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Budget PreviewBudget Preview2015-16

Ease supply brakes, step on growth acceleratorEase supply brakes, step on growth accelerator

February 24, 2015

2

Revving up growth via capacity creation will take precedence over demand led growth as reversing the decline in the capex cycle will be the key prerogative of the NDA government. Hence, in our view, Budget 2015-16 will clearly attempt to contain expenditure and divert resources optimally to kick start the investment cycle, going ahead.

What will be key highlights of upcoming Budget

• On the tax receipts front, we expect the government to miss the gross tax revenue growth target of 17.7%. Hence, we expect the same to grow 10% in FY15E. The key miss will be on corporate tax & income tax segment that is expected to fall short by 5% & 4%, respectively. Another key miss will also be from the excise duty segment where collections are expected to be lower by 10% albeit on rollback of auto excise in December 2014 and increase of excise of petroleum products (petrol, diesel). We expect overall tax revenues to be pegged at | 1275327 crore in FY15E

• With the success of Coal India OFS (| 22000 crore proceeds), we believe the government will further push through with OFS/FPO of two major PSUs like ONGC and IOC, which will help it to achieve the target for FY15BE of | 43000 crore. However, our estimates possess downside risks as the government has to sail through the remaining OFS/FPO/residual stake sale to garner the budgeted receipts of | 63400 crore. Failure to do so will increase the deficit 30 bps from 4.1% budgeted to 4.4% (ceteris paribus.). Going into FY16E, we have budgeted | 45000 crore of PSU stake sale that has upside risks, in our view. On the other hand, receipts from telecom spectrum licenses can be another positive surprise as we expect the government to garner | 47000 crore vs. | 45300 crore budgeted. Even in FY16E, we expect the government to budget | 40000 crore from spectrum licenses

• The key catalyst for achieving the fiscal deficit target would be containing the expenditure item, both Plan and Non Plan. This is reiterated by the 9MFY15 performance as only 72% and 61% of targeted expenditure has been met. Our estimates suggest that only 87% of the budgeted plan expenditure will be incurred this fiscal. This, in turn, will lead to 4.1% targeted deficit while for FY16E deficit is estimated at 3.6%

Deal Team – At Your ServiceIntent clear but roadmap critical in Budget 2015-16…

• On the fuel subsidy front, we expect subsidy burden of ~| 61,700 crore in FY15E (including | 35,000 crore rolled over from last year), lower than the government’s budgeted estimate of ~| 63,500 crore. However, on the actual accounting treatment, the subsidy burden will reduce from | 70,772 (LY) crore to | 35,277 crore in FY15E due to the decline in crude oil prices. We have built in | 120000 crore, | 130000 crore food subsidy in FY15E, FY16E, respectively. Hence we expect total FY15E subsidies at | 263000 crore or 2.1% GDP, which will further fall down to 1.8% of GDP in FY16E given absolute subsidies are expected to decline ~1% YoY to | 262100 crore in FY16E.

• Allocation to social schemes may moderate/decline in the upcoming Budget as seen in the previous year. In his maiden budget, the Finance Minister did curtail allocation to certain social schemes, which included flattish allocation to MGNREGA at ~| 33000 crore whereas schemes like Indira Awaas Yojna saw a marginal increase

• The key intent/roadmap of the government would be reviving the investment cycle, thereby removing supply side bottlenecks and enhancing the growth cycle while keeping inflation under check

• The above point is reiterated by the fact that if one looks at history, Budgets of the NDA government have significantly focused on enhancing capital expenditure, thereby focusing on creating capacity. This is emphasised by the fact that share of capital expenditure as percentage of total expenditure has been in the higher range at 16-25% in 1998-2003

• In our view, the Budget should clearly lay down a roadmap on critical issues like GST and reviving the capex cycle by optimum utilisation of surplus PSU cash. Further, clarity on international taxation issues like GAAR, newer initiatives like ‘Make in India’ and ‘Smart Cities’ along with mentioning avenues for raising long-term funds for creating infrastructure and measures to attract/increase financial saving in the economy would be the key things to watch out for in this Budget. This intent/roadmap will provide more clarity on the prerogative of the government and requisite direction to the markets, which, in turn, will raise the confidence of the private sector

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Deal Team – At Your ServiceWhat will the Budget ‘budget’ in FY15BE ?... we estimate fiscal deficit at 4.1%……

