Analyst Picks - Sector Views

MERRILL LYNCH

Auto: Positive

Tata Motors, Ashok Leyland to benefit from reduction in Cenvat for commercial vehicles. Reduction in excise duty for small cars, two- and three-wheelers could result in higher demand for Maruti, Bajaj Auto, TVS Motor and Hero Honda. Subsidies to farmers on old loans and approval for new loans will improve cash flow and push demand for autos and tractors. Reduction in personal taxes to result in up to 15% higher disposable income. This will benefit Maruti and other two-wheeler companies.

Infrastructure: Positive

Avoidance of double taxation on dividend payments between infrastructure SPV subsidiary and parent would benefit project developers (JP Associates ). Other beneficiaries include L&T , GMR Infra, IVRC and Nagarjuna Constructions. Hike in defence spend is marginally positive for defence contractors such as Bharat Electronics, Tata Power and L&T .

MORGAN STANLEY

Cement: Neutral

Increase in excise duty on clinker to Rs 450/MT from Rs 350/MT will be neutral, as clinker produced is not sold directly but converted into cement. Excise of Rs 400/MT, or 14% ad-valorem duty, (whichever is higher) on bulk cement will also be neutral as most of the cement sold in India is packaged cement and not bulk cement.

Steel: Positive

Budget positive for iron ore miners and steelmakers with captive ore mines (Sesa, SAIL, Tata Steel) since export taxes haven’t been imposed. Less than expected hawkishness on steel price control issue is another positive. Reduction in excise duty to 14% from 16% should give some relief to steel consumers and so is a marginal positive. Budget neutral for nonferrous companies.

ICICI SECURITIES

Telecom: Neutral

The 1% NCCD on cellphones would have no major impact since it would increase the cost of handsets only slightly. Duty exemption on specified parts of set-top boxes would make DTH/IPTV connections cheaper. Companies such as Reliance Communications and Bharti Airtel would benefit (though not significantly ) given their planned foray into the DTH/IPTV space.
Technology: Neutral

Increased expenditure on education is positive for Educomp, Everonn, NIIT and Aptech. Enhanced allocation to the department of information technology will be positive for CMC, TCS, Spanco Telesystems, Wipro, HCL Infosystems and 3i Infotech. Increased excise duty on packaged software would increase the cost for companies operating in the domestic market, including 3i Infotech and Nucleus Software. However , the same will be recovered from clients, so impact will be minimal. Similarly, 12% service tax imposed on customised software will increase the cost for companies, including 3i Infotech, Rolta and to some extent TCS (10% domestic revenues) and Wipro. However, the impact will be minimal as it will be recovered from clients.

IDFC-SSKI

Engineering: Positive

Increase in textile upgradation provision would benefit Voltas. Reduction in excise duty on refrigeration equipment will also help Voltas as it would boost its cold-chain equipment revenues. Increased thrust on power sector investment will benefit Elecon as also AIA Engineering, which supplies grinding media for thermal projects.

Financials: Positive

Positive for tractors due to trickle down effect; hence, benefiting tractor finance companies like M&M Finance . Neutral for banks and NBFCs having interest in life insurance business since service tax could be a passthrough to policyholders in line with the practice followed by asset management companies.

IDBI CAPITAL

Oil & Gas: Positive

Reduction in customs duty on crude is positive for refinery companies like RIL, IOC, HPCL and BPCL. Reduction in duty on unbranded petrol and diesel is positive news for IOC, HPCL and BPCL. Removal of duty exemption on imported naphtha is negative for RIL as it will have to bear the duty burden on imported naphtha for polymer production. Reduction in CST positive for oil marketing companies for petroleum products that attract CST.

FMCG: Neutral

Imposition of duty on non-filter cigarettes positive for ITC as it makes filter cigarettes. But the hike would also be negative for the company as it also makes non-filter cigarettes. The reduction in CST positive for the food processing industry.