Pre-Budget Expectations 2012-13

March 13, 2012

Its time for one more Budget. One more occasion for hoping that all that is required to take India on a faster and sustainable growth will be tackled in this Budget Like always, one feels that this time it is going to be different. But as they say, the more things (seem to) change (or seem different) the more they remain the same Over the last few years, the Budget has increasingly become a non-event for the markets and market volatility on and after the budget-day has been dipping. Further Implications for sectors/companies have continued to diminish with time, but they still matter. The local macro and global financial situation is still not out of woods. While there is no gainsaying the fact that fiscal consolidation should figure at the top of the agenda, the willingness of the Government to walk the talk will be watched closely. Investors would watch out for credible commitment from the Government to bring fiscal deficit under control so that the private sector has access to enough funds for investment activities. While the street believes that the Government has the last chance to be reformist/bold this year (as next year will be the last before general elections and hence likely to be populist), we think that recent political events on the one hand could tempt the Government to push for GDP growth (states that succeeded in achieving this saw incumbents winning in recent elections) and hence go for a reformist/bold Budget; while on the other hand, possibility of mid term elections / lack of co-operation from regional allies like TMC, SP etc could force the Government to be even less anti-people (and hence more populist). Critical reforms like labour, pension etc require broader political consensus. Given this background we list below our key expectations from the Budget: The key data to be watched closely would be the borrowing program of the Government for FY13. This impacts the availability of funds for private sector, interest rates and inflation levels. This will be watched closely by the RBI to decide its rate cutting action in FY13. The RBI has time and again urged for decisive fiscal consolidation being critical for lowering rates (without raising risks of inflation). In FY12, the Government would easily surpass its net budgeted borrowing of Rs.3.43 trillion by more than 0.9 trillion. One would keenly watch whether the figure of net borrowing for FY13 is similar or less than that of FY12 (actual) given the inflationary impact. The Government could stick to 7-7.5% GDP growth forecast in FY13 and inflation of 5-6%. Fiscal deficit for FY12 could be closer to 5.5% of GDP. For FY13 the target could be 5.0-5.2% of GDP (despite crude prices refusing to budge downwards). The FM could make noises about return to FRBM era but plead helplessness due to external factors like crude oil prices, inflation, global conditions etc. Howsoever one may wish, the Governments hands are tied currently to do any bigbang changes in fuel/food/fertilizer subsidies. While it could introduce measures to dissuade diesel consumption, it may still not do anything substantial in terms of making fuel prices market linked. However it may follow the lead of other nations and raise taxes (income tax/MAT/surcharge) on HNIs and corporate sector. Further Cenvat / Service tax may be rolled back upwards and more services may be brought under service tax net. This could help increase the tax to GDP ratio. Further telecom (2G) auctions and coal block auctions are some other avenues that the Government may look at to raise non-tax revenues in FY13. Disinvestment target for FY13 may be maintained at Rs.40,000 (the same as in FY12) despite severe underachievement in FY12. Given the large amount of rural spending budgeted over the last few years (and no commensurate benefit either in terms of economic growth, asset creation or gaining popularity) the FM could shift focus from rural to urban and go slow in increasing spend on rural populace. In the recent past, much fiscal spending has been in the form of cash transfers without matching asset creation. Also, the right to employment, education, food, etc., has taken the form of entitlements, which do not incentivise productivity growth in the rural economy and risk creating an environment of continued dependence on such schemes. This could mean that the Budget could aim to provide a investment led supply push to growth as against demand pull (through subsides etc) earlier. However supply side constraints could take longer to resolve and can be achieved only over the medium term. Lot of expectations is being built on coal and power sector reforms/thrust. While those relating to the health of SEBs may be addressed in some way, it has to be seen as to what extent the other expectations are met. The Budget could also see Some talk on speeding up passage of mining and land acquisition bills Some talk on pick-up in infra spending in roads, ports, power etc Some talk of faster implementation of GST and DTC and the progress thereof Minor reliefs being given by way of increase in basic exemption limit from the current Rs.1.8 lakhs to Rs.2 lakhs. No major tinkering of direct tax provisions ahead of implementation of DTC.

