1. 15th February 2013

2. Our View
Economic policy reforms has for some years now mostly been taking place outside of the Union budget. This year is not likely to be
different. However, the budget this year assumes critical importance in the context of (1) fiscal consolidation to facilitate lower inflation
and interest rate cuts and (2) policy measures and incentives to direct savings towards infrastructure and industrial investment to boost
non-inflationary economic growth. Steps towards fiscal consolidation and boosting investment would also be important to attract foreign
capital inflows to finance the high CAD.
Investors would also seek some roadmap for major economic reforms like GST, DTC, land acquisition bill, FDI in insurance and pension.
To achieve the objective of fiscal consolidation, the Budget is likely to concentrate more on boosting revenue growth and containing
lesser productive expenditure without hurting growth. While the government could go for a populist measure like a food security bill ahead
of the elections, this is likely to be countered with rationalisation of unproductive expenditure.
To induce efficient allocation of household savings away from non-productive assets like gold into financial assets for funding
infrastructure and industrial investment and ease CAD issues, the budget could:
• Introduce inflation linked bonds
• Offer tax-saving incentives in insurance beyond the current one lakh limit under section 80C and extend tax exemption limits for
medical insurance
• Reintroduce tax saving infrastructure bonds.
These measures would not only boost investment but also promote consumption through lower incidence of tax and consequently higher
disposable income for the middle class.
For healthy growth of the economy, the health of the capital market is important. Expect the budget to spell out measures to improve the
depth of the markets. This could lead to some rationalization of STT and steps to deepen the corporate bond market and improve the
regime for foreign capital flows. Scope for RGESS is expected to be widened and made more attractive for the common man.
The budget could be a good trigger for the markets if it lays out a credible outline for fiscal consolidation and boosting investment. In this
note, we present a list of expectations of the Union Budget 2013-14 and what implications it could hold for various sectors and stocks. We
have selected 6 stocks which we believe could be beneficiaries of the budget’s attempts to enhance economic growth through fiscal
consolidation and boosting investment.
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3. Banking
Likely Budgetary Measures Impact Stocks to Watch
 Allocation of equity capital for infusion in Positive for PSU banks as it will enable them to PSU Banks (+ve)
PSU banks be compliant with stricter capital adequacy
Basel III norms. Besides this, the infusion will
cater to the credit needs of productive sectors of
the economy & help banks expand their
business
 Reduction in lock-in period for tax saving Positive for banks as it would lead to increased Entire Banking sector (+ve)
fixed deposits that are eligible for tax flow of deposits. This move would also give
benefits under section 80C from the current 5 level playing field to these deposits against
years to 3 years Equity Linked Savings Schemes (ELSS), as far
as locking period is concerned.
 Infrastructure status to affordable housing With Infrastructure status, affordable housing HFCs like Dewan Housing, LICHF, Gruh &
segment may become more attractive to banks like SBI, ICICI bank (+ve)
developers as getting clearances and sanctions
to finance projects will be easier and faster.
 Providing capex based tax breaks to Would fuel demand for incremental credit which Entire Banking sector (+ve)
corporates has remained muted in the current fiscal
 Measures to direct household savings into Increased flow of funds to infrastructure IFCs like IDFC
productive financial assets for funding financing companies
infrastructure and industrial investment
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4. Construction/Infrastructure/Engineering
Likely Budgetary Measures Impact Stocks to Watch
 MAT tax to be lowered/ abolished for The move is likely to bring in more participation L&T, ITNL, Sadbhav, HCC (+ve)
infrastructure players. and investments for long gestation infrastructure
projects.
 Creation of long term dedicated debt funds The move is likely to bring in more liquidity and All Infrastructure companies. (+ve)
for infrastructure. investments in the infrastructure sector/
 Priority sector lending status for The move will ease the cost of funding for the All Infrastructure companies. (+ve)
infrastructure sector funding infrastructure sector
 Concessional rate /Removal of service tax The move is likely to ease margin pressure of All Construction Companies (+ve)
for construction services. the construction companies.
