Expectations from Budget

Just like every budget there are bound to be some expectations from every section from the society. But from Stock Market perspective we don't want increase in short term capital gains tax and STT(Securities Transaction Tax), reintroduction of long term capital gains tax. Overall Stock Market is fine and we want status quo from Finance minister(FM).

It is obvious that being the last budget of the present UPA government there are bound be some populist measures. Although its impact will be muted on the FRBM targets because of the strong Tax collections. Apart from this inflationary pressures are something which will be at the back of FM mind while announcing the populist measures. But we want FM to increase allocation to public health and education as part of inclusive growth, since these are part of soft infrastructure and are as important as hard infrastructure. There will surely be some announcements in terms of tax sops for the export oriented sectors.

Sectoral expectations:

• Auto - Presently 24% excise duty is levied on cars above 4000mm and 16% for the rest. So there might be rationalization in terms of excise duty. It would reduce pressure on margins for OEM's
• Banking - Presently term deposits of 5 years or more qualify for deduction under section 80C of IT Act which might be reduced to 3 years in line with other eligible investments. This would facilitate growth in term deposits at competitive rates. Positive for all banks.
  
• Capital goods and infrastructure - Presently excise duty on power equipments is 16% which might be reduced to 12.5%. Countervailing duty is 16% for non project import which also might be reduced to 12.5%. Rural Infrastructure Fund size might be increased. Positive for all power equipment and infrastructure companies.
  
• Cement - Last year some tinkering was done with excise duty structure depending on the price per bag for cement companies. It might remain same.
• Metals - Presently excise duty is 16% which might be reduced to 12.5%. There has been upswing in some metal prices internationally so import duty might be cut on those metals to offset the price increase.
• FMCG - ITC has been the favorite whipping boy of every FM. Every year there is increase in taxes for cigarettes, so we don't expect this year to be exception. VAT on biscuits might be reduced from the present levels of 12.5% to 4%.
• IT Services - There might be extension of tax holiday beyond FY 09 for IT companies. This move might be positive for IT companies which are fighting on rupee appreciation
• Telecom - Presently telecom companies pay around 24-30% of revenues to Government in form of service tax, spectrum charges, license fees, USO, ADC etc. So there might be some rationalization and simplification. Positive for all telecom service providers.
• Real estate - There might be some development on timeline regarding conversion of draft guidelines into formal notification. Presently this forcing developers to list their subsidiaries on Singapore stock exchange. REIT's would allow developers to accelerate cash flows.
• Pharmaceuticals - Presently excise duty on formulations is 16% which might be reduced to 8%. Custom duty on API might be reduced from 12.5% to 10% or even to the asean levels of 5%. Tax breaks might be announced for the pure research companies.
• Oil & Gas - Tax holiday might be announced for city gas distributions for new pipelines.