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Introduction of added incentives (say higher limit) for investments by individuals in equity linked savings schemes to accelerate retail investors participation in equity markets. While STT may be abolished, the lost revenue (STT collections in April-Dec 2011 was Rs.3,763 cr) will have to be compensated by higher income taxes on stock market transactions. One hopes that the medicine is not worse than the disease. No amnesty schemes for unaccounted money in India/abroad. Some measures to attract inflows from abroad like debt limit hike for FIIs etc and raising FDI limits in sectors like Insurance, tourism infrastructure, airlines etc

We are concerned about some recent developments like: Predictions by major global weather forecasters that there was little chance of India getting above normal rains this year. Recent hike in rail freight could result in an impact of Rs.10,000 cr in a full year on users. This could have an inflationary impact. Excise and service tax hikes, if proposed in the Budget, could again result in high inflation. Expenditure side of the Budget is usually sticky. However slower growth in the next few quarters is expected to result in weaker revenues. Politically speaking, reducing expenditure and raising revenues are the two most unpopular things for any government to undertake. The ruling alliance needs new ideas, ideology and effective leadership to win over India. The Budget may thus be conservative (less aggressive projections) as the Government tries to balance all objectives with hopefully more realistic assumptions set. Larger reforms could be postponed to some other opportune time. The Governments hands are tied given the rather vulnerable state of our finances. The reaction of the stock market to the Budget would essentially depend on how the FIIs respond to it. In case the FM sounds sincere despite his limitations and does not go overboard on the populist side, FIIs may not be too perturbed about lack of reforms or adherence to fiscal discipline given the current liquidity flows enjoyed by them and their risk appetite. The stock markets after the initial sell-off could find its way up and make a higher bottom. Later, it could be influenced by other triggers, both local and foreign.

Given below is a summary of our sectoral expectations from the Budget:

Sector Street Expectations Additional duty on diesel passenger cars - either ad valorem or Rs.25, 000 for small cars and over Rs.60, 000 for large cars 2% increase in excise duty across all segments to 12% Increase MAT from 18.5% to 20% Change in income tax slab Higher allocation for improving road infrastucture Increase allocation under NREGA Higher rural spending Include ATF under declared goods Aviation Extend benefits under sec 80-IA Infrastructure status to airline industry Unlikely Unlikely Our view Likely Likely Likely Likely Likely Unlikely Likely Likely Impact on sector / Company Negative for M&M (90% volumes), Tata Motors (10% volumes) and Maruti Suzuki (2530% volumes). Demand and OEM profitability to come under pressure and lead to increase in vehicle prices Negative for all OEMs. To impact passenger vehicles more than 2 wheelers Negative for MAT paying companies like Tata Motors and M&M Positive for sector as would increase disposable income and consumer spending Positive for entire sector, especially CVs and UVs Will lead to moderation in tractor, two-wheeler sales to 10% and 13% respectively in fiscal 2013 Positive for entire sector especially for companies having higher exposure to rural economy viz., Hero MotoCorp, M&M, Maruti Suzuki Sales tax structure is fixed by state governments on ATF prices. Thus, fuel prices vary from state to state. At present, the sales tax on ATF differs widely from state to state. Taxes on ATF in various states across the country vary from 4% to 33%. Classification as 'declared goods' under the Central Sales Tax Act would ensure uniform sales tax of 4% on aviation fuel. This will result in lower costs for airlines and lower tariffs for passengers. Neutral Status quo; if granted, will be positive as it will provide access to cheaper funds and easy availability of funds, which is difficult otherwise

Automobile

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Expect Rs50-100bn of budgetary support for Air India to Likely fund the accumulated losses and operations 49% FDI approval for foreign airlines Reinstatement of Section 10(15A) of the Income Tax Act Recapitalisation of the PSBs Likely Unlikely Likely