 Impetus to manufacturing of defence Broad guidelines likely given the magnitude of L&T, Bharat Forge, M&M (+ve)
equipments in India dollars spent on defence equipment
 Removal of Customs duty exemptions to The move will encourage investments and L&T, Bhel (+ve)
imported capital goods required for certain demand from domestic capital goods industry.
industries (currently zero/5%)
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5. FMCG/Media/Cement
Likely Budgetary Measures Impact Stocks to Watch
 Custom duty on set-top box (STB) likely to Low cost of STB will reduce cost of customer All MSO’s like Hathway, Den, WWIL, Hinduja
be reduced from existing 5% acquisition for cable/DTH players. Any hike in Ventures (+ve)
taxes will be passed on the consumer.
 Service tax and entertainment likely to be
imposed on the cable/DTH industry
 Rural focus of the budget and direct tax relief This will increase money in the hands of the Godrej Consumer, HUL, Dabur, Marico, Asian
for the middle class consumer Paints (-ve)
 Excise duty on cement may be raised by In low growth scenario, cement players will Cement players like ACC, Ambuja (-ve)
changing the existing slab pass-on the increased cost to the end consumer
with lag effect, thereby impacting margins of
cement players in short to medium term
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6. Metals / Automobiles
Likely Budgetary Measures Impact Stocks to Watch
 Likely increase in import duty on steel This will help to protect the steel industry reeling SAIL, JSW Steel, Tata Steel (+ve)
from high debt and lower profitability.
 Reduction in export duty on iron ore fines Positive for iron ore miners as these would Sesa Goa , NMDC (+ve)
from the current 30% reduce duty outflows on exports. This is likely to
increase the costs of iron ore procurement for JSW Steel (-ve)
JSW Steel.
 Increase in iron ore royalty Negative for iron ore miners and integrated steel NMDC. Sesa Goa, SAIL, Tata Steel, JSW Steel
producers (-ve)
 Imposing Diesel Tax on large diesel This will be negative for large diesel passenger M&M (-ve)
passenger vehicles vehicle producers
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7. Oil & Gas
Likely Budgetary Measures Impact Stocks to Watch
 Increase in the administered price of Natural It is expected that Government would accept the Reliance, Oil India (+ve)
Gas recommendations of the Rangarajan committee
 Ending the uncertainty over the under- Very high probability given the move from the HPCL, IOC, Oil India (+ve)
recovery sharing mechanism - A clear government on raising diesel prices and putting
formula for sharing between the government, a cap on LPG
up-stream, mid-stream and the down
stream.
 Reintroduction of customs duty on crude oil This is likely given the rising imports of crude oil Negative for oil refining companies
to boost revenues. and the need to boost government revenues
Cairn (+ve)
 Additional Excise duty on diesel cars The move will bring down the under-recoveries BPCL,HPCL (+ve)
of oil PSU’s.
Maruti,M&M (-ve)
 Exemption of the 5 % import duty on The move is likely to reduce the usage of diesel BPCL,HPCL (+ve)
liquefied natural gas (LNG). and that will bring relief for the PSUs.
 Policies to promote domestic oil & gas Domestic oil& gas producers to benefit RIL, Cairn (+ve)
production and lower CAD
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8. Pharmaceuticals
Likely Budgetary Measures Impact Stocks to Watch
 Increase in MAT rate from 18% to 20% Probability is high considering the fact that Overall sector (-ve)
government wants to let go off differentiated tax
structure
 Weighted deduction on In-house Research There is a high probability since government All major companies who are high spenders
to increase from 200% to 225% wants Indian companies to focus on innovation including Sun Pharma, Lupin, Cipla, Glenmark
(+ve)
 Increase in allocation to NRHM (National High probability since government has Overall sector (+ve)
Rural Health Mission) consistently increased spending on the scheme
and will continue to maintain the trend.
