2. The 2012 -13 Budget
pledged to cut fiscal
deficit from 5.9% this
year to 5.1% next year
Aiming to rise GDP growth
to 7.6% along with fiscal
consolidation, the budget
seeks to raise additional
Rs.40K Crs in fresh taxes
3. India Inc
Proposal Impact
Excise duty & Service tax rate Prices need to be raised, margins
raised to 12% from 10% may get affected.
Investment in Infrastructure to go More opportunities for private
up to Rs.50 lakh crore in 12th sector to invest in PPP projects.
plan.
Repatriation of dividends from Companies will be encouraged to
foreign subsidiaries of Indian bring foreign exchange.
Companies will continue at 15%
up to 31 March 2013.
New sectors to be added for
purposes of Investment linked Incentive for investment
deductions.
4. Capital Market
Proposal Impact
Reduction of STT on delivery base Transaction cost will come down
sale & purchase of shares from
0.125 to 0.1 %
Introduced Rajiv Gandhi equity Deepening of equity market with
saving scheme allowing 50% IT higher retail participation.
reduction to new retail investors
who invest up to Rs.50K directly
& whose annual income is below
Rs.10 lakhs.
Qualified foreign investors Deepening of corporate debt
allowed to invest in corporate market
bond market.
IPO of Rs.10 Crs & above will only Cost of issuing shares will come
be in electronic form. down & allows more investors.
5. Tax Payers
Proposal Impact
Individual exemption limit raised Provided tax relief of Rs.2000
to Rs.200000
Allow deduction of Rs.10000 for More benefits for senior citizens
interest from savings account
Upper limit of 20% to be raised to Tax benefit of Rs.20000
Rs.10 lakh from Rs.8 lakh
Allow deductions of Rs.5000 for
preventive health check-up Health awareness
6. Economy
Proposal Impact
Rs.30000 crore to be raised from Retail investors will get PSU
disinvestment in 2012 – 13 shares
Provision regarding Minimise transfer pricing
implementation of Advance litigation. Big boost to IT & BPO
pricing agreement to be service providers
introduced in finance bill, 2012
Rs.15888 crore to be provided for Banks will be better equipped to
capitalisation of public sector face competition
banks & financial institutions
Tax free bonds of Rs.60000 crores More long term financing
for financing infrastructure instruments for infrastructure
projects in 2012 - 13 projects
7. Couple of changes that can matter
Tax Evaders under scrutiny
1% tax at source on transfer of immovable property worth over Rs.50
lakhs in urban areas, Rs.20 lakhs in other.
1% tax at source on cash purchase of jewellery over Rs.2 lakhs & more.
30% tax on any unaccounted money even if it is within exemption limit.
Compulsory filing of income tax returns for those having assets outside
India.
Tax authorities can open cases for up to 16yrs if undisclosed foreign
income is found.
Stiff penalty on undisclosed income if found in search.
Withholding taxes on gold & property will be effective from July & October
2012.
8. Govt boosts spending on health, education, food
scheme & rural development to fuel growth
Slowdown in industry drags GDP growth to 6.9% in FY12, but it may
accelerate to 7.6% in FY13.
Government slashes MGNREGA spending by 17.5% to Rs.33000 crore for
2012 -13
Rural Health gets a push with a 34% increase in allocation for NRHM to
Rs.28820 crore.
Education budget hiked 21.6% to Rs.25555 crore. Credit guarantee fund
scheme for students proposed.
9. Fiscal consolidation is largely revenue driven
Gross tax revenue will rise to 10.6% of GDP in 2012 – 13 from 10.1% in
current fiscal
Centre’s debt will drop to 45.5% of GDP in FY13 against 50.5% target set by
13th finance commission
New indirect taxes will net Rs.45940 crores for the government but it will
forego Rs.4500 crores on direct taxes
Over all expenditure will rise 13.1% but revenue expenditure will grow
only 10.7%
Things could go wrong if:
Non tax revenue falls short again – Rs.30000 crores from disinvestment
becomes an uphill task & if Rs.40000 crores from spectrum may not come
because of uncertainties in the sector
Crude price rally could derail subsidies – At Rs.1.9 lakh crore, the
provision for subsidies is below the revised estimates of Rs.2.2 lakh crore
Growth does not recover as envisaged – Govt is counting on an ambitious
7.6% GDP growth to deliver a strong 19.5% tax growth
10. Continued….
Fuel subsidy assumption of Rs.43600 crores and fertiliser subsidy
assumption of Rs.61000 crores appear too low and slippages on these
items could lead to an increase in fiscal deficit by 50 – 60 bps from the
target of 5.1%
To Conclude:
Liquidity will remain tight due to continued overhang of Government
borrowings. A lot will depend on crude oil prices, global financial markets
and capital flows and RBI’s take on interest rate cuts.
11. As an Investor
No need to worry about Fiscal
Deficit, it’s fine
Rs.48663 Crs is the net FII inflows into India Equities since
the last budget
12. Some Interesting Facts:
UPA’s so called populism has resulted in excellent economics
India has grown 7.7% CAGR since the recession in 2008 against Brazil’s
3.9% and Russia’s 1.3%
India will over take China in GDP growth rate
RBI must give the Govt credit for having lowered financial risk in the
economy while growing briskly
India’s Debt/GDP ratio stands at 63% & the Interest/Budgetary Receipts at
31% (these measures & not the fiscal deficit, are the correct ways to
assess financial risk in an economy from an investor point of view)
China while growing faster, has piled on unsustainable levels of debt in
doing so, its Debt/GDP ratio stands at 155% now and will hot 180 – 200%
by 2016, or $22 trillion. India has grown while decreasing debt & interest
ratios sharply.
13. Some Reasons to Reconsider Equities…
The Macro Economic Rationale:
Inflation is on its way down
Interest rates have peaked
GDP growth will pick up
Corporate earnings will improve
The Investing Rationale:
Equity valuation are reasonable - 1yr forward P/E at 15.2
Returns on debt assets will reduce
Gold prices have run up sharply
Billions of $ likely to enter Indian Markets shortly – So far $10 trillion
worth of liquidity pumped in by central banks in developed countries since
2008 financial crisis
14. Continued…
Global markets are flushed with liquidity at this moment and it looks like
markets are entering into a bull phase
FII’s have poured in $9 billion so far this financial year
FII flows may continue since the federal reserve has promised to keep the
interest rates at near zero levels till 2014
The pressure in Europe is also easing after the European Central Bank
pumped in over Euro 1trillion into banks, banishing the danger of
sovereign credit crisis
Investors are also hoping RBI to cut rates during the monetary policy in
April 2012, which will in turn boost the growth.
15. Sensex Scenarios for December 2012
25539 (+58%)
Best Case
16466
Dec’ 11 Source: Morgan Stanley
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