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Wednesday, February 27, 2013

Pre-Budget Expectation 2013: Max Life Insurance

The coming budget would be very important for the Finance Minister given the current state of the economy, need to boost confidence and forthcoming general election. Since this is the last budget before the Elections, the Finance Minister would like to balance advantages for all stakeholders and yet show fiscal prudence. Key to 2013-14 budget will be to rein in fiscal deficit, control expenditure (slashing subsidies etc), show buoyancy in tax revenues and at the same time present a people friendly and investment friendly budget. Many of these objectives run contrary to each other, and it will be a tightrope walk for the Finance Minister to balance all of these. However, we are hopeful that the budget will be a practical budget and not a populist budget, given the FM’s track record and his recent reassurances to various segments of the market that the budget would be a pro-growth and responsible. We also expect several confidence building steps so that “animal instincts” in the economy are revived and India is set firmly on a high growth path. Chidambaram took over the charge of the Finance Ministry in September 2012, when the three key economic imbalances (trade deficit, fiscal deficit, inflation) were in a downward spiral. True to his reputation of being a reformist, he has initiated several reform measures, which has led to a recovery of investor sentiment. The rupee has stabilized for now and both FII and FDI seem to be heading for India. In FY13, the central government''s fiscal deficit is likely to be kept within 5.3% of GDP and the target for FY 14 will likely be pegged at 4.8%. The sharp cut in plan expenditure in FY 13 would offset shortfall on account of lower tax revenues, lower spectrum sale income and higher than budgeted subsidy expenditure. Inflation is on a downward trajectory and should aid RBI in bringing the interest rates lower. Critical pointers on the FY 14 budget: 1) Budget 2014: A pro-growth budget: With the RBI reducing the repo recently by 25 bps, the Finance Minister’s position has been strengthened before the budget. The funding of the infrastructure sector, deepening the bond market and enhancing foreign investments are expected to form the heart of the budget. We expect announcements of fiscal incentives/ tax exemptions to promote capital formation. One can also expect a grant of infrastructure status to the affordable housing sector. On the power front, the Minister could address issues of coal price pooling and SEB restructuring to drive growth particularly in the private sector. In this manner, the exposure of the banks to SEB’s can be safeguarded. Also, we expect some incentives for exporters in the budget. 2) Fiscal Consolidation : The Finance Minister has indicated that the Budget for 2013-14 would focus on cutting wasteful expenses and promoting investments. We expect a hike in excise duty, broadening of tax base and a higher disinvestment target to support higher revenues. We also expect the budget to articulate a definitive timeline and roadmap for implementation of GST. Similarly, more clarity on implementation of the Direct tax code will be helpful. In FY14, an economic recovery along with reduced under-recovery of oil prices may help stabilise the deficit. Recent talk about a cash transfer in lieu of a subsidy also indicates the realisation of fiscal constraints, while at the same time retains the political reality of subsidising the poor. While steps have been taken towards rationalisation of fuel subsidies, it will be reassuring to see some roadmap for rationalising fertilizer subsidies as well. 3) Incentivize increase in financial savings and move people away from physical savings: RBI estimates show that the net financial saving of the household sector declined further to 7.8 per cent of GDP at current market prices in 2011-12 from 9.3 per cent in the previous year and 12.2 percent in 2009-10. The budget should take steps towards promoting financial savings by giving additional tax incentives for long term deposits, life insurance and making equity investments more attractive for individuals. 4) Enable investment in public and private infrastructure: The projected rate of gross capital formation in the 12th plan is 37% of GDP, where 34.1% could be out of domestic savings and net external financing could be around 2.9%. The channelizing of domestic retail investments could partly help in financing the infrastructure needs. The remaining funding constraints can be partially addressed by the huge cash held by public sector companies. We could also expect the attention on the supply side issues to curb inflation. Certain import-export measures, enhanced production and greater efficiency in the transportation network could help to address such issues. As revival of capex cycle and infrastructure investments are key policy objectives, we expect greater budgetary allocation for the infrastructure sector and continuation/ new tax incentives for the sector. These have to be played out with actual implementation so that investment cycle recovery is seen. Investment processes can be made easier for private players. Corporate will invest when there is a stable regime with favourable policies and low interest rates. All in all we expect a healthy, responsible and growth supportive budget. The budget has the potential to turn out to be a game changer for the Indian economy that is currently witnessing a below potential growth along with high inflation.