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9. Power
Likely Budgetary Measures Impact Stocks to Watch
 Extension of sunset clause for power Will ensure long term investments in the power Tata Power, CESC, JSW Energy (+ve)
generating co’s beyond 2013. (Currently an sector
undertaking is eligible for tax benefits only if it
begins to generate power by 31/03/2013)
 UMPP timeline for coal tie up to be modified Will ensure greater participation and more Tata Power, Reliance Power (+ve)
to 3 years from signing of FSA (currently 3 funds in the sector.
years from the date of issuance of Provisional
Certificate.)
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10. Real Estate
Likely Budgetary Measures Impact Stocks to Watch
 Industry status be accorded to real estate The move is likely to bring in additional liquidity All real estate players (+ve)
sector and lower the cost of funds for the sector.
 Exemption Limit for interest paid on The move will bring in additional investments Sobha Developers, Prestige Estates ,HDIL (+ve)
borrowed capital to be revised upwards. and make housing more affordable
 Creation of structures like REIT’s, Real The move will bring in additional funds and bring All real estate players (+ve)
Estate Funds etc more participation
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11. Top Picks
Our Top Picks for the ensuing risk-on rally
Cairn Would benefit from (1) Government’s policies to promote domestic oil&gas production and reduce CAD and (2)
CMP 304.3 possible increase in customs duty on crude oil
Godrej
Rural focus of the government & likely direct tax reliefs for the middle class will put more money in hands of the
Consumer consumer, thereby benefiting FMCG players.
CMP 725.2
ICICI Bank Budget’s focus to promote investment & consumption growth to fuel demand for credit. It would also benefit from likely
CMP 1121.9 incentives to direct household savings to insurance and a likely roadmap for higher foreign investment in insurance.
Budget’s strong focus to boost infrastructure & industrial investments augurs well for the company. Besides this,
IDFC recent reform initiatives by the government in the infrastructure sector will bring down the perceived risk of higher bad
CMP 158.1 assets in the infrastructure portfolio.
Infrastructure would be one of the key focus areas in the upcoming budget: a) robust investments are likely to be
L&T announced b) clarity on various taxation issues are likely to be put up and c) various incentives and removal of
CMP 1444.0 bottlenecks for speedy implementation of the projects are likely to be announced. All the above are likely to augur well
for L&T.
M&M M&M is the largest manufacturer of tractor. Increase in credit flow to farmers and no extra tax on large vehicles would
CMP 898.0 act as a positive trigger.
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12. Research Team
Vivek Mahajan Hemant Thukral
Head of Research Head – Derivatives Desk
022-42333522 022-42333483
vivek.mahajan@adityabirla.com hemant.thukral@adityabirla.com
Fundamental Team
Avinash Nahata Head of Fundamental Desk 022-42333459 avinash.nahata@adityabirla.com
Akhil Jain Metals & Mining/Mid Caps 022-42333540 akhil.jain@adityabirla.com
Sunny Agrawal FMCG/Cement/Mid Caps 022-42333458 sunny.agrawal@adityabirla.com
Sumit Jatia Banking & Finance 022-42333460 sumit.jatia@adityabirla.com
Shreyans Mehta Construction/Real Estate 022-42333544 shreyans.m@adityabirla.com
Dinesh Kumar Information Technology/Auto 022-42333531 dinesh.kumar.k@adityabirla.com
Pradeep Parkar Database Analyst 022-42333597 pradeep.parkar@adityabirla.com
Quantitative Team
Jyoti Nangrani Sr. Technical Analyst 022-42333454 jyoti.nangrani@adityabirla.com
Raghuram Technical Analyst 022-42333537 raghuram.p@adityabirla.com
Advisory Support
Indranil Dutta Advisory Desk – HNI 022-42333494 indranil.dutta@adityabirla.com
Suresh Gardas Advisory Desk 022-42333535 suresh.gardas@adityabirla.com
Sandeep Pandey Advisory Desk 022-30004011 sandeep.pandey@adityabirla.com
ABML research is also accessible in Bloomberg at ABMR
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