Positive for Air India and all Banking Stocks Will help the domestic players to infuse the much needed funds and derive long term benefits from the JVs Negative for airline companies It will provide capital support to the PSBs for expanding the advances base and improving compliance to stricter capitalisation norms. This will increase the investment in the sector and improve valuations. It will also be a positive signal to FDI investors. Will relieve pressure on bond yields and interest rates generally. However higher borrowings will affect credit growth and add pressure to yields. Status quo; If reduced, this will help banks in raising funds at relatively lower rates and lower asset-liability mismatches. Positive for PSU banks, as this will enable them to contain their NPAs. Positive for Infra Finance NBFCs enabling them to raise more funds at a lower fixed rate, also helps in their asset-liability matching. It will address the near term asset quality risks of the banks This will ensure farmers continued ability to pay interest on time thereby reducing NPAs and helping recovery efforts of Banks. Positive for all PSU Banks The benefit of deduction of 7.5% of the gross total income as an expense in relation to the NPA provisioning enjoyed by banks and at the rate of 5% by financial institutions under section 36(1)(viia) is not available to NBFCs. Extension of this benefit will reduce tax burden on NBFCs As per Sec194 (3)(ii) of the Income Tax Act, interest paid to a banking company with respect to loan taken is not subject to TDS. However, the benefit of nil TDS is not extended to NBFCs. Extending this benefit to NBFCs will enable them to reduce administrative expenses/time and improve cash flows This move will enhance demand for home loan due to higher benefit and also help the housing sector recover from slow down in demand. Positive for sector. Positive for BHEL, L&T, Thermax etc. Pass through of the increase in duty shall be difficult due to pricing pressure; therefore overall negative for the sector

Extension of FDI limit in the insurance sector to be Likely increased to 49% from the current 26% Government Borrowings to remain at same level of FY12 Likely

Lock-in period of 5 yrs to be reduced to 3 yrs in the case of Unlikely Fixed Deposits to qualify for tax benefits under Section 80C Creation of credit guarantee schemes for small and Likely marginal farmers Extension of tax relief for investments in infrastructure Likely bonds beyond current level of Rs 20,000; enable Infra NBFCs to raise funds through such instruments Banking Proposal to improve the financial viability of SEBs Likely Continuation of 3% Interest subvention on short term farm Likely loans given in the FY12 Budget for one more year. Expectation of hike in FII/FDI limit from the current level of Likely 20% in PSU banks Benefit of deduction in relation to NPA provisioning to Unlikely NBFCs No TDS on interest receipts by NBFCs Unlikely

Increase in deduction u/s 24 (B) for Interest paid on Likely Housing Loan from existing Rs.1, 50,000 to Rs.2, 00,000 Continued fund allocation for infrastructure schemes such Likely Capital Goods as APDRP/RGGVY/JNNURM Extension of Excise Duty exemption on power equipment Likely supplied to Mega Power Projects Increase in excise duty Likely

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Imposition of import duty on equipment for power projects Likely greater than 1,000MW Mandatory domestic power equipment procurement for Likely future UMPPs using domestic coal Extending service tax exemption to power T&D companies Unlikely by providing infrastructure status Special excise duty on gensets Increase in ad valorem rates of packaged cement to 12% from current 10%+Rs.8/bag or Rs.160/ton (MRP above Rs.190) Increase in ad valorem rates of packaged cement to 12% from current 10%+Rs.4/bag or Rs.80/ton (MRP below Rs.190) Increase in ad valorem rates of clinker from 10%+Rs.200/ton to 12% Custom duty on Coal @ 5% and Gypsum & Petcoke @ 2.5% to be reduced Increase in infrastructure spending Unlikely Likely Likely Likely Likely Likely

Positive for BHEL, L&T, Thermax, BGR Energy etc. Currently, no duty is levied on imports of foreign equipment on mega power projects and a 5% duty is levied on imports for smaller projects. Domestic power equipment manufacturers will have a level playing field against Chinese manufacturers. Positive for BHEL, L&T, Thermax etc Neutral Positive for Cummins Negative as duty could go up by Rs4-5/bag. The duty increase could eat into the season price hike. Without price hike earnings could be impacted by 11%-30% Neutral as negligible proportion of cement sold below MRP of Rs.190/bag Marginally negative for Ultratech Savings in fuel and raw material cost. Cement companies having major presence in South India to be positively impacted through EBIDTA margin expansion Increase in spending towards infrastructure projects like roads, highways, housing, etc. would increase cement demand & help cement companies to increase their sales volume Neutral Positive as would provide a level playing field for manufacture of cement and import of cement Positive for domestic companies like Videocon & MIRC Neutral impact on the sector. Neutral impact on the sector. Positive for the sector as it could result in cost savings & improvement in cash flows. Positive for education companies focused towards formal and vocational education such as Educomp, Everonn, Core Projects and NIIT Mildly positive for Everonn Education and NIIT, who have tied up with National Skill Development Corporation to impart skill development to about 15 crore people over the next 10- 12 years Status quo; If implemented, it would be positive for companies that require high debt such as Educomp Solutions and Everonn Education. Positive for all players as it would give impetus to education spends Positive for larger firms that can set up such institutions Negative for complex fertilizer manufacturers