Highlights of Railway Budget 2013-14

Railways minister Pawan Kumar Bansal on Tuesday steered clear from hiking passenger fares in his maiden rail budget, hike in tatkal reservation scheme. Bansal presented the rail budget for 2013-14 in the Lok Sabha, informing the House that losses of Indian Railways is mounting. Stressing on financial sustainability of the Indian Railways, Bansal said the loss amounted to Rs. 225 hundred crores. "The growth of Indian Railways is inextricably linked with the growth of the country," Bansal said in his budget speech in the Lok Sabha, the lower house of parliament. "It must remain financially sustainable. Resources generated must be ploughed back." The minister said railways remained the single most important catalyst in India''s growth story and was a vital organisation integrating the nation from Baramulla in the north to Kanyamumari in the south. Bansal expressed grief over the loss lives due to the recent stampede at the Allahabad station and said a concrete safety plan would ensure that travel on Indian Railways is hassel free. Here are the Highlights of the Rail Budget 2013-14: 67 new Express trains to be introduced 26 new passenger services, 8 DEMU services and 5 MEMU services to be introduced Run of 57 trains to be extended Frequency of 24 trains to be increased First AC EMU rake to be introduced on Mumbai suburban network in 2013-14 72 additional services to be introduced in Mumbai and 18 in Kolkata Rake length increased from 9 cars to 12 cars for 80 services in Kolkata and 30 services in Chennai 500 km new lines, 750 km doubling, 450 km gauge conversion targeted in 2013-14 First ever rail link to connect Arunachal Pradesh Some Railway related activities to come under MGNREGA For the first time 347 ongoing projects identified as priority projects with the committed funding Highest ever plan outlay of Rs. 63,363 crore Loan of Rs. 3000 crore repaid fully. A new fund-Debt Service Fund set up to meet committed liabilities. Freight loading of 1047 MT, 40 MT more than 2012-13 Passenger growth 5.2% in 2013-14 Gross Traffic Receipts – Rs. 1,43,742 crore i.e. an increase of 18,062 crore over RE, 2012-13 Dividend payment estimated at Rs. 6,249 crore Operating Ratio to be 87.8% in 2013-14 Supplementary charges for super fast trains, reservation fee, clerkage charge, cancellation charge and tatkal charge marginally increased Fuel Adjustment Component linked revision for freight tariff to be implemented from 1st April 2013 Enhanced reservation fee abolished Elimination of 10797 Level Crossings (LC) during the 12thPlan and no addition of new LCs henceforth Introduction of 160/200 kmph Self Propelled Accident Relief Trains ‘Aadhar’ to be used for various passenger and staff related services Internet ticketing from 0030 hours to 2330 hours E-ticketing through mobile phones Project of SMS alerts to passengers providing updates on reservation status Next –Gen e-ticketing system to be rolled out : capable of handling 7200 tickets per minute against 2000 now, 1.20 lakh users simultaneously against 40,000 now Introduction of executive lounge at 7 more stations: Bilaspur, Visakhapatnam, Patna, Nagpur, Agra, Jaipur and Bengaluru Introduction of ‘Azadi Express’ to connect places associated with freedom movement Four companies of women RPF personnel set up and another 8 to be set up to strengthen the security of rain passengers, especially women passengers 10% RPF vacancies being reserved for women 1.52 lakh vacancies being filled up this year out of which 47000 vacancies have been earmarked for weaker sections and physically challenged Railways to impart skills to the youth in railway related trades in 25 locations Provision of portable fire extinguishers in Guard-cum-Brake Vans, AC Coaches and Pantry Cars in all trains Pilot project on select trains to facilitate passengers to contact on board staff through SMS/phone call/e-mail for coach cleanliness and real time feedback Provision of announcement facility and electronic display boards in trains Providing free Wi-Fi facilities on several trains Upgrading 60 stations as Adarsh Stations in addition to 980 already selected Introduction of an ‘Anubhuti’ coach in select trains to provide excellent ambience and latest facilities and services 179 escalators and 400 lifts at A-1 and other major stations to be installed facilitating elderly and differently-abled Affixing Braille stickers with layout of coaches including toilets, provision of wheel chairs and battery operated vehicles at more stations and making coaches wheel-chair friendly Centralized Catering Services Monitoring Cell set up with a toll free number (1800 111 321) Complimentary card passes to recipients of Rajiv Gandhi Khel Ratna & Dhyan Chand Awards to be valid for travel by 1stClass/2nd AC Complimentary card passes to Olympic Medalists and Dronacharya Awardees for travel in Rajdhani/Shatabadi Trains Travel by Duronoto Trains permitted on all card passes issued to sportspersons having facility of travel by Rajdhani/Shatabadi Trains Facility of complimentary card passes valid in 1st class/2nd AC extended to parents of posthumous unmarried awardees of Mahavir Chakra, Vir Chakra, Kirti Chakra, Shaurya Chakra,President’s Police Medal for Gallantry and policy medal for Gallantry Policy Gallantry awardees to be granted one complimentary pass every year for travel along with one companion in 2nd AC in Rajdhani/Shatabadi Trains Passes for freedom fighters to be renewed once in three years instead of every year. Setting up of six more Rail Neer bottling plants at Vijayawada, Nagpur, Lalitpur, Bilaspur, Jaipur and Ahmedabad Setting up of a multi-disciplinary training institute at Nagpur for training in rail related electronics technologies Setting up of a centralized training institute at Secunderabad--Indian Railways Institute of Financial Management Five fellowships in national universities to be instituted to motivate students to study and undertake research on Railway related issues at M.Phil and Ph.D. levels Fund allocation for staff quarters enhanced to Rs. 300 crore Provision of hostel facilities for single women railway employees at all divisional headquarters Provision of water closets and air conditioners in the locomotive cabs to avoid stress being faced by loco pilots

