Though the last calendar was good for Indian equities with about 26 per cent gains for benchmark Sensex, the picture is not that rosy when you look at the returns since last budget.
Sensex has given a return of only 9.33 per cent since last budget on March 16, 2012. Dollex30, which foreign investors track to measure returns in dollar terms, is up marginally at 0.24 per cent.
It will be worthwhile to look at the best performing sectors immediately after the budget last year and in one year thence to get a clearer perspective.
The biggest loser in the one month after Pranab Mukherjee’s budget last year was the BSE IT index, which lost as much as 11.39 per cent. One year after the budget, the index has given 7.72 per cent returns.
Another turnaround story was oil. The BSE oil index, which shed 3.41 per cent in the one month after last budget, is now in the positive territory with 5.68 per cent gains. Steps taken by the government since the middle of September to cut oil subsidies have worked wonders for oil stocks such as ONGC, helping them to post better returns.
This cannot be said about the two other laggard sectors in the first month after the last budget — power and metals. The BSE power index, which lost 3.41 per cent in the one month after the budget, is now down 19.25 per cent till now. Similarly, the BSE metal index lost 4.83 per cent in the first one month after the budget and 18.38 per cent till this past Friday. Similarly, BSE capital goods index lost 2.31 per cent in the first month after the budget and the losses widened to 8.48 per cent till Friday.
Going into this year’s budget, scheduled to be unveiled this Thursday (February 28), it is likely that some of the best performers since last budget, such as FMCG and banking, may face the music from this year’s budget.
The BSE bankex is up 13.35 per cent since the last budget, while the FMCG index has risen 36.86 per cent in the same period.
According to Ambit Capital, large individual dividend earners, say those earning Rs 50 lakh and above a year, may be asked to pay 5-10 per cent surcharge as ‘one off’ charge in this budget, though institutional investors may be exempted. If such a tax were to be imposed, stocks with high dividend yields would become less attractive to hold, Ambit Capital said. In particular, PSU bank stocks are going to be impacted adversely.
“At a time when there is already a high degree of uncertainty around the quality of the underlying assets and earnings trajectory of PSU banks, high dividend yield offered by some of these PSU banks is the main reason why investors held on to such stocks. Hence, if the finance minister does impose a tax on dividend earners, it is only likely to further add to the disincentives for holding PSU banks,” wrote Ambit analyst Krishnan ASV.
As far as the FMCG sector is concerned, Ambit Capital reckoned that there was a possibility of a hike in excise rates applicable to several products in the consumer sector.
“Our discussions with the management teams of these companies on the subject of excise suggests that although most companies benefit from product category-based excise exemptions, Marico and Dabur are the most exposed companies in the sector (in terms of such exemptions under the current regime); and all companies intend to pass on any incremental excise burden to the consumer through price increases. However, given the recent increase in price elasticity of demand seen in consumer spending, such price increases are likely to lead to a negative impact on either volume growth rates for the product categories or Ebitda margins for manufacturers in the sector,” wrote analyst Rakshit Ranjan.
The finance minister may also target cigarette makers, impacting companies like ITC.
G Chokkalingam, CIO and ED and Ankit Agarwal, investment adviser at Centrum Wealth Management, said: “Consumer segments such as cigarettes may see a hike in excise duty although considering the inelastic nature of the product, we believe tobacco companies would easily be able to pass on the hike to the end user.”
Ambit Capital said the market was factoring in a 10 per cent excise increase on cigarettes, broadly in line with the WPI. There are also voices suggesting that the excise system may be moved back to an ad valorem (tax based on value than quantity) rate.
As far as the power sector and infrastructure sectors are concerned, which are in dire need of help, Edelweiss analysts led by Kapil Gupta expect the banking sector to get some relaxation in sectoral exposure limit for lending to power sector.
Ambit Capital’s Bhargav Buddhadev expects the finance minister to extend the benefit of 801A to infrastructure projects, (which include power generation), given that this is critical to boost investments in the sectors. It may be noted that since this benefit was extended to the sector in 2002, the pace of commissioning has picked up.
“During the 10th (FY03-07) and 11th five-year plan periods (FY08-12) the achievement-to-target ratio increased to 51.5 per cent and 88 per cent, respectively, compared with 47.5 per cent in the ninth plan period. Also, the 11th plan period saw capacity addition of 54 GW, which is the highest in any of the five-year plans to date. Furthermore, in FY13, around 17 GW generation capacity is likely to be commissioned. Hence, this benefit should get extended, because a number of bids might have taken place, assuming this benefit goes through,” Ambit Capital said.
Centrum’s Chokkalingam and Agarwal expect the FM to introduce measures such as lifting MAT for infrastructure companies to induce growth. In order to improve the funding in the infrastructure, there could be an increase in the limits of tax-free bonds, they said.
On the capital goods side, they said the government might further hike import duty on power equipment by 5-10 per cent to discourage imports and promote domestic players. The government will further look at increasing subsidy for projects such as wind power and also fast-track clearances to give impetus to investment activity in the country. zz