Cement

VAT on cement and clinker charged at 12.5% to come Unlikely down to 4% Basic customs duty be levied on cement imports into India Likely Reduction of custom duty on panels for LCD & LED TVs Increase in the abatement rate for MRP based excise duty Reduction of CST rates from 2% to 1% Abolishment of SAD (Special Additional Duty) on imports Increase in allocation for Sarva Shiksha Abhiyan (SSA) 2011-12 budget allocation stood at Rs. 210 bn Likely Unlikely Unlikely Likely Likely

Consumer Durables

Increased allocation for skill development programmes and Likely tax benefits for skill development centres in backward areas 2011-12 additional allocation of Rs. 5 bn Education Grant of infrastructure status Unlikely

Increase in allocation - Planned outlay towards general Likely education was increased by 24% to Rs 52,057 crore in budget for 2011-12 Provide incentives to private sector for creation of Likely infrastructure for higher education Fertilizers Subsidy cut on NPK fertilizers Likely

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To bring Urea under the Nutrient-Based Subsidy (NBS) Unlikely scheme. Partial de-control of Urea prices Likely Direct transfer of fertilizer subsidy to retailers - 1st phase Roadmap likely Import duty exemption on capital equipments for new Likely investments Customs duty cut on LNG Likely 10-12% increase in excise duty on cigarettes Likely

Status quo; Negative for complex fertilizer manufacturers. Positive for sector as fresh investments become viable Positive for fertilizer companies as it could ease out their cash flows Positive for new capacity creators in fertilizers industry Positive for Fertilizer industry as it could reduce the input cost and enhance the profitability Medium-term impact to be neutral on ITC; however, any substantial hike (beyond 15%) could negatively impact ITC and the other cigarette companies in the short term as the volume growth could be impacted significantly Positive for FMCG companies, as it will drive the rural consumption

Agri-focused measures with increase in spends like Small NREGA, Rashtriya Krishi Vikas Yojna (RKVY), Rural increase Infrastructure Development etc. likely Increase in minimum alternate tax (MAT) rate and Likely surcharge on corporate tax Increase in excise duty from 10% to 12% Likely

Negative for companies like HUL, GCPL, Marico and Dabur India. Negative for consumer goods' companies having high proportion of sales from excisable facilities. HUL will be the most affected, as a higher proportion of its sales come from excisable facilities. However, no impact on companies having their facilities in excise free zones. Marginally positive for FMCG sector but no immediate impact

FMCG

Implementation of DTC

Some positive noises

Clear timeline for GST implementation, implementation by Some the next year positive noises Changes in income tax slab Reduction in VAT on biscuits Likely Unlikely

Marginally positive for FMCG sector but no immediate impact

Hike in personal income tax slabs will be a positive for the sector in general since it would lead to increase in disposable income & consumer spending. The Indian Biscuit Manufacturers' Association (IBMA) has recommended the complete abolition of VAT on biscuits as the same is consumed by the common man. If VAT is not reduced, it would be negative for companies like ITC, Britannia, Parle Agro & other small players Reduction would benefit all the paint companies since they import ~30% of their raw materials like Rutile. Rutile prices have increased significantly during CY11 due to the shortage of supply. Positive for core R&D players like Sun Pharma, Dr Reddys, Ranbaxy, Glenmark Positive for hospitals Neutral impact on CRAMS players like Divis Labs, Biocon, Torrent Pharma, Cipla and Glenmark Pharma