Particulars FY14RE FY15BE YoY (%) FY15IE YoY (%) FY16IE YoY (%) CommentsRevenue ReceiptsNet Tax revenue 836026 977258 17 906809 8 1131779 24.8 We expect a miss in FY15BE revenue target given the lower-than-expected economic recovery. However, we build in 24.8%

growth in tax revenues for FY16IE, taking into account the measures taken by the government like 1) hike in excise duty on petrol & diesel 2) rollback of excise benefit for auto sector 3) lifting of gold import restrictions coupled with economic recovery

Non Tax RevenuesDividend 88188 90229 2 90229 2 105000 16.4 Dividend receipts include dividend from RBI to the tune of | 62414 crore vs. | 45113 crore in FY14 and | 40406 crore in FY13Economic services 66285 79536 20 79536 20 80000 0.6 The government had budgeted | 45471 crore from communication services, which included recurring revenue like spectrum

usage charge and license fees and one-time revenues like spectrum auction.We expect the government to meet the target in this fiscal

Others 38751 42741 10 42741 10 39511 (7.6) Total 1029250 1189764 16 1119315 9 1356290 21.2 Capital ReceiptsRecovery of Loans 10803 10527 -3 10527 -3 11000 4.5 Disinvestments 25841 63425 145 44277 71 65000 46.8 We expect disinvestment proceeds to be pegged at | 44277 crore instead of | 63425 crore. We believe the residual stake sale

of HZL and Balco will not go though in this fiscal while the FPO/OFS of PSUs like IOC and ONGC have a decent probability of going through given the roadmap on subsidy sharing provided by the government. Under this scenario, our deficit estimate for FY15E will be at 4.1%. In case the PSU stake sale does not take place, the deficit will inch up by 10 bps to 4.2%

Total 36644 73952 102 54804 50 76000 38.7 Total Receipts 1065894 1263716 19 1174119 10 1432290 22.0 Non plan ExpenditureSubsidiesFertilizer 67972 72970 7 72000 6 75000 4.2 Food 92000 115000 25 120000 30 130000 8.3 Food Security Bill to remain higher as over 95% of total budgetary allocation has already been spent during 9MYTDFY15Petroleum 85480 63427 -26 61735 -28 47039 (23.8) We expect subsidy burden of ~| 61,700 crore in FY15E (including | 35,000 crore rolled over from the last year), lower than the

government’s budgeted estimate of ~| 63,500 crore. However, on the actual accounting treatment, the subsidy burden will reduce from | 70,772 crore to | 35,277 crore in FY15E due to the decline in crude oil prices

Other subsidies 10064 9261 -8 9261 -8 10055 8.6 Other expenditure 859387 959234 12 928559 8 1056714 13.8 Total 1114902 1219892 9 1191555 7 1318809 10.7 Plan Expenditure 475532 575000 21 499309 5 619143 24.0

Total Expenditure 1590434 1794892 13 1690863 6 1937951 14.6

Fiscal deficit 524540 531176 1 516745 -1 505661 (2.1) GDP estimates 11345056 12653762 12 12653762 12 14210176 12.3 Fiscal deficit as % of GDP

4.6% 4.2% NA 4.1% NA 3.6% NA With the benefit of lower subsidy burden, slew of some tax measures and controlled plan and non-plan spend, we expect the government to meet the fiscal deficit target this fiscal

Government Revenue & Expenditure

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Containing expenditure/revving up growth & investments should be intent

• Revving up growth via capacity creation will take over demand led growth and will be in vogue over the next few years as reversing the decline in capex cycle will be the key prerogative of the NDA government. Hence, in our view, Budget 2015-16 will clearly attempt to contain expenditure and divert resources optimally to kick start the investment cycle, going ahead

• The fact is that till 9MFY15, government expenditure has been tightened as only 72% and 61% of the plan and non plan expenditure has been incurred.

• If one looks at history, previous Budgets of the NDA government have significantly focused on enhancing capital expenditure, thereby focusing on creating capacity. This is reiterated by the fact that share of capital expenditure as percentage of total expenditure has been in the higher range at 16-25% over 1998-2003 (NDA regime). The same composition significantly changed during 2005-2013 (UPA regime) wherein the share declined in the range of 11-13%. However, the silver lining was in Budget 2014-15 wherein again the share increased to 12.6% (best in last fouryears). In our view, share of capital expenditure will rise, going ahead. Also, 21% YoY rise in defence capital expenditure allocation in Budget 2014-15 is a prelude to things to come.

• On the other hand, allocation to social schemes may moderate/decline in the upcoming Budget as was seen in previous year. In his maiden Budget, the Finance Minister did curtail allocation to certain social schemes. The list includes: MGNREGA that saw flattish allocation at ~| 33000 crore whereas schemes like Indira Awas Yojna saw a marginal increase in allocation of | 1000 crore.

