kunal Bhatia kunal.bhatia@dalal-broacha.com 022 67141442 Auto,Auto Ancillary, FMCG, Hotels
Mr Ankit Panchmatia ankit.panchmatia@dalal-broacha.com 022 67141449 IT
Mr Ankeet Pandya ankeet.pandya@dalal-broacha.com 022 67141441 Agrochemicals, Fertilizers
Address:- 508, Maker Chamber 5, 221 Nariman Point, Mumbai 400 021. Tel: 91-22- 6714 1414, 2282 2992, (D) 6630 8667
Fax: 91-22-2287 0092
E-mail: research@dalalbroachaindia.com, equity.research@dalal-broacha.com
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