Reduction in the import duty on Rutile grade TiO2 from Likely 10% to 5%. Healthcare Hospitals & Extension of weighted deduction (WDD) on in-house R&D Likely by 5 years, which is set to expire by March 2012 Increase in Mediclaim premium limit from Rs.15,000 / Likely 20,000 to Rs.25,000 / 30,000 Bringing cost incurred on contract research and Unlikely manufacturing services (CRAMS), clinical trials, dossier filings etc under 200% deduction norms

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Expenses incurred outside R&D facility like those on Unlikely overseas trials, preparations of dossiers, consulting & legal fees, ANDAs should be eligible for weighted deduction Providing tax sops for setting up hospitals in urban areas Increase MAT from 18.5% to 20% Likely Likely

Mildly negative for generic companies who have higher R&D expenditures for markets outside India Positive for corporate hospital chains, which are aggressively stepping up bed additions in urban areas like Apollo and Fortis Affect most of the front-line companies, especially those having SEZ units like Cipla, Ipca Labs, Lupin, Torrent Pharma and Divis Labs Positive thrust on demand and medical insurance Neutral for MNC pharma players like, Abbott, Astra Zeneca, Novartis India and Pfizer India Beneficial for API manufacturers like Divis Labs, Lupin, and Torrent Pharma Positive for most of the integrated pharma players Positive for companies engaged in setting large facilities to tap the global biosimilar market, like Biocon, Dr Reddys and Cipla Mildly negative Positive for healthcare companies Grant of infrastructure status will reduce the cost of capital and will thus help in expansion of hospitals Positive as majority of Healthcare companies are setting up facilities in tier 2-tier 3 cities. Fortis, Wockhardt, Apollo to have positive impact Positive for pharma companies and hospitals Neutral in Positive for the sector as it would result in easy availability of low-cost debt, enable raising external commercial borrowing of upto $500 million and increase in investment in the tourism sector in India. Companies to benefit: Indian Hotels, Hotel Leelaventure, Kamat Hotels India and other hotel companies in the country. Currently hotel industry comes under the real estate sector and is subject to rules that apply to the real estate sector. Banks consider real estate lending as risky assets and since hotel projects are classified under real estate, lending to hotel projects attract higher interest rates. Marginally positive for the hotel companies & the tour operators in India like Cox & Kings and Thomas Cook - we dont expect the amount to be huge. Mildly negative for the Hotel companies, as the increase in the depreciation rate would reduce their taxable income. Negative for the sector - removal of the service tax would reduce the total cost of the package & food cost.

Increase exemption limit on medical expenditure from Likely Rs.15,000 to Rs.50,000 Reduce Dividend Distribution Tax from 15% to 10% Unlikely

Reduce excise duty on bulk drugs at par with formulations Likely i.e. 5% from 10% Increase in rate of abatement for excise duty calculation Likely from 35% to 45-50% Eliminate 30% duty on imported equipments for a period of Likely 5-10 years Continuation of EOU status for the pharmacy units for the Unlikely export benefits Healthcare sector be given infrastructure status Likely

Extension of tax holidays on Hospitals set up in tier 2 and Likely tier 3 cities to 10 years from 5 years Increase the expenditure on primary healthcare as per the Likely 12th five year plan (from 1.4% of GDP to 2.5% of GDP) Increased allocation for welfare schemes like National Unlikely Health Rural Mission (NHRM) Infrastructure status to hotel industry whereby they can Likely enjoy benefits available under Sec 80-IA part Hotels

Increasing the investments in tourism sector

Likely

Increase in depreciation rate for hotel building from 10% to Unlikely 20% Removal of newly introduced service tax of 5% on room Unlikely revenue over Rs. 1000 per day and 3% on food and beverage revenue (in case of restaurant serving liquor with air condition facility)

