Union Budget 2013: How realistic are expectations for auto, banking, infra?

NEW DELHI: The finance minister P Chidambaram will announce the Budget today  and every industry may be expecting some sop from it. Here we take a look at a few key industries, what they are expecting, how realistic those expectations are and what impact the announcements can have. AUTOMOBILE: [caption id=“attachment_642070” align=“alignleft” width=“380”] Additional duty on diesel cars may also lead to a rise in the demand for petrol cars, which will augur well for Maruti.Reuters[/caption] * Additional excise duty on diesel passenger cars given the diesel deregulation: If this is proposed in the Budget then it will have a negative impact on Mahindra & Mahindra — as its product portfolio consists of only diesel vehicles —and Maruti, which derives up to 30% of overall volumes from sale of diesel vehicles, says AC Choksi Share Brokers. However, additional duty on diesel cars may also lead to a rise in the demand for petrol cars, which will augur well for Maruti. HDFC Securities sees this move as unlikely. They say it is unlikely “given the beginning of Diesel price de-regulation”. They agree with AC Choksi that if proposed, it could be negative for M&M and Maruti. * Excise duty on all large cars and utility vehicles raised: Both AC Choksi and HDFC Securities expect this excise duties to be raised on all large sized cars (petrol, diesel or CNG). This, they say, will have a negative impact for M&M. * Extension of JNNURM scheme and curbed allocation under NREGS: If there is an extension of JNNURM Scheme there may be excise duty and other incentives for electric vehicles, something which will be mildly positive for M&M and TVS Motors if granted. The extension of JNNURM Scheme will also be positive if granted for the middle and heavy commercial vehicles (M&HCV) segment, according to HDFC Securities. The government is also unlikely to increase allocation under NREGS, resulting in an increase in supply of farm labourers and a reduction in the utilisation of farm mechanisation, which will in turn lead to moderation in tractor demand, says AC Choksi. * Customs duty on tyres to be enhanced from the existing 10% to 20% If this is indeed raised, it will be positive for companies like MRF, Ceat Tyres, Apollo Tyres. * Allow import of limited quantity of natural rubber under a Tariff Rate Quota (TRQ) basis for FY14 at a concessional duty rate of 7.5% or Rs.10 per kg, whichever is lower This will be positive for MRF, Ceat Tyres, Apollo Tyres and is likely to be allowed. BANKING: * Fiscal consolidation: Focus on fiscal consolidation and lower market borrowing by Government would bode well for the Banking industry, says AC Choksi, as it will ease pressure on liquidity in the banking system. HDFC Securities says a commitment to fiscal consolidation and an announcement of a lower market borrowing program for FY14 is likely and will be positive for banks – lower borrowings could ease pressure on the banking system liquidity and reduce Bond yields/interest rates in the system. * Reducing term for lock-in period of tax-concessional term deposits from 5 years to 3 years. Choksi says this will help banks to manage their ALM better. HDFC Securities says it is unlikely that the lock-in period for tax saving deposits will be brought down to 3 years from the current 5 years to bring it on par with tax saving equity linked savings schemes. * Capital infusion in PSU banks: This will be positive for the sector, especially public-sector banks. Capital infusion in Government owned banks to meet Basel-3 requirements will strengthen balance sheets in light of sharp increase in NPLs and Basel- 3 requirements. • Implementation of Bailout package for SEBs: This will ease asset quality concerns related to restructured SEBs, says Choksi and will partially lessen asset quality concerns pertaining to restructured SEBs. HDFC securities says this move is likely and will be positive for PSU Banks. * Allowing 3% subvention on agriculture for private banks: HDFC Securities says this is unlikely, but if allowed, private banks would be given new incentives/access to meet PSL requirements. There however is a possibility of higher NPLs for private banks. * Increase in agriculture lending target along with keeping interest subvention scheme at 3% This is a move that is expected to be addressed in this year’s budget. HDFC Securities however is of the view that it will be negative for PSU banks, as this segment is witnessing sharp rise in NPAs. * Increase in exemption limit for borrower on housing loans: This a a step likely to be taken and will be positive for the sector and housing finance companies, according to HDFC Securities. INFRASTRUCTURE: * Increase in the tax exemption limit for infrastructure bonds from Rs 20,000 currently: The government is expected to increase the tax limit and it is likely to have a positive impact on the sector as it would increase fund flow to the sector. * Providing thrust to the urban infrastructure development projects like Ports, Roads, Airports, Metro rails etc and develop rural infrastructure as well. Choksi and HDFC Securities, both, expect increased allocation towards social expenditure schemes such as JNNURM, Bharat Nirman, RGGVY, NHDP, Pradhan Mantri Gram Sadak Yojana, the Accelerated Irrigation Benefit Programme and National Rural Employment Guarantee Scheme. This will be positive for players having adequate experience and net worth to bid for projects. * Allocations to NHAI, Indian Railways may increase: There may be an increased allocation to the infrastructure sector. The 2012-13 budget allocation included Rs. 60,100 cr for railways, Rs. 19,434 cr for roads & highways, Rs. 5,675 cr for shipping, and Rs. 24,000 cr for rural roads. There’s likely to be more states HDFC Securities. ‘The move is likely to bring in more investments in the infrastructure sector and enhance the order inflows for the sector. Positive for all companies catering to infrastructure," says their report. * Industry expects moderation in ECB norms to ease financing of infrastructure projects. Permitting 100% refinancing of INR debt through ECBs is likely in the budget tomorrow, states HDFC Securities. It would be positive for all players as it would reduce interest expense.