UNION BUDGET- 2011-2012   Key highlights     Fiscal deficit for 2010-11 seen at 5.1% against 5.5% budgeted; deficit for 2...
FIIs         - Foreign institutional investor limit in 5-year corporate bonds for investment in infrastructure to be raise...
Through this budget the Finance Minister has tried to strike an appropriate balance between the requirement of growthand t...
 Sector summary       Sector                  Budget Impact                                 Remarks                    Al...
Power             -No excise duty on equipment for UMPPs            -Encourage faster addition of          Nil            ...
Telecom   -Increase in MAT   -Negative for the sector            ~4%FMCG                         -Increased spending on cr...
Swapnil Pawar                                                                                                             ...
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Karvy Private Wealth - Budget Highlights


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Highlights of the Union Budget presented today.
Key factors to note are as follows:

· Fiscal deficit numbers (actual as well as projected) are quite heartening.

· There have been no major populist measures.

· There have not been any major reforms announced – GST date is still uncertain and DTC is scheduled for April 2012.

· Implicit in the lower projection of the subsidies is the hope that the prices of petroleum products and fertilizers may be partially decontrolled in the coming year.

There is no explicit assurance of the same though.

· Service tax maintained at 10% against the wide expectation of an increase. Excise duties not raised either.

· The implications for various sectors are summarized in the attached document.

Overall, the budget is quite incremental and not bold. Thankfully it is not populist either.

Hence on the balance the sentiment post budget amongst market participants has been mildly positive.

Our equity market outlook remains positive post the budget.

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Karvy Private Wealth - Budget Highlights