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Allow 100% FDI in developing tourism infrastructure in Unlikely India. Higher allocation to JNNURM, NHDP, Bharat Nirman and Likely other programmes Significant increase in allocation for infrastructure Unlikely development - 2011-12 allocation was Rs. 2.14 lakh crore Increase in tax exemption limit u/s 80 CCF for Likely Infrastructure bonds from current Rs.20,000 to Rs.40,000 or even higher Possible increase in MAT from current 18.5% Likely Income tax holiday under Section 80IA to be extended from Unlikely 10 years to 25 years Full pass through of Dividend Distribution Tax for Likely infrastructure SPVs Enable easier lending to the infrastructure sector by Unlikely Reintroduction of Section 10 (23)(G) Allow banks to float infrastructure bonds & relax exposure Likely limits Creation of a government body to monitor award and Unlikely progress of Infra and PPP projects to enable one-stop clearances and monitoring Industry body NASSCOM lobbying for removal of MAT on Unlikely SEZs imposed last year Increase in minimum alternate tax (MAT) rate Likely

Neutral for the sector Positive for players having adequate experience and networth to bid for road, irrigation and urban infra projects Status quo; While no major incremental increase in fund allocation is expected, fund utilization is expected to improve thereby improving the industry scenario Positive as it will result in higher availability of funds at cheaper cost Negative for whole industry especially large players Status quo; Extension would provide tax benefit to the whole industry Positive for players carrying out projects in separate SPV structures as it will remove the double taxation Status quo; Reintroduction would be positive for the infrastructure sector as funding will be eased Positive for the infrastructure sector as funding will be eased Negative for the industry as creation of such bodies would help in terms of time spent getting approvals etc; Average project period could decrease Mildly negative for the IT sector, especially for Infosys, if MAT on SEZ is not removed since it has higher revenue share from SEZs among peers. Largely neutral for IT sector since the end of STPI benefits from April 1, 2011 and levy of MAT on profits of SEZ units has led to higher taxation for IT companies. The cabinet has divided the work between UIDAI and National Population Register (NPR). However, a policy statement in the budget would bring respite to the UIDAI deal winners like HCL Infosystems, TCS, Wipro, MindTree etc. Uncertainty relating to tax liability is an irritant for the industry. Any clarity on this point would give clear direction of the way ahead. Mildly positive for the sector as it would lead to faster refunds and better compliance. Positive for IT manufacturing investments in India.

Infrastructure

Policy statement on the UID projects, granting legal status Likely to UIDAI Clarity on tax on onshore services IT Simplification of refunds process in case of inadequate setoffs Incentives to manufacturers of IT finished products and components in India like Abolish Special Additional Duty of 4% on import of parts/components/raw material for manufacturer of ICT products Increase allocation towards higher education Increase in the government spending on e-governance Introduction of Advance Pricing Agreement Logistics Introduction of GST Likely Likely Likely

Likely Likely Likely Noises likely

Positive for the entire sector as it would ease supply side concerns & training expenses Positive for TCS, Educomp, Everonn, NIIT Tech, Mindtree. Positive as clarity on transfer pricing between MNCs and Indian captives could resolve tax disputes If clear road map for GST introduction is available, logistic companies will benefit as moving goods across the country will be viable rather than operating from specific locations.
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Industry status for logistics sector 80IA benefits to continue for ICD & CFS investments Focus on implementation of freight corridor of railways

Unlikely Likely Likely

Status quo; assigning of Industry status to the sector could be highly beneficial as the companies would then be able to reduce their borrowing costs by accessing relatively cheap funds. Positive as the tax rates would remain low Improved infrastructure to reduce turnaround time for container operators. Positive for companies like Concor, Gateway Distriparks etc Positive as it would lead to better transport infrastructure, better utilisation, lower cost, improved efficiency and improved volumes. Positive as it would lead to lower turnaround time for rail companies, increase container volumes and decongest the roads. Negative for the Logistics companies Higher freight traffic to boost demand for wagons. Private sector manufacturing companies like Texmaco and Titagarh Wagons to benefit In general, it would be a good development for all companies within the logistics sector. However, considering the gestation period, we expect the benefit to get neutralised over the long-term Negative for companies paying MAT Positive for Cable Companies Status quo; however digitisation mandate would require funding, hence if infrastructure status is granted, it would help get cheaper and easier debt funding. The digitisation mandate would require funding, hence increase in FDI would reduce the funding burden of the sector. Increase in disposable income to boost spending on media and entertainment. General rate of service tax likely to go up Negative for companies paying MAT Status quo; Positive for domestic steel players, if hiked. Positive for iron ore fines exporters Mildly negative for metal companies and their endusers Status quo; Positive for all metal companies, if cut. Status quo; Positive for domestic steel & aluminum players, if hiked. Positive for metal companies Positive for the Regassifying companies as the input cost could drop, thus improving the profitability Positive as it could offer the Natural gas companies tax holiday for seven years u/s 80 IA

