The finance minister announced some sector specific measures that are likely to have far-reaching consequences on the companies within these sectors. Here’s the impact and the best stock picks.Auto:
Measures: > Increase in excise duty for SUVs.
> Additional purchase of 10,000 buses under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM).
Impact: The rise in excise duty for SUVs by 300 basis points will come as bad news for companies like Mahindra & Mahindra. Heavy commercial vehicle manufacturers such as Ashok LeylandBSE 0.43 %and Tata MotorsBSE 2.88 %, who are facing a tough demand environment, are likely to gain from JNNURM bus purchases. The extension of concessional tax rate of 15% on dividend received by Indian companies from a foreign subsidiary by a year will help Tata Motors.
Best Bets: Though the increase in excise was slightly negative, Mahindra & Mahindra is the best bet from this sector. Bajaj AutoBSE 0.19 % is another safe bet as it has remained relatively unaffected by the ongoing economic slowdown.
Banking and Finance
Measures: > Additional capital of Rs 14,000 crore for PSU banks in 2013-14.
> The 4% interest subvention for crop loans repaid on time extended to private sector banks as well.
> Banks to become insurance brokers.
Impact: Though positive for public sector banks, the recapitalisation of Rs 14,000 crore is way below expectations and the main reason for the carnage in the sector. While the extension of interest subvention on crop loans brings in a level playing field between public and private sector banks, no major impact is expected now because of the private sector banks’ reluctance to enter this field. The plan to allow banks to sell products of all insurance companies will help banks increase their fee income. The additional interest deduction of Rs 1 lakh for first-time home loans up to Rs 25 lakh will benefit small-ticket size loan players likeLIC Housing FinanceBSE 0.23 %.
Best Bets: “A sudden jump in bond yields due to increased borrowing limit and less than expected measures resulted in a major sell-off on Budget day. I would buy stocks like SBIBSE 1.67 % and Yes BankBSE 0.38 % in a correction like this,” says Kajal Gandhi, banking analyst at ICICI Direct.
FMCG
Measures: > Excise duty on cigarettes increased by 18%.
> Excise duty removed on readymade garments.
> Allocation for rural development enhanced .
Impact: While the hike in excise duty is slightly negative, companies like ITCBSE -1.57 % will find it easy to pass the burden to consumers. The removal of excise on readymade garments will help companies likeLovable LingerieBSE 0.64 % and Page IndustriesBSE 1.60 %. The increased rural allocation should help the FMCG companies to generate better sales volume. However, several FMCG majors like HULBSE -1.98 %,NestleBSE 0.26 %, GSK Consumer Healthcare, Colgate, etc, will be negatively affected by the increase in royalty tax from 10% to 25%.
Best Bets: With the ability to pass on the additional burden, ITC is the best bet from the sector.
Measure: Exploration policy to be shifted from profit sharing to revenue sharing.
Impact: Since the companies have now been asked to share a part of their revenues and not profit with the government, their burden will increase and thereby, take the sheen out of exploration projects. All oil exploration companies like Reliance, ONGCBSE 0.86 % and Cairn IndiaBSE 2.31 % will be affected. “Though this is not a catastrophic event, this kind of policy tinkering is not conducive for investor confidence,” says Deven Choksey, managing director, KR Choksey Securities.
Best Bets: Since ONGC is still mired in subsidy sharing burden issues, the best bets from this segment are Cairn India and Reliance IndustriesBSE 1.03 %.
Power / Capital Goods
Measures: > The ‘eligible date’ for projects in the power sector to avail of the benefit under section 80-IA extended from 31 March 2013 to 31 March 2014.
> Re-introduction of investment allowance.
> Increase in allocation for defence, science & tech, atomic energy, space exploration, etc.
Impact: Though the eligible date extension is good news, most power companies are struggling with their own set of problems and therefore, may not be able to benefit much. Reintroducing investment allowance (companies that invest more than Rs 100 crore in plant & machinery during 2013-15 will be allowed 15% investment allowance over and above the normal depreciation) should help capital goods companies to get some orders. The increased allocation to defence is also good news for them.
Best Bets: Though the entire sector is still struggling, L&T has been able to generate decent order inflows and is the best bet from the segment. Bharat ElectronicsBSE 1.20 % is also a good pick because it should get an increased shared of defence orders.