Walk, dont run ! (Budget FY15-16) ::HDFC Securities

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->
With Budget 2015-16, Mr Jaitley has reiterated the adage that Rome wasn’t built in a day. Hence, a realistic (if gradual) tilt is emerging towards investment. We think direction matters more than pace right now. This government is doing mostly the ‘right’ things on governance and economic policy. We are confident that fiscal consolidation will be achieved despite the pushout, as taxes are simplified further. Manufacturing and infrastructure are being boosted, while financial inclusion will spread in a multitude of ways. The genuinely disenfranchised will receive a bigger (and better) helping hand even as natural resources will be transparently allocated. Yet, all of this will happen slower than aspired from India’s first majority government in thirty years. Is this a reason to be disappointed ? We think not.  Perhaps this is, after all, the sensible way to steer the third largest economy in the world (in PPP terms) towards sustainable prosperity. Perhaps policy bravado is uncalled for. Perhaps a massive economic transformation can happen in India only at a gradual pace, especially when the rot runs deep and the external environment is decidedly adverse. And perhaps a Budget is not really the magical sword with which to slay the demons of economic sclerosis.  Perhaps administrative, legislative and political actions outside the Budget matter much more. The starry-eyed analyst types can keep waiting for a ‘dream’ Budget while the Government gets back to the boring (but more productive) activities of daily statecraft.  Our bullish stance on this government now gets a generous coat of patience. But this gives us hope that tempered expectations will allow investors to diligently seek returns, rather than chase momentum and get swept away in excesses that may lead on to unsavoury outcomes. Vision and hope will both pay, but so will a hard nose.  If a correction kicks in, it will offer selective but adequate risk-reward (given that medium term prospects in India are among the most enticing and robust in a global context). Research (not style) will soon be back in fashion on Dalal Street !

FISCAL CONSOLIDATION PUSHED OUT • FY15 fiscal deficit target of 4.1% met, with a cut back in Plan Expenditure. Target of 3% to be met in 3 years rather than 2. • Fiscal deficit targets are 3.9%, 3.5% and 3.0% in FY16, FY17 and FY18 respectively. DEVOLUTION TO THE FORE : WILL IT WORK ? • States’ share of Central taxes rises to 36% from 28%, total state transfers have risen by more than 220bps to 57.8% from 55.6%. DIRECT TAXES : SIMPLIFICATION AND RELIEF • Corporate tax rates unchanged for domestic and foreign companies, to be cut to 25% over the next four years. Wealth tax abolished and replaced by a surcharge on income above Rs 10 mn. • GAAR deferred by two years. Tax rate reduced from 25% to 10% for royalty / FTS income of foreign entities. Income from Core Settlement Guarantee funds tax exempt for exchanges. Pass through status for Category I and Category II AIFs. • Personal tax rates and slabs left untouched. Exemptions increased for pension contributions, transport and healthcare spend. Senior citizens’ benefits extended. INDIRECT TAXES : RATIONALISATION • Service tax increased from 12% (eff 12.36%) to 14% from a notified date. Education cess eliminated. Swachh Bharat cess of 2% proposed. • Excise duty increased from 12% (eff 12.36%) to 12.5%. Education cess eliminated. GST implementation reiterated from 1 April 2016. INFRA THRUST, BUSINESS FRIENDLINESS • Infra push visible. Capex outlay of PSUs increased by Rs 800bn via Central Funds and resources of CPSEs. Increased allocation of Rs 100bn and Rs 140bn for roads and railways. • New fund for Infra (National Investment and Infrastructure Fund, NIIF) announced with an annual flow of Rs 200bn. • FPI, FDI distinction eliminated. A composite cap replaces subcaps. • Bankruptcy code to be introduced in FY15-16. • Tax free infrastructure bonds for projects in the rail, road and irrigation sectors. • New UMPPs to be bidded out under Plug and Play model (fully pre-cleared). PPP model to be revamped, with sovereign risk sharing. Corporatisation of government owned ports. BANKING & FINANCE : INTERESTING FINE PRINT • Forward Markets Commission to be merged with SEBI. • Postal department to evolve into payment bank to further augment financial inclusion. • Micro Units Development Refinance Agency (MUDRA) Bank, with a corpus of Rs 20bn, and credit guarantee corpus of Rs 3bn to be created. • Public Debt Management Agency (PDMA) bringing both external and domestic borrowings under one roof to be set up this year. • Gold monetisation scheme to allow the depositors of gold to earn interest in their metal accounts and the jewellers to obtain loans in their metal account to be introduced. Sovereign Gold Bond, as an alternative to purchasing metal gold scheme to be developed.

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3011688