Speedy implementation of the projects drawn for the Noises development of transport infrastructure likely Faster roll out of Dedicated Freight Corridor Likely

FDI in key logistics infrastructure development areas like Unlikely dredging, port connectivity and so on. Railways - to encourage private sector players to procure Likely more wagons Increased allocation of funds for building roads, ports and Likely other utilities MAT to be increased from the current levels of 18.5% to Likely 20% Lower excise and customs duty on set top box Likely Infrastructure status for cable distribution sector Unlikely Increase FDI on DTH and cable to 74% and FM radio to Likely 49%. Basic exemption limit for individual tax payers to be Likely increased from the current levels Reduction in service tax MAT to be increased from the current levels of 18.5% to 20% Customs duty on HR Coil to be hiked from 5% to 10% Export duty on Iron Ore fines & lumps to remain unchanged at 30% Excise duty hike to 12% across all the companies Import duty on thermal coal to be reduced to nil from 5% Hike in import duty on Steel & Aluminum from 5% to 10% Increase in infrastructure spend Customs duty cut on LNG Unlikely Likely Unlikely Likely Likely Unlikely Unlikely Likely Likely

Media

Metals

Oil & Gas

Natural Gas to be brought under the definition of "Mineral Likely Oil"

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Introduction of customs duty on gasoline Reversal of excise cuts done in the past Goods status for natural gas

Likely Likely Likely

Negative for the OMC as it could add up to their cash outflows. Beneficial for refining companies as their realisations could rise. Negative for the OMC, private refineries as it could add up to their cash outflows. Positive as VAT could be applicable on natural gas @ 5%. This will reduce the gas prices and increase the demand for gas. Positive for the industry as a few projects which are delayed could benefit in the form of tax holidays. Positive as OMC would pay a uniform octroi and entry taxes for various states but nothing immediate. Mildly Positive for Refining companies as it could ease off their cash flows. Negative as the PSU oil exploration companies, other related upstream companies and OMCs could continue to bear the subsidy burden Positive for the sector. Positive for all generation companies viz Adani Power, Tata Power, Lanco, JSW, Nava Bharat Ventures. This would provide some relief from higher cost of imported coal Potentially negative for Adani Power, Lanco, Reliance Power. An increased import duty would increase the capital cost of power projects and reduce project NPVs. Neutral for Utilities with PPAs in place as the levy would be pass-through. Positive for renewable energy players like Suzlon,Moser Baer. Neutral/Negative Neutral/Negative Negative for Power projects planning import of equipment. Positive for sector Positive impact on private sector power generation companies viz Adani Power and Tata Power. Sec 80IA provides a ten-year tax holiday for power companies. Extension would incentivize further investments. Negative for IPPs, Neutral for NTPC as ROE is grossed up at the corresponding tax rate Positive for Neyveli Lignite, NTPC. A coal regulator is required since a number of captive coal blocks have been allotted and a large number of players have entered the fray. It will lead to better management of coal and also help in economic pricing of coal for both Coal India and the captive block allottees. Neutral for sector. Positive as It will encourage home buyers to avail higher home loans and take the tax benefit up to Rs. 0.2 mn of interest repayment. Status quo; Infrastructure status would be positive for companies into township development such as DLF, Jaypee, Sobha

Extending the validity of the deduction u/s 801B (9) for the Likely refining business GST Implementation. Noises likely

Higher depreciation to be allowed on projects for fuel Likely quality upgradation De-regulation of diesel prices Unlikely

Expect some incentives/measures for SEB reforms Likely Customs duty on imported coal(currently stands at 5%) to Likely be reduced / removed Customs duty to be levied on imported power equipment Likely

