Even before finance minister Pranab Mukherjee was halfway through his budget speech on July

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6, 2009, the market had ruled it a disaster. And by the time analysts were done with their nitpicking, the Sensex was down 870 points – an unprecedented thumbs down.

Eight months later, things have changed drastically, and for the better. The benchmark BSE Sensex has since climbed 15 per cent. Companies in many sectors are seeing their top lines and bottom lines buzz again, much like the good, old days. And investors are back on the Street. Automobile, IT, metals, consumer durables and healthcare companies are the hands-down winners since the last Union budget, notching up gains in excess of 50 per cent. Even the realty sector showed signs of looking up towards the end of the last calendar year. In hindsight, it appears some of the government and the Reserve Bnk of India (RBI) initiatives such as increased credit flow, reduced interest rates, higher investments in rural infrastructure, education and health, combined with the three doses of stimulus did the trick for these sectors.

In addition, the revival of economies in the West, budget measures, such as extension of benefits under the export income scheme and removal of the fringe benefit tax helped the IT firms specially.

However, for several other sectors like infrastructure and oil and gas, things were not as good. Even FMCG (fast-moving consumer goods) companies didn't do as good as they were expected to, as high inflation and increased competition hammered the sector all through the second half of 2009.

The engine of economy threatened to almost run out of control with inflation reigning in double digits, employment scenario failing to look up, credit growth keeping low and even economic growth falling short of target. But all that may have more to do with a bad monsoon than the budget itself.

There were hits, and there were the misses, as is the case with any budget. But in hindsight, did Mukherjee's first budget as finance minister in United Progressive Alliance government's second term prove critics wrong? How much of the success in the economy is the contribution of his budget? Was this turnaround story a result of the stimulus measures preceding the budget or was it an outcome of the calibrated initiatives outlined in the budget?

Consumption sectors

Without doubt, the auto and consumer durables sectors were among the leaders of the turnaround story. The spike in sales, as well as profit for the sector, was remarkable. From an average of 7 per cent sales growth in the first quarter, auto companies averaged 55 per cent growth in the December quarter. Profit growth rose from 34 per cent in the June quarter to 65 per cent in the December quarter. For the auto sector, the budget offered reduction in specific additional duty on passenger cars and utility vehicles above 2,000 cc from Rs 20,000 to Rs 15,000, while the excise duty cut was retained.

As far as the consumer durables sector is concerned, average sales growth rose from 17 per cent in the June quarter to 46 per cent in the December quarter. Profit growth improved from a 31 per cent decline in the first quarter of FY10 to a spectacular 118 per cent growth in the December quarter. Abhijit Gulanikar, chief investment officer of SBI Life, said, “The excise duty cut alone could not have pulled off such big numbers. The excise duty cut was available to many lines of businesses. But others didn’t do so well.”

What really helped sales of two-wheelers, TVs and refrigerators was the budget focus on farm credit. The one-time bank loan waiver of nearly Rs 71,000 crore that covered an estimated 40 million farmers and the extension of 25 per cent rebate on loan for farmers owning more than 2 hectares of land by further six months helped consumption in rural India.

Infrastructure

Infrastructure sector companies — be it capital goods, power or allied sectors such as cement — didn’t post very big numbers in the past eight months. Their average sales growth in the December quarter was just 7 per cent, marginally up from 3 per cent in the previous quarter. Similarly, profit growth numbers too were not very impressive at around 7 per cent.

The Union budget had increased outlay for roads, railways, irrigation and urban infrastructure, apart from a proposal for additional funding support for public-private partnership (PPP) infrastructure projects through refinancing of up to 60 per cent through India Infras­tructure Finance Company (IIFCL).

Oil and metals

Oil sector companies saw their average sales growth improve from the negative zone to about 16 per cent in the December quarter. Similarly, profit growth too improved from — (minus) 572 per cent in the June quarter to — (minus) 113 per cent in the December quarter. The budget did have something positive for the oil and gas sector. The extension of tax holiday under Section 80-IB on natural gas production with retrospective effect was a big positive. On the other hand, the increase in minimum alternate tax (MAT) rate from 10 per cent to 15 per cent was supposed to lead to higher initial tax outflow. The allowance of 100 per cent deduction for all capital expenditure on pipelines operating on a common carrier principle was expected to provide a better reach for distribution. But none seemed to have helped.

However, metal firms saw significant improvement since July with their average sales growth from the negative zone to 23 per cent, while profit growth improved from – (minus) 35 per cent to over 72 per cent.

“I feel most of these growth stories had more to do with the fundamental strength of the economy,” said Anil Advani, head of research at SBICap Securities.

Banking

The health of Indian banks was much better prior to the July budget. From an average 20 per cent growth in net income and 11 per cent profit growth, the industry slumped to below 1 per cent income growth and negative profit growth in the December quarter.

The July budget had focused strongly on priority sector lending. It had a refinance scheme meant to enhance credit flow to micro and small enterprises and rural housing.

But all of this didn’t help even when the government took it upon itself to beat the entire burden. The continuation of interest subvention scheme on farm loans and additional subvention of 1 per cent for farmers who repay on schedule and extension of the debt waiver scheme impacted banks' profitability. The sharp rise in government borrowings hit treasury incomes of banks

Healthcare/pharma

The last budget did not have much for this sector. While retaining excise duty at 4 pet cent, lowering customs duty for some vital life-saving drugs, the budget extended the scope of provisions relating to weighed deduction of 1.5 times on expenditure incurred on in-house research and development (R&D) to all manufacturing businesses.

Yet pharma companies witnessed robust earnings growth. Since July 2009, the top 20 pharma firms have reported cumulative net sales of Rs 28,400 crore and cumulative net profit of Rs 4,300 crore, with profitability improving in the second half.

Information technology

The positive growth for the IT companies in the past eight months can be entirely attributed to the strong revival in western economies, especially in the BFSI segment, and not really the budget, said Dipen Shah of Kotak Securities

The budget had extended I-T exemption (section 10A and 10B) by a year to March 31, 2011, scrapped FBT (IT has a high tax incidence due to Esops) and removed duty on packaged software. But these positive moves had been almost entirely nullified by the increase in MAT from 10 per cent to 15 per cent of book profits. Yet IT firms posted robust profit growth with an average of 89 per cent in the September quarter and 34 per cent in the December quarter. Sales grew at close to 5 per cent during this period.

Others

Among others, the realty sector showed signs of some strength, clocking average sales growth in excess of 80 per cent and profit growth above 60 per cent in the December quarter. But that didn’t look like a direct impact of the budget push for affordable housing and the rebate on loans for low-cost housing.

The budget had a piece of good news for the fertiliser sector as the government had announced its intention to change the subsidy regime from product-based to nutrient-based. As a result, the budget allocation for fertiliser subsidy too was reduced. But it didn’t happen till the other day, leaving fertiliser firms in the lurch. Telecom firms, too, suffered from the MAT effect of the budget though the duty exemption for parts, components and accessories of mobile handsets and removal of the fringe-benefit tax were two big positives for the industry.

(With inputs by Kumar Shankar Roy)