  1. 1. UNION BUDGET- 2011-2012  Key highlights Fiscal deficit for 2010-11 seen at 5.1% against 5.5% budgeted; deficit for 2011-12 projected at 4.6% of GDP FY10-FY11 FY11-FY12 FY12-FY13 FY13-FY14 Fiscal Deficit 5.1% 4.6% 4.1% 3.5% (Lower than the budgeted 5.5%) Tax to GDP ratio 9.8% 10.4% 10.8% Public sector disinvestment target for 2011-12 is raised to Rs 40,000 cr Gross market borrowing for 2011-12 seen at Rs 4.17 trillion. Total expenditure in 2011-12 seen at Rs12.58 trillion (1 trillion= 1 lakh cr) Economy is expected to grow at 9% in 2012 (+/- 0.25%); Inflation seen at 5% in 2011-12 Subsidy - Government to introduce direct cash payments for those entitled to subsidies in kerosene, cooking gas and fertiliser by March, 2012. - Government considering extension of nutrient-based subsidy for urea, the largest chunk of fertilisers used in agriculture (The amount of subsidy provided by the Govt. is Rs 1.44 trillion .The subsidy amount provided by the Govt. appears to be less considering the rising crude prices etc. Lower estimate of subsidy, indicates that the subsidies will be slowly more rationalized and likely to be more decontrolled.) Indirect Tax - Service tax levels and excise duty are maintained at 10% - The service tax net was increased to over 320 services from 117 services currently through either the addition of new services or the expansion of the scope of the existing services. - Excise exemptions withdrawn on 130 items; to pay minimum excise of 1% from next year - Peak rate of customs duty remains unchanged Direct Tax Code will come into effect from 1st April 2012 The finance minister made no commitment regarding Goods & Service Tax Corporate Taxation - Corporate tax surcharge reduced from 7.5% to 5%. Hence the effective Corporate Tax rate is 32.25%. - Minimum Alternate Tax has been increased from 18% to 18.5%.  Other Details Infrastructure - Government to allow issue of Rs 30,000 cr worth of tax-free bonds by infrastructure companies in 2011-12 - Tax deduction for investment in infrastructure bonds of Rs 20,000 extended for one more year - Investment in fertiliser plants and machinery to be treated as infrastructure investment
  2. 2. FIIs - Foreign institutional investor limit in 5-year corporate bonds for investment in infrastructure to be raised by $20 billion. Hence the new limit is $ 40 bn. - Foreign individual investors allowed to invest directly in mutual funds subject to KYC requirements  Impact on individuals Individual Tax Slabs Male Individual Tax Payer Female individual Taxpayer Senior Citizen Tax PayerSlabs (Rs) Rate (%) Slabs (Rs) Rate (%) Slabs (Rs) Rate (%)Upto 1,80,000 0 Upto 1,90,000 0 Upto Rs 2,50,000 0(IT exemption for (Entitlement age reduced to 60taxpayers raised from Rs from current 65. Citizens above1.6 lakh to Rs 1.8 lakh. Tax 80 years to get higher ITrelief is about Rs 2,000 deduction limit of Rs 5 lakh fromacross-the-board. ) this year)1,80,000-5,00,000 10 1,90,000-500000 10 2,50,000-5,00,000 105,00,000-8,00,000 20 5,00,001-8,00,000 20 5,00,001-8,00,000 208,00,001 30 8,00,001 and above 30 8,00,001 and above 30 Priority sector home loans limit raised to Rs 25 lakh from Rs 20 lakh. Interest subvention on home loans up to Rs 15 lakh. Mortgage risk guarantee corporation to insure loans to the poor.
  3. 3. Through this budget the Finance Minister has tried to strike an appropriate balance between the requirement of growthand the need for fiscal consolidation. Some of the key positives are: - Reduction in fiscal deficit - Subsidy targets are low and hence it is expected that there will be a rationalized decontrol of petroleum and fertilizer subsidies - Service tax and excise duties are maintained at 10% - Surcharge is reduced, hence lower corporate tax - Allowing foreign entities to invest in Indian MF & increasing the upper limit in corporate bond investments by the FIIs - Shifting the subsidy into the cash mode and not through the bond route - Not a populist budgetThere were still some issues unanswered by this budget: - No commitment regarding the Goods & Service Tax - No clear mention of FDI road mapThis budget had a positive impact on Alpha & we continue to maintain a positive stance on Public sector banks, FMCG &Infrastructure.
  4. 4.  Sector summary Sector Budget Impact Remarks Alpha Exposure (%)BFSI -To create Rs 100 cr equity fund for ~26% Microfinance cos. -Banks have been asked to increase lending -Positive for all Public sector banks to farmers -Recapitalization of Rs 6000 cr for PSBs -To give 3% interest subsidy to farmers in FY12 -To bring bill to enable RBI to grant more banking licenses - NRIs are allowed to invest in mutual funds -1% Interest subvention on home loans up to Rs 15 LakhIT -No mention of STPI and Sec 80IA and 80IB -Negative for IT Cos ~7% -Increase in MAT -Affecting tier-I IT companies that have set up their SEZs who will now be affected with an increase in the tax rates from FY12.Oil & Gas - Direct Cash Subsidy to be provided instead -Positive ~8% of bonds -Rs 300 cr to be allocated for oil palm productionEngineering -Propose to levy MAT on developers of SEZ`s -Negative for developers of SEZ’s ~ 10% -Railway Budget: High demand for coach, wagons cant be met immediately -Railway Budget: Wagon procurement target at 18,000 units in FY12 -Railway Budget: Working on 1000 MW captive power plant in Bihar -Railway Budget: To spend Rs 9,583 Cr for new line in FY12Auto -Maintained Excise Duty at 10% -Positive for Auto ~ 4% -National mission for electric and hybrid vehicles to be set up to create environment- friendly automobilesCigarettes -No additional taxes on cigarettes -Positive for the Sector NilTransport -Propose to raise service tax on air travel -Positive for aviation cos Nil -Ship owners allowed duty free spare part -Positive for shipping cos imports