Extension of existing incentives for the wind energy sector Likely Service tax exemption to all power projects Unlikely Reduction in duties on mining equipments (7.5% customs Unlikely duty and 8% excise duty) Power Utilities & Extension of custom duty exemption on mega power Unlikely projects Higher budgetary support for various schemes like Likely RGGVY, APDRP etc. Extension of 80-IA benefit (MAT exemption based on year Likely of commissioning) Increase in MAT Rate from 18.5% to 20% Setting up of a Coal Regulator Likely Likely

Real Estate

Reduction in Dividend Distribution Tax on Foreign SPVs Unlikely Income tax rebate under Section 24(b) up to Rs. 0.2 mn Likely from the current Rs. 0.15 mn on interest component Priority to Township development by providing Unlikely infrastructure status (exemption allowed under Section 80IA)

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Interest subsidy of 1% to be extended on home loans upto Likely Rs. 2.5 mn (from Rs. 1.5 mn currently) Income from House Property to be taxed at a flat rate of Unlikely 10%; deduction to be increased from 30% to 50% Formation of Real Estate regulatory body Unlikely

Positive as it would boost demand from home buyers especially in low-cost/affordable housing Status quo; If passed, it would be mildly positive as rental investments could increase Negative as creation of such a body would help streamline processes and keep a check on the industry Negative as relaxation of these norms would help ease funding, especially for large companies like DLF, Unitech and HDIL Status quo Positive if duty decreased as retailers could pass some benefit on the consumers; negative if duty increased Status quo Positive as it would standardize the system but not immediately Positive as it leaves more disposable income in the hands of the consumers Status quo; Positive if allowed, as it would increase competition and improve distribution networks Negative for Shipping companies as currently they pay full tax on their treasury and other income Status quo; Positive if introduced as it will enable the shipbuilding companies to become competitive and attract more orders Negative for port operating companies Negative for companies paying MAT Positive for industry as this would bring natural consolidation in an otherwise fragmented Indian telecom market Neutral for tower companies Mildly negative Positive for Bharti, Idea, S Mobility Positive for Bharti, Idea, RCom as increase in rural disposable income could result in more demand for mobile services Positive for tyre industry as it could reduce the input cost and improve the profitability Negative for domestic tyre manufacturers as they could continue to face competition primarily from Chinese tyres which are priced lower than the domestic tyres Positive for tyre industry as it could reduce the input cost and improve the profitability Mildly Negative for tyre manufacturers.

Relaxation in repatriation norms for FDI and external Unlikely commercial borrowings (ECBs) Industry/infrastructure status for housing Unlikely Change in excise duty (currently 10%) on retail price of Likely branded garments Retail Industry status for retail Clarity on GST Hike in tax slabs for exempt income FDI in multi-brand retail Unlikely Likely Likely Unlikely

Other income to be made eligible for tonnage tax as Unlikely against the normal tax Shipping New shipbuilding subsidy policy to be introduced in the Unlikely budget Port Projects to be completely exempt from MAT Unlikely MAT to be increased from the current levels of 18.5% to Likely 20% Auction of the 448 MHz of 2G spectrum freed through the Likely 122 licenses cancelled by the Supreme Court Telecom Infrastructure status to Tower companies Unlikely Extension of 80 IA benefits to 3G and the broadband sector Unlikely Uniform GST rate on mobile handsets from multiple VAT Likely rates in different states Increased focus on social schemes like NREGA, etc Cut in import duty of natural rubber from 20% to 10% Increase in customs duty on tyres from 10% to 20% Tyres Likely Likely Unlikely

Cut in customs duty of key inputs like tyre cord, steel tyre Likely cord & PBR from 20% to 10% Cut in customs duty on rubber chemicals from 7.5% to Unlikely 2.5%.

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RETAIL RESEARCH Fax: (022) 30753435 Corporate Office HDFC Securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Website: www.hdfcsec.com Email: hdfcsecretailresearch@hdfcsec.com Disclaimer: This document has been prepared by HDFC Securities Limited and is meant for sole use by the recipient and not for circulation. This document is not to be reported or copied or made available to others. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be relied upon as such. We may have from time to time positions or options on, and buy and sell securities referred to herein. We may from time to time solicit from, or perform investment banking, or other services for, any company mentioned in this document. This report is intended for non-Institutional Clients

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