Pre-Budget Expectation 2013

“The Finance Minister will present the FY2013-14 budget amid high expectations. The initiation of the reforms process over the past 4 months has raised expectations about continuation of the same in the budget. Moreover, the FM has already indicated that this will be a 'Responsible Budget' with FY14 fiscal deficit pegged at 4.8%. Markets are now looking out for an 'achievable budget'. The FM's priority in the 2013-14 budget will be fiscal rectitude. A lower fiscal deficit will leave more money for the private sector and moderate interest rates. The rating agencies are also closely watching out for any further fiscal slippage. India needs to sustain and improve the strong capital flows of CY2012. We expect the FM to stick to the revised fiscal deficit of 5.3% for FY13 and budget for a 4.8% deficit for 2013-14, based on a nominal GDP growth expectation of 13% in FY14. The reduction in FY14 target will be achieved by controlling expenditure - both plan and non-plan, we opine. With the given plan expenditure constraints, which may impact growth, the FM will likely rely on private sector to boost investments by giving incentives for the same in targeted areas. However, several initiatives need to be taken even outside the budget to support and promote private investments. Speedier implementation of allocated budgets will make these spends more effective. We believe that, significant stress will be laid on more effective implementation of the outlays rather than any increasing outlays significantly. Real GDP growth target for FY14 will be set at 6%, we believe. The budget will aim to provide an investment - led supply push to growth (with private sector participation) as against a consumption - led demand pull (higher subsidies, etc). Targets for subsidies will likely be controlled, especially fuel subsidies. However, containing subsidy burden beyond a point may prove difficult especially keeping in mind the high food inflation and rising food subsidy bill. Along with the fiscal deficit, market will focus on the revenue deficit as well, we opine. WPI inflation for FY13 is expected to average round 7%; much higher v/s the comfort levels. We expect measures towards easing supply constraints, especially on primary articles. We expect a further roadmap for Aadhar-based subsidy distribution. However, we understand that, most supply side constraints can be addressed only in the long term. On the other hand, non-food manufacturing (Core) inflation has already come down to comfortable levels of sub-5%. On reforms, the FM may signal the Government's intention to move ahead with the reforms process on several fronts. DTC and GST are now expected to be implemented totally WEF FY15 only. However, some enabling measures may be announced. There are several reform initiatives which the Government has initiated outside the budget. The budget may take some of them ahead or announce new ones including Insurance reforms, Pension reforms, etc. Critical issues like labour reforms may need broader political consensus. We expect stability in tax rates, though there may be some adjustments in the list of exemptions, deductions, etc, keeping in mind the eventual movement to GST and DTC. Tax exemptions on targeted investments may also be announced. We expect the divestment target to be increased to Rs.400bn v/s FY13 target of Rs.300bn. We do not expect any major initiatives for the stock markets. Any reduction in STT will be cheered by the markets. If Commodity Transaction Tax (CTT) is levied, it will be negative for commodity markets. Thus, we believe that, the focus of the markets will be on fiscal prudence, on effective implementation of investments, and on sectors which are impacted by the budget proposals. We believe that, the budget may have the following implications for the sectors: Positive for Banking, NBFCs, Capital Goods, Construction, Media, Oil & Gas, Power, Real Estate, Shipping & Logistics. Neutral for Automobile, Aviation, Cement, FMCG, Hotels, Information Technology, Metals”