  5. 5. Power -No excise duty on equipment for UMPPs -Encourage faster addition of Nil -On-going metro projects will be provided power plants in the country and financial help for speedy execution help in addressing the problem of -Railway Budget: Planning 1320 MW thermal power scarcity power plant in Agra -Benefit all the power generation -Tax holiday was announced for power companies which are currently companies under section 80-IA (4) was expanding its capacities. extended by one-year.Cement -Cement excise duties will be shifted to Nil valorem basis from specific duty now -Import duty on gypsum and coal from 5% to 2.5% -Positive for cement companiesMetals & -Export duty on export of iron ore has been -This is negative for iron ore ~4%Mining raised to ad valorem 20% on lumps as well importing companies as fines. -No imposition of mining tax (26% at PBT) is a positive for mining companies as well as steel companies with captive minesTextiles 10% excise duty on branded garments -Negative for textile cos ~4%Construction & -Upped priority home loan limit to Rs 25 -Positive for real estate companies ~10%Real Estate Lakh Vs Rs 20 Lakh who have a major exposure to -Raised Corpus of Rural Infra Development affordable housing Fund to Rs 18000 cr vs Rs 16000 cr -Positive for civil & construction -FII limit in corporate bonds in Infra is being companies raised by additional USD 20 bn -Railway Budget: To set up rail industrial park in Nandigram, New Bongaigaon -Railway Budget: To build 10,000 shelters near suburban railwaysAgriculture -Reduce customs duty on micro irrigation -Positive for the sector Nil equipment -Private investment in Agro Processing Should Increase -To focus on removing supply bottlenecks in the food sector -To raise credit flow target to agriculture sector to Rs 4.75 trillion -Give 3% interest subsidy to farmers in 2011- 12Healthcare -FY12 health sector outlay at Rs 26,760cr, up -Positive for the sector ~8% 20%Education -Education Sector Allocated Rs 52,057 Cr In -Positive for the sector Nil FY12
  6. 6. Telecom -Increase in MAT -Negative for the sector ~4%FMCG -Increased spending on critical ~8% rural infrastructure and social security to Rs 58,000 cr. This scheme has been driving the disposable incomes in rural areas which in turn would help rural consumption.
  7. 7. Swapnil Pawar Neha Arora DisclaimerThe information and views presented here are prepared by Karvy Private Wealth or other Karvy Group companies. The informationcontained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy orthe completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it.The investments discussed or recommended here may not be suitable for all investors. Investors must make their own investmentdecisions based on their specific investment objectives and financial position and using such independent advice, as they believenecessary. While acting upon any information or analysis mentioned here, investors may please note that neither Karvy nor anyperson connected with any associated companies of Karvy accepts any liability arising from the use of this information and viewsmentioned here.The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above-mentionedcompanies from time to time. Every employee of Karvy and its associated companies are required to disclose their individual stockholdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendationsare restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or hasbeen forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Stock Broking Ltd.The information given in this document on tax are for guidance only, and should not be construed as tax advice. Investors are advisedto consult their respective tax advisers to understand the specific tax incidence applicable to them. We also expect significantchanges in the tax laws once the new Direct Tax Code is in force – this could change the applicability and incidence of tax oninvestmentsKarvy Private Wealth (A division of Karvy Stock Broking Limited): Operates from within India and is subject to Indian regulations.Mumbai office Address: 702, Hallmark Business plaza, Sant Dnyaneshwar Marg, Bandra (East), off Bandra Kurla Complex, Mumbai400 051 (Registered office Address: Karvy Stock Broking Limited, “KARVY HOUSE”, 46, Avenue 4, Street No.1, Banjara Hills,Hyderabad 500 034) SEBI registration No’s:”NSE(CM):INB230770138, NSE(F&O): INF230770138, BSE: INB010770130, BSE(F&O):INF010770131,NCDEX(00236, NSE(CDS):INE230770138, NSDL – SEBI Registration No: IN-DP-NSDL-247-2005, CSDL-SEBI RegistrationNo:IN-DP-CSDL-305-2005, PMS Registration No.: INP000001512”