87.488.088.287.886.989.089.883.488.286.977.176.882.083.285.383.677.577.7

12.612.011.812.213.111.010.216.611.813.122.923.218.016.814.716.422.522.3

0

20

40

60

80

100

2014

-15E

2013

-14

2012

-13

2011

-12

2010

-11

2009

-10

2008

-09

2007

-08

2006

-07

2005

-06

2004

-05

2003

-04

2002

-03

2001

-02

2000

-01

1999

-00

1998

-99

1997

-98

(%)

Revenue expenditure as a % of total Exp Capital expenditure as a % of total Exp

13.813.813.814.716.116.215.9

13.813.913.613.514.314.413.813.713.813.812.7

2.01.91.92.02.4

2.01.8

2.8

1.92.0

4.04.3

3.22.8

2.42.7

4.03.6

02468

1012141618

2014

-15E

2013

-14

2012

-13

2011

-12

2010

-11

2009

-10

2008

-09

2007

-08

2006

-07

2005

-06

2004

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2003

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-03

2001

-02

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1999

-00

1998

-99

1997

-98

(%)

Revenue expenditure as a % of nominal GDP Capital expenditure as a % of nominal GDP

Source: Budget Documents, MoF, ICICIdirect.com Research

5

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 YoY Growth

MGNAREGA 11250 11700 29700 39060 40095 33000 33000 33000 0.0

Bharat Nirman 24603 31280 45356 48000 58000 NA NA NA

Pradhan Mantri Gram Sadak Yojna 6500 7547 12000 12000 20000 24000 21700 14391 -33.7

Indira Awas Yojna 4040 5399 8800 10000 10000 11075 15184 16000 5.4

National Rural Drinking Water Programme 11000 11900 13900 15000 21000 10500 11000 11000 0.0

Rural telephony

Rural Infrastructure development fund 12000 14000 14000 16000 18000 20000 20000 NA

Rashtriya Krishi Vikas Yojna 3000 3400 4000 6755 7860 9217 9954 16463 65.4

Sarva Shiksha Abhiyan 10671 13100 13100 15000 21000 25555 31241 28258 -9.5

National Rural Health Mission 20542 21239 NA

National Programme for mid day meals 7324 8000 8000 9400 10400 11937 13215 13215 0.0

Integrated child development Programme 4761 6300 6700 8700 10000 15850 17700 18195 2.8

Swaranjayanti Gram Swarozgar Yojna 1600 2113 2113 2675 2900 0 0 0

Rural Sanitation 954 1200 1200 1600 1700 3500 0 4260

Integrated watershed Management Programme 1054 1441 1644 2212 2500 0 0 0

Central Road Fund 12544 14090 13864 16600 18500 19433 19433 26152 34.6

Rural Credit 240000 287000 325000 375000 475000 800000

Interest Subvention 0% 0% 1% 2% 3% 3% 3% 3% 0.0

Amount Benefited 0 0 3250 7500 14250 0 0 24000

Government's allocation to various social schemes

Social programmes to see moderation; fiscal health to take precedence

• The Union Budget 2013-14 witnessed a moderation in allocation to social schemes like MGNREGA that saw flattish allocation at ~| 33000 crore whereas schemes like Indira Awas Yojna saw a marginal increase in allocation of | 1000 crore

• Even during the current 9MFY15, the achievement under plan & non-plan expenditure heads are pegged at 71% & 63% respectively, which YoY are lower compared to 9MFY14

• The data points clearly indicate the NDA government’s intent towards growth imperative in removing supply side constraints so as to balance a demand situation. Hence, we expect Budget 2015-16 to focus more on revving up investment cycle to achieve GDP growth rates of 8-9% over next two to three years


6

Peeking into past : “Infrastructure” has been the buzzword of NDA Budgets

Direct and indirect tax reforms also got a boost when Singh constituted the Vijay Kelkar taskforce.

While focused on reducing planned expenditure by 10% in FY15, he has hinted at an increase in public spending as well as advocating a new model for infrastructure funding. We believe a funding modelon the lines of India Millennium Fund and Resurgent India Fund could be used by Mr Jaitley to providefor infrastructure funding

FM has also stressed on the importance of "Make in India " campaign in order to boost themanufacturing indigenously. On the same, either some kinds of sops or any form of tax relief could beseen. Steps on removing the anomalies of inverted duty structure (taxation of inputs at higher ratesthan finished products) in sectors such as auto component, pharma, chemicals and electronicswould be another key area, which could be addressed by the FM

Another key reform measure that Mr Jaitley is expected to address is providing the roadmap andcontours for GST. Some clarity on international taxation (GAAR and corporate) could also be provided

In 1991, asked the Reserve Bank to pledge gold with the Bank of England for funds to tide over India’sbalance of payments crisis.

