Budget may not be radically reformist: ICICI Securities

MUMBAI: With the Union Budget around the corner, ICICI Securities believes that a moderate dose of reform is required for sustained, long-term stock market performance even as the event may not be radically reformist. The brokerage enlists a number of reforms that could facilitate growth which could offer a boost to various sectors.

Banking: Exemptions under Section 36(1) (viii) of the Income Tax Act (tax exemption on 20% of profits from long-term projects) might be extended to 40% of profits from long-term projects. This could be positive for Infrastructure Development Finance Company, Rural Electrification Corporation, Power Finance Corporation, HDFC and LIC Housing. The budget might indicate the direction of the Insurance Bill, which proposes increasing the FDI cap on insurance companies to 49% from 26%, as well as the PFRDA Bill. This could be positive to HDFC and State Bank of India. Any increase in directed lending could be negative for PSU banks.

Education: Increased focus on education could help stocks such as Educomp Solutions, Everonn Systems India and NIIT.

Fertilisers: Any under-provisioning of fertiliser subsidy could be negative for all stocks in the sector.

FMCG: Expected focus on rural economy via employment-generation schemes and infrastructure-development programmes will be positive for the sector. Any withdrawal of the excise stimulus package (excise duties had been reduced 6%
earlier) will be negative for the sector, except ITC and Godrej Consumer Products. Excise duty hikes on cigarettes will be an important measure. Any hike below 6% will be positive and any hike above 12% will be negative for ITC.

Information Technology: Extension of income-tax benefits beyond March ���10 will be a positive for small-& mid-size companies and relatively more positive for TCS among large-caps.

Media: Any increase in FDI limits could be positive for the sector. Reduction in duty on set-top boxes could be positive for cable and DTH companies.

Metals: Domestic steelmakers such as Steel Authority of India, Tata Steel and JSW Steel will benefit if import duty on HRC is increased to 10% from 5%.

Oil & Gas: Custom-duty imposition on petro-products will be positive for Cairn and ONGC and negative for Bharat Petroleum Corporation, Indian Oil Corporation and Hindustan Petroleum Corporation. Additional import duties on petrochemicals can be marginally beneficial for GAIL and Reliance Industries.

Power: The sector will benefit if MAT is exempted in the budget.

Real estate: Increase in priority-lending bracket for home loans and higher incentives on interest costs could be positive for the sector.

On concluding lines, the brokerage said the outlook is fairly muted, implying that probability of the Budget by itself being a strong negative trigger for markets is low. Focus on fiscal prudence could create positive surprise. For sectors, while minimum-alternate-tax (MAT) exemption for Infrastructure could positively surprise, directed lending (PSU banks), lack of increased incentives for housing, withdrawal of excise stimulus for FMCG, lack of tax-exemption extensions for IT (small-caps) and under-provisioning of fertilizer subsidies could offer negative surprise. Low expectations from the Budget notwithstanding, markets are likely to be range-bound from current levels in the near-term, with downside risk.