Dalal Street to witness flat start

The Indian stock markets are expected to open on a flat note led by mixed global cues. SGX Nifty is trading 1 point higher. Headlines for the day Hindalco declares lockout at Silvassa plant. Freight rate hike to cost SAIL Rs 300-cr annually. Petronet sets world record with 1,000 cargo. Events for the day: Results: Bosch, Castrol India. Indian Indices The Indian equities may start the trading session on a flat note tracking mixed global cues. SGX Nifty is also trading 1.00 point higher. On Tuesday (February 26, 2013), the Sensex closed at 19015.14, down by 316.55 points and the Nifty fell by 93.40 points to settle at 5761.35. Daily trend of FII/MF investment in equities The FIIs have been the net buyers Indian stocks to the tune of Rs266.00 crore on February 25, 2013. The domestic investors remained net buyers of the Indian shares to the tune of Rs36.00crore on February 25, 2013.The data is as per the SEBI website. Global Indices Asian shares rebounded on Wednesday (February 27, 2013), tracking US stocks higher as the Federal Reserve Bank reassured markets of its commitment to strong monetary stimulus, but investors remained wary of political gridlock in Italy reigniting the euro zone financial crisis. European stock markets declined on Tuesday (February 26, 2013), with the inconclusive election result in Italy raising fears that political deadlock will delay economic reforms. US stocks climbed on Tuesday, after their biggest drop since November as housing and confidence data boosted sentiment. Commodity cues Crude oil fell on Tuesday (February 27, 2012) as inconclusive Italian election results revived investor concerns about instability in the euro zone and about future demand for fuel.