In NDA government, he pushed through reformist measures such as opening up the telecom sector,deregulating the petroleum and fertiliser sectors, helping fund the NHAI and introducing Cenvat

He cut then-benchmark small savings rate from 14.5% to 9.5%, which brought down real rates by 5-6%during the NDA regime amid stable inflation. He also introduced India Millennium Fund through UTIand Resurgent India Fund through SBI to mop up the NRI/external deposits, which served the dualpurpose of supporting weakening NRIs as well as avoiding a debt repayment crisis

Yashwant Sinha

Was in charge during key legislations on fiscal management, banking and money laundering andintroduced guidelines related to privatisation of airports, ports and the insurance sector, besides laying the groundwork for introducing pension funds.

Jaswant Singh

Stressed on the importance of gross domestic contentment index of the people, not the country’s grossdomestic product

Arun Jaitley

The common link between the NDA's FM have been the focus on capex and infrastructure revival


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Will rejuvenation be revisited ???

Key Initiative taken Impact Key Initiative Steps to be taken

The Electricity Act 2003Paved the way for private investment in thepower generation segment Solar Energy

With an aggressive target of adding 100 GW in SolarPower generation by 2022 entailing US$100 billionof investments, announcement is expected in theBudget to incentivise investments in this field

Fast-tracking the disinvestment process through dedicated Disinvestment Ministry

Key disinvestment included the likes ofMaruti, Balco, BSES, VSNL

Laying the roadmap & contours for GST

With a GST deadline of April, 2016, the FM isexpected to provide a detailed roadmap as well ascontours for the implementation. A detailed methodfor states' compensation is also expected to beaddressed in the current Budget

National Highway Development Programme & Pradhan Mantri Gram Sadak Yojna

Marquee Golden Quadrilateral and EWNSconnectivity largely completed. Rural road(forming 80% of the total roads) connectivitywas strengthened Revamping NHAI

The ministry has sought | 45,000 crore (~72% YoYincrease) in FY16E Budget, with an additionaldedicated fund of about | 11,000 crore for projects in left wing extremism (LWE) areas. The focus would beon awarding ~20,000 km at an investment of | 2.2lakh crore both through EPC mode and hybrid model

Guidelines for privatisation of airportsLed to privatisation of Delhi, Mumbai,Hyderabad and Bengaluru airports Smart Cities

Clear roadmap for developing 12 smart cities aroundmajor ports in India with a total investment outlay of| 50000 crore

India Millenium Fund and Resurgent India Fund

Strengthened the currency through inflowsfrom NRI and other external sources Direct Transfer Benefit

The government has successfully rolled out DBT inLPG subsidy disbursement thereby targetting savingsof ~| 5000 crore annually. The FM is now expectedrollout the same in food subsidy disbursement,which could led to potential savings of | 25000

Rolling out telecom licensesIt sorted out the mess in the telecom sectorby ushering in the unified licensing regime

Removing Anomalies in inverted duty structure

In order to boost manufacturing in sectors like autocomponent, pharma, chemicals and electronics, theFM could address the inverted duty structure. Forexample, in the tyre sector, taxation of inputs athigher rates than finished products has reduced thecompetitiveness of the industry

Procedural reforms in direct taxesSteps such as outsourcing of pan cardissuances, quick refunds, etc. introduced Clarity on international taxation

We expect the FM to provide clarity on GAAR andMNC taxation issue in order to encourage FDI

Then (1998-2003) Now (2014-till date)

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Smart Cities; steps in progressive direction

• Arun Jaitley, in his maiden Union Budget 2014-15 has announced an initiative to set up and develop “100 Smart Cities” as so as lead a sustainable growth without putting pressure on the existing infrastructure of big cities. These smart cities will be developed keeping in mind the emerging neo middle class which has the aspiration of better living standards. Mr Jaitley made a budgetary allocation of | 7060 crore for the same in the Union Budget 2014-15. A committee on investment requirements in urban infrastructure, estimates a per capita investment cost (PCIC) of | 43,386 for a 20 year period, which includes estimates for water supply, sewerage, sanitation and transportation related infrastructure. Though these are early days, the total investment potential could exceed | 7 lakh crore over 20 years.

