2. Equity View:
The week ahead is the budget week with the budget on 10th
July and the railway budget on 8th
July.
The following are the key expectations from the budget:
From the taxation perspective, we expect the government to give a very clear road map for GST.
We believe that the backbone which is the IT network, is required for all states to implement GST
is already been put in place. There is a lot of concern as yet in terms of how that thing will
eventually work out and what kind of split in terms of revenue will happen. So those are the
things, which will be worked out in the course of the next few quarters and we would believe
that by 1st
April 2015, GST should come into existence.
The other big tax reform which is expected is the direct tax code. We believe that this is
something which has been hanging for a long time, while it is not expected that it will be carried
out in this budget but a road map for it will be laid out and again by the beginning of the next
fiscal, we would expect even the direct tax code to come into existence.
In terms of personal taxation, there is a lot of talk about medical reimbursements, conveyance
reimbursements and the tax slabs are likely to see some change. The limits are likely to be
pushed upwards by 50k to 1Lac rupees. Also as per 80CC, 1lakh worth of investments, are being
allowed as of now. Those limits can also be extended. There is a lot of talk that 1L can go upto 2L.
To boost housing, the tax exemption on the interest component of housing loan, that limit is
currently set at 1.5 L. That limit can also go up.
All these things together, will give some disposable income in the hands of the individual tax payer and
that should give a boost to the consumption space.
As far as the other sectors are concerned, key announcements which are expected in terms of
FDI is that Defense should see a 100% FDI. Insurance, pension and e-commerce, these are again
sectors, which can see enhancement of limits as far as FDI is concerned.
There will also be some expectations in terms of announcement of new road cess. So every litre
of petrol and diesel that is being bought currently, it could see a road cess of around 1-2 Rs. This
will be a revival of the road cess which happened during the Vajpayee era and that’s when the
Golden Quadrilateral was built using the money which was collected in form of petrol and diesel
cess. So we believe that this government will again go back to that model of recovering the seed
capital for highways and road projects through this model.
There is also a talk that there might be cess on the railway which will go into improvement of
railway infrastructure.
In terms of broader policy announcements as far as the infrastructure space is concerned, those
are largely out of the realm of the budget. We believe that government would keep making
separate announcements and legislations to boost up infrastructure activity.
3. There is already a talk that land acquisition bill will probably get modified and some of the
conditions which were put in the land acquisition bill, which had made land acquisition, especially
large tracks of land for big industries, difficult to come by, those things will probably get modified
and we might see an amendment to the land acquisition bill, anytime in the next 2-3 months.
Another major sector which requires immediate reforms is the labor side and the Rajasthan
government has already made the first step in terms of initiating modifications of the labor laws.
Labor laws have not been touched in India for almost 50 years because of which there are strong
labor unions. They become a big impediment to the growth of the manufacturing space all across
the country. We believe that, initiation of reforms in the labor side will happen, may be not
during the part of the budget but outside the budget sometime soon.
Reworking under what qualifies as work under MNREGA which is Rural employment guarantee
scheme. The focus would be to create durable assets in rural India through use of skilled labor. It
is quiet likely that the conditions for which money is being paid would be reworked and some
concrete assets might be built using that.
The most important development which everyone is waiting to watch is what happens on the
Fiscal side. The fiscal deficit has been all over the place. The first two months of this fiscal has
seen a significant increase in the fiscal deficit compared to last year. That is largely because of
huge unpaid bills which have rolled over from the last fiscal. We would expect finance minister to
give a clear road map in terms of what is expected in terms of fiscal deficit for the next 3 years.
We would believe that the fiscal deficit which was pegged at 4.1% in the interim budget should
be pegged closer to 4.5% in the final budget. This is a more feasible and attainable number
compared to 4.1% which was given in the interim budget. We would also believe that the finance
minister would lay out a road map that by FY17 or FY18, the fiscal deficit should be brought
under 2% of GDP which is something which can be sustained for longer period of time.