Market may open higher on firm Asian stocks

The market may edge higher in early trade on firm Asian stocks. Trading of CNX Nifty futures on the Singapore stock exchange indicates that the Nifty could gain 12.50 points at the opening bell. Volatility may remain high on the bourses in the near future as traders roll over positions in the futures & options (F&O) segment from the near month February 2013 series to March 2013 series. The February 2013 F&O contracts expire tomorrow, 28 February 2013. Finance Minister P. Chidambaram will table the Economic Survey for the year 2012-2013 in the Parliament today, 27 February 2013, a day ahead of the presentation of the Union Budget for 2013-14 tomorrow, 28 February 2013. NTPC will be in focus after the Ministry of Power after trading hours on Tuesday, 26 February 2013, said that NTPC has signed a Memorandum of Understanding (MoU) with Chhattisgarh Renewable Energy Development Agency (CREDA) to explore the potential of geothermal resources and subsequently implement geothermal project at Tatapani in Chhattisgarh. Tattapani Geothermal field is located approximately 100 kms northeast of Ambikapur in Surguja district of Chhattisgarh and is considered to be one of the most promising sites in India for developing geothermal based power project the Ministry of Power said. Geothermal generation is the harnessing of the geothermal energy or the vast reservoir of heat energy stored in the earth's interior for generating power. NTPC after trading hours on Tuesday, 26 February 2013, said that the board of directors of the company has accorded the investment approval for the Chatti-Bariatu coal mining project having rated production capacity of 7 MTPA in the state of Jharkhand at an appraised current estimated cost of Rs 1314.57 crore. The board has also cleared the Gadarwara Super Thermal Power Project Stage-I (2x800 MW) to be implemented in the state of Madhya Pradesh at an appraised current estimated cost of Rs 11638.55 crore subject to environmental clearance of Ministry of Environment and Forests. Telecom stocks will be in focus after the Ministry of Communications & Information Technology after trading hours on Tuesday, 26 February 2013, said that no applicants registered for the auction of 1800 and 900 MHz spectrum by the time of close on the last date for receipt of applications i.e. on 25 February 2013. Only one applicant viz. SSTL registered for the auction of 800 MHz spectrum. The next steps in respect of the 1800 and 900 MHz spectrum will be decided shortly after placing the developments and issues arising there from before the EGOM on auction of spectrum, the Ministry of Communications & Information Technology said in a statement. A third auction (after the 1st auction in November 2012 and the second auction due to commence on 11 March 2013) was already announced by the Department of Telecom (DoT) on 20 February 2013 consequent to the Supreme Court's directions dated 15 February 2013. The auction of 800 MHz spectrum will commence on 11 March 2013, the telecom ministry said. The DoT will review the need to include the remaining 2 circles for 1800 MHz bands, namely Delhi and Mumbai in the next round of auctions as also the need for a re-auction in the 3 metro circles of the 900 MHz band, the telecom ministry said. The quantum of spectrum, the reserve price and the timelines for this auction will be decided after necessary directions are obtained from the EGOM and where required, the cabinet, in this regard, the telecom ministry said. Hindalco Industries said after market hours on Tuesday, 26 February 2013, that due to continuation of illegal strike by workmen at company's Silvassa plant, the company is forced to declare a lock-out there. The company does not expect any adverse impact on the company's financials due to the lock-out at the unit, Hindalco said in a statement. Key benchmark slumped on Tuesday, 26 February 2013, after the Minister of Railways Mr. Pawan Kumar Bansal announced fuel adjustment component (FAC) linked revision for freight tariff to be implemented with effect from 1 April 2013, in Railway Budget for 2013-14. The S&P BSE Sensex lost 316.55 points or 1.64% to 19,015.14 on that day, its lowest closing level since 27 November 2012. Foreign institutional investors (FIIs) bought shares worth a net Rs 74.68 crore on Tuesday, 26 February 2013, as per provisional data from the stock exchanges. PSU disinvestment and reduction of promoter stake to meet the Securities & Exchange Board of India (Sebi) mandated minimum public shareholding of 25% for private companies and 10% for state-run firms will result in supply of equity in the market over the next few months. The government has set target of Rs 30000 crore from PSU divestment for the fiscal year ending 31 March 2013. Meanwhile, as per the Sebi mandated minimum public shareholding rule, private-sector companies must cut founders' stake to adhere to the rules by 13 June 2013, while the deadline for state-run firms is 13 August 2013. All eyes are now on Union Budget 2013-14 to be presented to the Parliament tomorrow, 28 February 2013. Investors will focus on changes, if any, in excise duty and service tax in the Budget. It remains to be seen if the government announces measures to revive weak investment growth. It also remains to be seen if the government announces more economic reforms. A key figure to watch out is the divestment target for 2013-14. It remains to be seen if the Budget contains a clear roadmap for the implementation of Goods and Services Tax (GST). There has been some debate over taxing the super-rich. It remains to be seen if the Budget provides a clear roadmap to cap the government's subsidy bill. It also remains to be seen if there are measures to increase agriculture production to rein in food inflation. It remains to be seen if the Finance Minister announces measures to channelise savings into financial assets given the sharp fall in financial savings of the household sector and a corresponding rise in household savings in physical assets such as gold and property over the past two years or so. The Budget Session of the Parliament which began on 21 February 2013 will conclude on 10 May 2013. In order to enable the Standing Committees to consider the Demands for Grants of Ministries/Departments and prepare their Reports, the two Houses will adjourn for recess on 22 March 2013 to meet again on 22 April 2013. The government has lined up a number of key bills for consideration and passing during the Budget session of the parliament, which include The Forward Contracts (Regulation) Amendment Bill, 2010, The Pension Fund Regulator and Development Authority Bill, 2011, The Land Acquisition, Rehabilitation and Resettlement Bill, 2011, The National Food Security Bill, 2011 and The Insurance Laws (Amendment) Bill, 2008. Asian stocks edged higher on Wednesday, 27 February 2013, after US housing data and comments from Federal Reserve chief Ben Bernanke lifted the mood in global markets. Key benchmark indices in China, Hong Kong, Indonesia, Singapore, Taiwan and South Korea rose by 0.16% to 0.47%. Japan's Nikkei Average fell 0.79%. US stocks rose on Tuesday, 26 February 2013, after housing data was well received. Additionally, Federal Reserve chairman Ben Bernanke defended the US central bank's monetary policy, sending a strong signal on ongoing asset purchases. Bernanke on Tuesday, 26 February 2013, defended the central bank's unprecedented asset purchases, saying they are supporting the expansion with little risk of inflation or asset-price bubbles. World stocks fell heavily at the start of the week after Italy's general election ended in stalemate, triggering concerns about another flare-up of euro-zone debt woes. This week's Italian elections produced a hung parliament, with comedian Beppe Grillo's anti-austerity movement winning more than 25 percent of the popular vote, creating the risk of another election later this year.