Key Initiatives taken:

• In August 2014, Japan and India signed an MoU to convert Varanasi into a smart city. Thereafter, in January 2015, United States Trade and Development Agency (USTDA) and Urban Development ministry (Government of India) have agreed to set up three task forces to prepare a detailed action plan for developing three smart cities (Aurangabad, Ajmer and Visakhapatnam) in India. The Indian government has also identified the surrounding land at 12 major ports, (~2.64 lakh acres), to be developed as the smart cities with a total outlay of | 50000 crore. According to Nitin Gadkari (Minister for Road Transport, Highways and Shipping), with land at disposal, the cost involved in developing a new smart city works to ~| 3000-4000 crore per city.

The Finance Minister also

relaxed the FDI rules for investment in smart cities; built up area and capital conditions for FDI was reduced from

50,000 square metre to 20,000

square metre and from US$10 million

to US$5 million respectively with a

three year post completion lock in

period.

The urban population in India

is currently at ~31% of the total

population. However, it

contributes 60% of GDP and

estimates predict that urban India contribution to

GDP could rise to 75% in the next 15

years. Thus increasing

urbanisation calls for better cities i.e.

smart cities

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Glimpse of rejuvenation witnessed in FY14 Budget and thereafter

Key Highlights/Expectations:

Roadmap on ‘Make in India’ to make Indian defence sector scalable, going ahead

The imperative on Make in India campaign and optimising the offset policy clause, allocation to defence capital spending is expected to help domestic defence sector scale up in a significant way. Some of the decisions/stance taken by the government clearly indicates the quantum of importance assign to indigenize the sector coupled with active private sector participation:- Several critical projects such as manufacturing of six submarines (| 53000 crore), 440 light helicopters (| 40000 crore) and eight mine sweepers have been moved to “Buy and Make” category. This we believe will provide good business opportunity for private defence manufacturers.- Union Ministry of Commerce and Industry on 26 June 2014 de-licensed manufacturing of defence items. Almost 55% of the defence items have been removed from the compulsory licensing list. The involvement of private sector with its world-class expertise and high technology would not only augment India’s indigenous defence production capability but also lead to creation of employment and infrastructure in the country, giving a strong impetus to the economy.

Strong likelihood that GST contours and timeline will be spelled out in upcoming Budget:Lot of action has happened with respect to implementation of GST, even though Budget 2014 was non-committal with respect to the timeline and contours of the same. Current update on the GST is as follows :

“According to the Bill, all goods and services, except alcoholic liquor for human consumption, will be brought under the purview of GST. Petroleum and petroleum products have also been constitutionally brought under GST, but they will not be subject to the levy till notified at a future date on the recommendation of the GST Council”.

Source: Budget Documents, RBI, ICICIdirect.com Research

10

Direct benefit transfer; plugging leakage, progress towards fiscal prudence

• With the aim of controlling leakages while transferring subsidies to the target group of beneficiaries, the Government of India launched the “Direct Benefit transfer (DBT)” Scheme on January 1, 2013 (for 27 social schemes,121 districts, four crore beneficiaries in the first phase)

Steps taken till date:-• The government has initiated DBT for 25 social schemes. However, notable success was achieved in LPG subsidy transfer/PAHAL

• LPG subsidy/PAHAL: Initially the scheme was launched in June 2013 in 20 high aadhar coverage districts. Thereafter, the Government of India reintroduced it in November 2014 as a modified version of DBT and rebranded as Direct Benefits Transfer for LPG (DBTL)/“PAHAL”. Till date, there exists 11.3 crore beneficiaries (74% penetration, total no of LPG consumers at 15.3 crore) of PAHAL and the government has disbursed | 5920 crore as on February 22, 2015. According to the Petroleum Minister, PAHAL will help the government save 10-15% of the total LPG subsidy (| 43,000 crore in FY15E) annually

Steps to be taken:-The social schemes, the cash transfer of which can be routed through BDT are

• Food subsidy: The food subsidy is the by far the largest contributor to the subsidy bill of the central government annually (| 115,000 crore for 2014-15 out of the total subsidy for 2014-15E at | 255708 crore). As per research agency Crisil, DBT will eliminate costs associated with procuring, distributing and storing food grains, thereby leading to savings of as much as | 25, 000 crore annually

• MGNREGA: Under this scheme, the government gives employment to the low income strata citizens of the country (total subsidy earmarked in Budget for 2014-15E for MGNREGA was | 33000 crore). However, a Planning Commission study had found that there have been instances of large number of fake job cards to benefit from MGNREGA. Thus, introduction of DBT would help the government to plug these leakages

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Infrastructure spending revival to be at forefront of policy• The erstwhile NDA government under Vajpayee has been a pioneer in terms of road infrastructure (marquee projects like Golden