Announcements in terms of specific sectors and stock market perspective, we would believe that
excise duty cuts have already been announced in the automobile space in the last interim budget
and those have already been extended. There could be some further relief as far as consumption
space is concerned specially on the durable side. In terms of other sectors, there could be some
changes with the taxation as far as MAT (Minimum Alternate Tax) is concerned which could help
some of the companies in the infrastructure space.
This is broadly what is really expected in the upcoming budget. Again as we have been saying that budget
at the end of the day is just a accounting statement. Already we have seen enough announcements from
the government’s side which has demonstrated that it means business is committed to do significant
reforms and removing populist measures and subsidies. So all those things will be taken positively by the
market even if these things mentioned above don’t find a place in the budget, there would be 5-7%
correction in the market. Any correction should be used as a buying opportunity. We continue to
maintain our year end Sensex target of 29,300 and of course our long term target of 1,00,00 by 2020. We
continue to advise our clients to go aggressively into equity and increase their allocation to equity in
short to medium term.
4. News:
DOMESTIC MACRO:
Government extends the validity period of industrial license to three years with a provision for further
extension of two years to improve ease of doing business in India.
RBI to conduct an INR 20,000 cr term reverse repo auction today to address ‘evolving liquidity condition’.
India’s Services PMI rose to a 17-month peak of 54.4 in June from a reading of 50.2 in May.
RBI restores the limit on Indian corporates’ overseas direct investments under the automatic route to
400% of networth, compared with the earlier limit of 100%.
GLOBAL MACRO
EURO
The European Central Bank leaves its main interest rate unchanged at a record low of 0.15%, holding off
fresh policy action while it waits for stimulus measures announced last month to take effect.
Euro zone’s services PMI fell to 52.8 in June from 53.2 in May.
United States
US factory orders fell 0.5% in May as compared to an increase of 0.8% in April.
US non-farm payrolls rose by a seasonally adjusted 288,000 in June following an upwardly revised
224,000 in May; the unemployment rate ticked down to a five-and-a-half year low of 6.1% in June from
6.3% in May.
US trade deficit narrowed 5.6% in May to $44.4 bn after hitting a two year high of $47 bn in April.
China
China’s HSBC services PMI rose to 53.1 in June from 50.7 in May.
Indices:
Date Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals O&G Power Realty Teck
30/06/14 25,414 9,379 15,249 17,475 8,870 16,200 6,676 11,462 9,346 13,100 11,151 2,319 2,077 5,266
1/7/2014 25,516 9,434 15,743 17,559 8,957 16,406 6,699 11,418 9,259 13,366 11,090 2,325 2,099 5,237
2/7/2014 25,841 9,507 15,966 17,745 9,075 16,681 6,774 11,633 9,263 13,634 11,198 2,370 2,107 5,247
3/7/2014 25,824 9,491 16,093 17,695 9,129 16,674 6,793 11,763 9,294 13,560 11,065 2,350 2,076 5,254
4/7/2014 25,962 9,546 16,096 17,825 9,095 16,629 6,815 11,819 9,311 13,441 11,249 2,370 2,099 5,266
2.16% 1.78% 5.55% 2.00% 2.54% 2.65% 2.08% 3.12% -0.37% 2.61% 0.88% 2.23% 1.04% -0.01%
5. Commodities and Currency:
Date USD GBP EURO YEN
Crude
(Rs. per BBL)
Gold
(Rs. Per 10gms)
30/6/2014 60.0933 102.3269 82.0094 59.28 6809 28093
1/7/2014 60.137 102.8343 82.283 59.27 6752 28149
2/7/2014 59.9745 102.8982 82.022 59.05 6748 27964
3/7/2014 59.7225 102.4539 81.5415 58.62 6672 27901
4/7/2014 59.7939 102.6601 81.3203 58.6 6629 27859
0.50%
Rupee
Appreciated
-0.32%
Rupee
Depreciated
0.85%
Rupee
Appreciated
1.16%
Rupee
Appreciated
-2.64% -0.83%
Debt:
Tenor Gilt Yield in % (Friday) Change in bps (Week)
1-Year 8.46 -3
2-Year 8.42 6
5-Year 8.65 3
10-Year 8.67 -8
6. Varun Goel Jharna Agarwal
Nupur Gupta Ridhdhi Chheda
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