The big day has passed for the markets and now it is time to

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get to the specifics. Yes, overall, this budget is realistic and progressive. On the macro front, the key positives that cheered investors were the government’s commitment to reduce the fiscal deficit to 4.1 per cent of GDP by 2012-13, lower borrowing and bringing more money into the hands of the people through a reduction in personal taxes and increased allocation to rural development programmes.

The risk factors, however, from the budget are a rise in inflation due to a hike in petroleum prices, an increase in the minimum alternate tax (MAT) – affecting big companies like Reliance Industries and Bharti and no announcement regarding 3G licences.

Overall, as far as investors are concerned, Pranab Mukerjee’s budget is banking on domestic consumption to lead the path for the “great long-term India story”, says Andrew Holland, CEO, institutional equities at Ambit Capital. For the short-term, however, equities will continue to be “volatile”, he adds. “We are sticking to our range for the Sensex of 15,000-19,000 for the year.”

Morgan Stanley India’s Ridham Desai and Sheela Rathi, in a report, said the brokerage remains positive on Indian equities. “We are buyers of dips. Going forward, we expect to see policy action on rates to pre-empt demand side inflation,” they said.

Automobiles

For the automobile sector, the budget has turned out to be a mixed bag. There was a partial roll back of the two per cent excise duty on all non-petroleum products by increasing the standard rate of excise duty from 8 per cent to 10 per cent. Also, the ad valorem part of the excise duty on large cars, MUVs and SUVs was increased from 20 per cent to 22 per cent. This step is negative for companies across the auto sector as this could impact volumes in case they pass off the increase or can impact the profitability in case they absorb the hike in excise duty, said Kotak Securities.

“We expect this announcement to be negative from the short to medium perspective. Post the excise duty hike, Maruti has already announced an upward revision in selling prices across models with immediate effect,” said the Kotak Securities research team.

Similarly, the hike in the prices of petrol and diesel of Rs 2.67 per litre and 2.58 per litre is also negative for the auto sector, especially for large cars, SUV and CV players. Companies that will be negatively impacted are M&M, Tata Motors and Ashok Leyland from the medium-term perspective.

So why did the stocks reacted positively on Friday? “The thrust on the rural sector and more money in the hands of consumers meant that auto companies will benefit,” explains Amar Ambani, VP Research, India Infoline. Besides, the market also feared a 4 per cent hike in excise duty, instead of the actual 2 per cent announced, he adds.

Banking

The budget has provided Rs 16,500 crore for the recapitalisation of government-run banks to enable them to maintain a minimum tier-I capital of 8 per cent by FY11.

“This would help PSU banks in growing their loan book without facing constraints from the capital front. Banks like Dena Bank, IDBI, Syndicate Bank, United Bank of India (yet to be listed), Bank of Maharashtra and Vijaya Bank are likely to be the beneficiaries,” says Kotak Securities. Ambani of India Infoline expects the proposal to increase the allocation to NREGA to trigger a huge jump in bank accounts – again, a big positive for PSU banks. The budget also extended the repayment of loans under the agri-debt waiver scheme by six months to June, which is also positive for PSU banks, as it would reduce the recognition of their agri NPAs.

Real estate

This is one sector where the analysts missed the impact in the first reading. “One major devil is for the real estate sector. Service tax has been levied on additional services provided by a builder to buyers, like preferential location and internal and external development of complexes (except vehicle parking),” explains Ambani of India Infoline.

Furthermore, unless the entire consideration for a property is paid after the completion of construction, the construction activity will be charged service tax. This is likely to increase the overall cost of the property for the prospective buyer and will result in reducing demand, reckons Kotak Securities. Renting of property, rent of vacant land under the agreement to undertake construction of a building or other structures will be charged service tax. This is also a clear negative.

Capital goods/engineering

HDFC Securities reckons the budget to be positive for companies like BEL and Larsen & Toubro (L&T) due to the increased defence allocation by 4 per cent to Rs 147,344 crore in 2010-11 (including capital expenditure of Rs 60,000 crore). Similarly, the excise duty exemption provided on goods supplied to mega power projects will help power equipment makers like Bhel and L&T. Kotak Securities expects Siemens India to benefit from the budget proposal of replacement of multiplicity of taxes of import of medical equipment.

Likewise, Suzlon and Shriram EPC, which are engaged in the manufacture of wind power generators, will gain from the proposal to exempt excise duty for the manufacture of rotor blades for wind energy generators. Nischal Maheswari, head of research at Edelweiss, says the government's focus on renewable energy will also benefit Suzlon.

Cement

This is another sector that will be negatively impacted by the budget. The government has hiked the excise duty on cement priced below Rs 190 per 50 kg bag from Rs 230 per tonne to Rs 290 per tonne. It is hiked to 10 per cent of the retail sale price for cement selling above Rs 190 per bag. “This is likely to increase the overall burden of excise by Rs 3 per bag and approx Rs 5 per bag for cement selling below and above Rs 190 per bag respectively,” says Kotak Securities.

Along with this, excise on cement clinker has also been hiked from Rs 300 per tonne to Rs 375 per tonne. “Though cement companies are expected to pass on the hikes to the end user, it will be difficult for companies operating in southern markets which are already facing an oversupply situation,” said Kotak Securities.

Hotels

This is one sector that will have a positive impact after the budget extended the benefit of investment-linked deduction under the Income Tax Act to new hotels of two-star category and above anywhere in the country. The move is significantly positive, as it will provide impetus to investment in capacity expansion in the hotel industry. This move will boost growth of new hotels of two-star category and above to claim investment-linked deduction under the act, analysts said.

Oil & gas

The government is looking to link the prices of petrol and diesel to market prices, which is positive for oil producing companies (ONGC, Oil India) and oil marketing companies (IOC, HPCL, BPCL). HDFC Securities says the restoration of basic duty of 5 per cent on crude petroleum; 7.5 per cent on diesel and petrol and 10 per cent on other refined products, will be negative for refining companies since it could increase their refining cost.

Metals & mining

Metal stocks soared on Friday after investors judged that the increased focused on infrastructure will help companies like Sterlite, SAIL, Tata Steel, among others. But, analysts, after a closer reading, reckon the budget to be negative for the sector.

For one, the budget hiked the excise duty on steel products by 2 per cent to 10 per cent. This is negative as it would hit the companies’ operating margins. The increase in MAT will also impact sponge iron players who have reasonable contribution from power unit sales.

NBFC

The government’s announcement to allow big conglomerates to enter the banking sector has buoyed the stocks of Reliance Capital, Aditya Birla, M&M Finance and Bajaj Finserve. A strong candidate for the foray is IDFC. The continuing thrust on infrastructure development also offers good opportunities to domestic specialised financing institutions to participate by way of project financing.