Quadrilateral under NHDP programme), airport privatisation (initiated process of privatisation of Delhi, Mumbai, Hyderabad and Bengaluru Airports) and Electricity Act, 2003 which paved the way for private investment in power projects in India. Going ahead, we expect the infrastructure investment focus to continue. The following reforms initiation for infrastructure investment are a clear sign of things to come:

• With the commitment to have housing for all by 2022, the Finance Minister announced a sum of | 4000 crore in FY15 budget earmarked for NHB at lower cost for affordable housing

• REIT has been given a tax pass through status to avoid double taxation. We expect the contours for REIT to be announced in FY15-16 Budget

• The Cabinet has approved a proposal to open up cash-strapped Railways to foreign investment by allowing 100% FDI. This, we believe, would be a key catalyst for railway infrastructure investment in India

• The government has relaxed the rules for FDI in the construction sector by reducing minimum built-up area as well as capital requirement and easing exit norms

• The government has cleared the Deendayal Upadhyaya Gram Jyoti Yojana, which entails a ~| 43,000-crore investment and aims to deliver the dream of 24x7 electricity supply

• The road sector is expected to be an area of focus for the government. The Road Ministry indicated that it is looking to award 20,000 km at a total cost of | 2.2 lakh crore, over the next two years. This would be mainly executed via EPC model. Additionally, the ministry has also come out with a hybrid BOT annuity model, wherein the government will fund up to 40% of the total project cost and assume complete risk associated with revenue collection. The ministry has also sought | 45,000 crore (~72% YoY increase) in FY16E Budget, with an additional dedicated fund of about | 11,000 crore for projects in left wing extremism (LWE) areas. These initiative, we believe, would be key drivers for road infrastructure spending pick-up in FY16E and FY17E, going ahead

17341234

643

3166

5083

6,491

1,1161,476

6000

0

1300

2600

3900

5200

6500

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15YTD

(km

)

NHAI is looking to award ~20,000 km over the next 2 years. Awarding to

pick up in FY16E with more focus on EPC model and Hybrid annuity model.

Source: NHAI, MoRTH, Budget Documents, ICICIdirect.com Research

12

Deal Team – At Your ServiceSubsidies: Declining oil subsidy in FY15E, FY16E to provide headroom…

• We expect subsidy for the government that has been increasing sharply over the last few years to remain flat YoY at | 262100 crore in FY16E. This will be possible due to a sharp decline in crude oil prices that will lower oil subsidy burden in the next fiscal. Thos, in turn, will provide headroom to increase food subsidy for the implementation of Food Security Bill.

• On the fuel subsidy front, we expect a subsidy burden of ~| 61,700 crore in FY15E (including | 35,000 crore rolled over from last year), lower than the government’s budgeted estimate of ~| 63,500 crore. However, on the actual accounting treatment, the subsidy burden will reduce from | 70,772 crore to | 35,277 crore in FY15E due to the decline in crude oil prices

• We expect the benefit of lower crude oil prices (our estimates: crude oil at US$65 per barrel) to reflect in the next fiscal, where we estimate the oil subsidy will reduce 24% YoY to ~| 47,000 crore (including | 13,000 crore in FY15)

• The food subsidy bill has already reached 95% of the targeted figure for FY15E. We expect the food subsidy for FY15E at | 1,20,000 crore to be accounted for while the excess would be carried forward into FY16E

We expect the subsidy burden as a percentage of GDP to decline from 2.3% in FY14 to 1.8% in FY16E on account of a sharp decline in oil subsidy from 0.8% of GDP in FY14 to 0.3% of GDP in FY16E

Subsidy as a % of GDP

1422 1734 21

79 2571

2621

263025

59

1.8

2.12.3

2.62.42.2

2.2

0

750

1500

2250

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E

FY16

E

| in

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Subsidy Subsidy as % of GDP

Subsidies break-up

584 638 728 850 929 1200 1300613 623 700 656 674

720 750969 854 617 470

685384150

0

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2000

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Food Fertiliser Petroleum Others

Food & Oil Subsidy as a % of GDP

0.9

0.2

0.5 0.50.3

0.80.8

0.80.80.9 0.9

0.8

0.81.0

0.0

0.3

0.6

0.9

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FY10

FY11

FY12

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FY14

P

FY15

IE

FY16

IE

%

Food Petroleum

Gross under-recoveries (| Crore)Year FY13 FY14 FY15E FY16EUpstream 60000.0 67022.4 43827.7 12916.6Downstream 1029.8 2074.6 799.4 259.6Government 100000.0 70772.0 35277.0 38736.3Total 161029.0 139869.0 79905.6 51912.4

