Bhel, L&T banking on higher import duty this Budget

The Union Budget 2012 might just be the breather that the capital goods sector is looking for as it may see the implementation of an increase in infrastructure spending and a possible levy of import duty on power equipment.

The last few quarters were particularly bad for the sector as it bore the brunt of a slowdown in global economies and sluggish domestic industrial growth. During the April-January period, the capital goods index, which is the barometer of the index, declined by 26 percent due to concerns related to lower public/ private infrastructure spending, input price inflation and rising interest rates.

As had been the case in earlier budget, a lot of lip service is expected for the infrastructure sector. Apart from direct beneficiaries like capital goods and construction companies, banks will also be keenly watching the announcements in the sector.

One of the biggest constraints for infrastructure companies is the non-availability of banking finance as a number of banks have hit the upper limit for exposure to the sector. Banks might be allowed to raise money through tax-free paper.

Here is a list of events that could impact the sector -

•Spending on power and other infrastructure projects - the industry would like to see an increase in spending on major infrastructure projects to revive demand for the capital goods sector. Kotak believes that this is likely to happen as the government has to maintain and improve its GDP growth.

•Customs duty - the industry has been asking for the levy of an import duty on power plant equipment. This year the budget may levy it and this augurs well for players like BHEL and L&T as this will reduce the price differential between the domestic and overseas players (mostly Chinese).

•Service tax exemption - another demand for the industry is extending service tax exemption to power T&D companies by providing infrastructure status. However, this seems unlikely due to key issues like land acquisition etc which may attract attention and priority over the service tax exemption.

Overall, the Union Budget 2012-13 is expected to be positive for the Capital Goods sector.