BNP Paribas (Mr Manishi Raychaudhuri)
The market has come to accept the Budget for what it is — an accounting exercise of the Government. We believe after digesting the positives in the Budget (no significant increase in indirect taxes, higher allocation to infrastructure) and the concerns (fiscal slippage in FY-12 from higher subsidies), the market shall move on to the fundamental positives (robust growth and reasonable valuations) and the fundamental headwinds (potential corporate earnings estimate reduction, sticky inflation and higher commodity prices). In the near term the headwinds appear stronger — leading to our caution on short-term market movement. Over the longer term, we reiterate that several fundamentally sound stocks are appearing attractive in terms of valuation as well.
The Budget resisted any major changes to taxation except for minor tweaks on MAT and imposition of the same on SEZs. With investors' concerns on likely imposition of higher indirect taxes on some segments being belied, we believe the Budget does not create any additional headwinds (inflation, interest rates, commodity prices) to corporate earnings. Impact of government expenditure compression on GDP growth needs to be watched though.
Elara Capital
Yields on both 2-year and 10-year bonds were softer post-Budget as markets were pricing in a much higher deficit number. However, the growth assumption of 18.5 per cent in gross tax revenue (and decline in non-Plan expenditure) looks very optimistic to us as the nominal growth in GDP is assumed at 14 per cent. The final number on subsidies, interest rates and indeed the direction of the markets are now hostage to the global factors. This Budget is an incremental step in the direction of reducing the significance of Budgets for equity markets.
Enam (Mr Vallabh Bhanshali)
The Finance Minister has surprised positively by raising the FII limit in corporate bonds to $40 billion and he has permitted foreign nationals to invest in Indian mutual funds. This can bring in a lot of money, depressing long-term interest rates over a period of time. The Finance Minister has been sensitive in dealing with the raised MAT rate for corporate, marginally from 18 to 18.5 per cent, and has actually reduced the surcharge from 7.5 per cent to 5 per cent. Overall, the Budget has addressed key concerns plaguing the minds of investors — the most critical being limiting the government borrowing and restraining the interest rate.
Sharekhan (Mr Gaurav Dua)
The equities market was pleased with the lower than expected government borrowing figure. However, the achievement of the stiff fiscal deficit target is based on a fairly healthy assumption of a 17.9 per cent growth in the net tax revenues but a muted increase of just 3.4 per cent in the total expenditure. The growth in the total expenditure has been managed through depressed provisions for subsidy expenditure (lower by Rs 20,000 crore in the FY-2011-12 budgeted figures despite the spiralling crude oil prices) and lower allocation for social services (lower by Rs 31,000 crore in the FY 2011-12 budgeted figures). Consequently, the Street would take the fiscal deficit target set with a pinch of salt and the market's focus would shift back to corporate earnings, domestic macro issues and global cues.
Religare
The Budget seems to have fared well amid the market's low expectations, with a renewed thrust on consumption and investment (and incidentally on flows too) minus any real disappointments — albeit minus any tangible policy changes either. We believe the focus would now revert to issues domestic (investment pickup, inflation) and foreign ($100 crude).
Angel Broking (Mr Dinesh Thakkar)
The Finance Minister has managed to bring down the targeted fiscal deficit to 4.6 per cent, which should be achievable provided fuel prices are hiked. Rightly focusing on pressing matters, measures to tackle high food inflation, viability gap funding for cold storage chains and increase in priority sector lending targets. Also, given the shortage of funds in the domestic banking sector, several measures are included to increase fund availability from other sources, pertinently FII investments in corporate bonds being increased to $40 billion, withholding tax reduced, tax-free bond limits increased, and so on. Together with new bank licences and increased foreign bank participation over the course of next year, the gap between savings and investments should get narrowed, keeping interest rates also in check — a positive for banks, infrastructure and the overall economy. Without over-stretching itself, this Budget includes a decent set of measures without compromising on its fiscal deficit position.
ICICI Securities (Mr Anup Bagchi)
The Budget is a balanced one. The fiscal deficit target of 4.6 per cent for 2011-12 against the FRBM target of 4.5 per cent is encouraging. Accompanying a better than expected fiscal deficit target came in the low net borrowing figure of Rs 3.43 trillion (ICICI direct estimate of Rs 3.8 trillion). This will indeed address concerns over the crowding out effect on the private sector. The Budget also seems to indicate that the Government is more focused on the execution of several policies and also resolving the supply led constraints in the economy.
Prabhudas Lilladher
Overall we come away somewhat ‘positive' with this Budget's intention of reducing deficits, not increasing taxes and curbing expenses. We are also ‘hopeful' about the government's ambitious legislative roadmap for the session and the year. The government hopes to pass the GST Bill, New Companies Bill, FRBM Amendment Bill, Direct Tax Code Bill, Public Debt Management Office Bill, etc, this session and year.
Key sectors expected to benefit are: Banking and Financial Services (due to low borrowing programme), Real Estate (due to hike in interest subvention), Cigarettes (due to no increase in taxes), and Automobiles (no increase in Excise). Key losers are: Technology (MAT applicable on SEZ), Ports (MAT applicable on SEZ), Iron Ore exporters (hikes in duties).