The Budget speech has been read and re-read. The accompanying documents have been analysed threadbare. So, why not get down to the brass tacks and look at the stocks in your portfolio that are likely to gain or lose from proposals in the Budget?
Here are three sets of definite winners that should help you rethink your portfolio.
There has been much moaning and groaning about the new surcharge on corporate tax, which will entail a Rs 6,000-7,000 crore additional outgo for India Inc. But one little item tucked away in section 32AC of the Income-Tax Act may help a few companies earn tax breaks that will more than offset this surcharge.
This is the 15 per cent tax deduction for manufacturing companies which invest Rs 100 crore or more in new plant and machinery over the next two financial years. Last year’s numbers show that listed manufacturing companies made aggregate investments of over Rs 3.1 lakh crore in new fixed assets. A 15 per cent deduction on this would mean a Rs 11,000-crore tax saving at an effective tax rate of 24 per cent (the average for India Inc).
However, the specific beneficiaries of this investment allowance would be companies which have lined up concrete expansion plans for 2013-14 and 2014-15. Sifting through data from CMIE shows that sectors such as petroleum and polymers (Rs 62,000 crore), steel (Rs 53,000 crore) and aluminium (Rs 26,000 crore) are likely to bag the biggest benefits.
Going by their capex plans, companies that may get to pay substantially lower taxes over the next two years are SAIL (Rs 42,000 crore capex plan), Hindalco (Rs 20,000 crore), Reliance Industries (Rs 16,000 crore), NMDC (Rs 15,000 crore), Ultratech Cement (Rs 5,000 crore), BGR Energy (Rs 2,300 crore) and others.
The power sector has a litany of woes, ranging from poor coal availability to delayed payments from State electricity boards. But the Budget has a lifeline in the form of a one-year extension in the time limit for availing the tax holiday under Section 80IA.
Adani Power’s Kawai and Tiroda projects, Tata Power’s Maithon and Mundra Ultra Mega Power Project and KSK Energy Ventures’ Mahanadi Plant are projects expected to be commissioned in 2013-14. If these projects come up on time, their profits will be completely tax-free for the first 10 years. This may lower their overall tax incidence too.
The proposal for a PPP (private-public partnership) model for Coal India’s mines, if it materialises, may help step up supplies of cheaper domestic coal.
That will particularly help Adani Power, Lanco Infratech and Sterlite Energy which rely on local coal for some of their projects.
Two proposals — additional interest deduction of Rs 1 lakh (available to first-time home buyers of sub-Rs 40 lakh homes, with a maximum loan of Rs 25 lakh) and allocations to housing funds (new allocation of Rs 2,000 crore to urban focus and increasing rural-housing fund allocation to Rs 6,000 crore) can deliver a boost to demand for low-cost homes.
The listed companies that would benefit from this would be those with presence in tier-2 and tier-3 cities in the residential segment. Mahindra Life Space, India Bulls Real Estate, Godrej Properties and Omaxe have projects under construction or under consideration in tier-2/-3 cities such as Pune, Ahmedabad, Hyderabad, Nagpur, Ludhiana and Bhubaneswar.
Puravankara, a Bengaluru-based builder, routes its mid-priced housing foray through subsidiary Providence Housing. It contributes one-fourth of the revenues.
And now the losers
Why go on about the losers? The list is long, but here briefly, are the key ones…
With bad loans inching up and Basel III looming ahead, capital will be the key fuel for public sector (PSU) banks in the year ahead.
An RBI estimate puts their capital requirement over the next five years at Rs 90,000 crore. Against this backdrop, the Budget proposal to infuse Rs 14,000 crore in 2013-14 into PSU banks looks quite stingy.
Then, there is the diktat that banks must increase their agricultural lending from Rs 5.75 lakh crore to Rs 7 lakh crore. The share of PSU banks in agriculture lending is already over 80 per cent. This has led to mounting bad loans. While non-performing assets (NPAs) for PSU banks in priority sector grew 36 per cent, agriculture NPAs surged by 56 per cent.
This is why the increase in agriculture lending will be negative for all PSU banks already weighed down by loan-quality problems.
Banks such as Punjab National Bank, Bank of India, Bank of Baroda and State Bank of India already have an exposure of more than 12 per cent to the agriculture sector.
Utility vehicle makers
If commercial vehicle makers have got Budget handouts in the form of new bus orders, there is a speed-breaker ahead for sports utility vehicle (UV) makers.
For one, the Budget has hiked excise duty from 27 per cent to 30 per cent for vehicles exceeding engine capacity of 1,500 cc. This further widens the gap between the normal rate for motor vehicles (12 per cent), vehicles with engine capacity of less than 1,500 cc (24 per cent) and these UVs. With the industry usually passing on cost increases to customers, UVs might turn costlier sooner than later. This could force a slowdown in the UV segment’s scorching pace of growth (57 per cent) this fiscal. Two, lower Budget allocations for oil subsidies, taken with the recent freeing up of diesel prices, suggest that diesel prices are likely to trend up.
With this, the edge that UVs have over petrol cars on running costs will likely begin to narrow. That means lower demand for listed UV makers such as Tata Motors and Mahindra & Mahindra. The latter is already facing challenges from a slowdown in tractor sales.
High tax payers
The hike in the surcharge on corporate taxes from 5-10 per cent will impact all companies that currently turn in a profit and shell out taxes. Overall, a back-of-the-envelope calculation shows that companies may be forced to part with 1 per cent more of their pre-tax profits to the taxman. As the surcharge is calculated on a company’s existing tax bill, this measure will extract a stiffer price from companies that already suffer high tax incidence.
Multinational companies top this list. Apart from this, companies that figure in this bracket are bank and finance companies such as IDBI Bank, Axis Bank, Yes Bank and HDFC Bank, public sector majors such as Engineers India, BEML, Oil India and MOIL, and pharma companies such as Pfizer, Abbott and Dr Reddy’s Labs.