Gross under-recoveries (%)Year FY13 FY14 FY15E FY16EUpstream 37.3 47.9 54.8 24.9Downstream 0.6 1.5 1.0 0.5Government 62.1 50.6 44.1 74.6Total 100.0 100.0 100.0 100.0


13

Deal Team – At Your ServiceSensitivity to subsidies…

• We expect the government’s oil subsidy burden to remain at comfortable levels, going forward, due to the deregulation of diesel prices. In the event of an increase in crude oil prices also, the impact on the subsidy burden is expected to remain minimal compared to previous years

• Even if we consider the Oil Ministry’s recommendation and crude oil prices at $80/bbl, the differential with respect to our base case is merely ~| 7000 crore i.e. 0.05% of GDP

• The recent subsidy sharing proposal of the Oil Ministry recommends nil subsidy to upstream companies when crude oil price is below $60/bbl, 85% of the incremental value when crude price is between $60/bbl and $100/bbl and 90% of the incremental value when crude prices are above $100/bbl. We estimate the government’s subsidy burden assuming net realisation for upstream companies at $54/bbl in our calculation

Subsidy as a % of GDP

2097 23

59 2621 28

83

3145

1.5

1.71.8 2.0

2.2

1500

2000

2500

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3500

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Case

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Bear

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Bear

Case

2

| in

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Subsidy Subsidy as % of GDP

Government's subsidy burden (| Crore)

Crude oil prices Gross under-recoveries Assuming our estimatesAssuming oil ministry

recommendation50 36866 41554 4155455 41881 44762 4673960 46897 44330 5182965 51912 47039 5236670 56928 43796 5290375 61943 43529 5343980 66959 44920 53976

Oil Subsidy as a % of GDP

0.32

0.29

0.33

0.38 0.38

0.310.29

0.320.31

0.330.31

0.370.37

0.36

0.25

0.28

0.31

0.34

0.37

0.40

50 55 60 65 70 75 80

%

Assuming our estimates Assuming oil ministry recommendation

• As per our current estimates, the subsidy for the government is expected at 1.8% of GDP in FY16E. Even If we consider a 20% increase in subsidy from our estimates, the subsidy as a percentage of GDP will remain at only 2.2%, the same level witnessed in FY14. However, if we consider a 20% reduction in subsidy from our current estimates, the subsidy as a percentage of GDP will improve to 1.5%


14

Deal Team – At Your ServiceDisinvestment/other capital receipts to continue for deficit control measures

Disinvestment – sentiments can yield higher proceeds in FY16E

• FY16BE disinvestment target could be ~| 45,000 crore

• Likely reduction in subsidy burden given a sharp correction in global commodity prices will cushion the target of FY15E for the government even if it is unable to push through for more OFS/FPOs post Budget. Our calculation shows that if the government is unable to sell stakes in ONGC/IOC and residual stake sale in Balco/HZL that will lead to a 10 bps increase in fiscal deficit for FY15E

• The government will pursue IPOs of Hindustan Aeronautics, Rashtriya Ispat Nigam, among others that could help achieve FY16E target

• Secondly, stake sales in a few PSUs could fetch the government awhopping ~ | 61,000 crore, which could be a major kicker in revenue growth. Our analysis of the government’s shareholding shows there are 32 such listed entities in which GoI’s promoter stake is greater than 75%. GoI can trim its ownership, going forward. The table below highlights potential disinvestment candidates. However, note that the list is not exhaustive

• Thirdly, GoI can raise funds worth ~| 50,000 crore through Specified Undertaking of UTI (SUUTI). Formed in 2003, it is an offshoot of the erstwhile UTI and holds significant stakes in ITC Ltd (11.22%, | ~35,000 crore), Larsen & Toubro (8.17%, ~| 12,800 crore) and Axis Bank (11.63%, | 15,500 crore)

• The government will also get significant proceeds from telecom spectrum. In FY15E, we expect it to garner | 47000 crore from the same while in FY16E, we expect spectrum fees at ~| 40000 crore

CompnayMarket Cap

(| crore)Total Promoter

Holding (%)

Expected Proceeds from disinvestment

(| crore)ONGC 286138 69 14307IOC 81445 69 8145NBCC 9752 90 1463Hind.Copper 7189 90 1075MMTC 5995 90 895Neyveli Lignite 13858 90 2079NHPC Ltd 25709 86 2818NMDC 56200 80 2810SJVN 10383 90 1554Total 35145HZL & Balco; Strategic Stake Sale 25742Grand Total 60887

FY97 5,000 380 VSNLFY98 4,800 910 MTNLFY99 5,000 5,371 VSNL, CONCOR, GAIL, ONGC,IOCFY00 10,000 1,860 GAIL, VSNL, BALCO, MFILFY01 10,000 1,871 KRL, CPCL, BRPL,BALCO, LJMCFY02 12,000 5,658 CMC, HTL, VSNL, IBP, PPL, ITDCFY03 12,000 3,348 HZL, IPCL, ITDC, MARUTIFY04 14,500 15,547 JCL, HZL, MUL, IBP, IPCL, CMC, GAILFY05 4,000 2,765 NTPC, ONGC, IPCLFY06 NST 1,570 MULFY07 NST 0 NAFY08 NST 4,181 MUL, PGCIL, RECFY09 NST 0 NAFY10 NST 23,553 NHPC, OIL, NTPC, REC, NMDCFY11 40,000 22,144 SJVN, EIL, COAL INDIA, PGCIL, MOILFY12 40,000 13,894 PFC, ONGCFY13 30,000 23,956 NBCC, NMDC, OIL, NTPC, NALCO, SAILFY14 40,000 15,819 MMTC, NHPC, EIL, BHEL, CPSE-ETF, IOC, PGCIL

FY15* 58,425 24,277 Coal India, SAIL

Year Receipts FromBudgeted (| cr) Actual (|

cr)


15

Sectoral Expectations …

Key expectations Impact Our Take/ViewIncreased push for the bus segment via the JNNURM scheme, size increase from 10,000 units

Positive The announcement would have a positive impact on M&HCV passenger carrier manufacturerslike Ashok Leyland and Tata Motors

Increased concessions for electric/hybrid vehicles either in form of excise duty cuts on lithium-ion battery packs or overall subsidy.

Positive This would be positive primarily for M&M and other manufacturers of electric vehicles anddevelopment of technology

Anti-dumping duty to be applied on imported tyres in India/removal of inverted duty structure

Positive This would be positive for all major domestic tyre manufacturers

Key expectations Impact Our ViewIncrease in credit to the agriculture sector (FY15 credit target was set at | 8,00,000 crore)

Positive Increase in credit availability to farmers will aid in greater farm mechanisation with consequentincrease in farm yields

Increase in Budgetary allocation for micro-irrigation systems (MIS, irrigation technique). Budget allocation for FY15 stood at | 1121 crore

Positive Increase in Budgetary allocation will aid in greater penetration of MIS, which will be a win-winsituation for both farmers and micro irrigation companies

Road map for solar water pumps Positive Any clear roadmap over installation of solar water pumps including the subsidy share of Centreand state governments will result in effective implementation of solar water pump programmes.Apart from the solar panel manufacturing companies it will benefit domestic pumpmanufacturers

Key expectations Impact Our ViewPSU banks to be allocated | 18000 crore for capitalisation Positive PSU banks increasingly need Tier I capital to comply with Basel III norms as well as profit

erosion due to stressed asset quality. In FY15, only | 6990 crore is being allocated vs. budgetestimated | 11200 crore

FDI bill for insurance needs to be passed post Ordinance Positive The intention of the government looks more prominent for passing the bill and will be beneficialfor insurance players in India. The per share impact on banks is marginally lower than non bank

Government should bring in a law to make willful default a criminal offence Positive It shall allow banks to directly attach assets of defaulter like SARFAESI ACT rather than enteringthe litigation process

To bring housing loans for first time buyers under the overallpriority sector ambit

Positive Growth in housing loans segment has remained strong. Accordingly allowing classification offirst house in priority sector lending may be positive

Auto & Auto ancillary

Banks

Agriculture

16


Key expectations Impact Our ViewSunset clause on claiming tax holiday under Section 80IA to be extended by another two to three years

Positive The move will encourage augmenting investments in the power sector

Extension of zero duty on imported solar equipment Positive While the domestic industry is plumping for levying an anti-dumping duty on imported solarequipment, the Power Ministry plans to defer such moves, as any duty imposition wouldhamper the robust solar capacity addition plan outlined by GoI

Providing priority sector lending status to the renewable energy sector. Access to low cost funds and access avenues such as long term ECBs

Positive Will promote investments in renewables as financial closure will become easy. Will lead toaugmentation of both off grid and on grid projects

Increased fund allocation for T&D sector and installation of smart grids Positive The move will strengthen the T&D network by repairing the existing line and addition of newlines to evacuate the power and reduce T&D losses. This would help the government to meet itstarget to bring down T&D losses to 18% from the current 23%. The move will lead to higherordering of T&D equipment like cables, conductor, transformers, etc, which would benefitcompanies like KEC, Jyoti Structures, Kalpataru Power, ABB, Siemens, etc

Increased fund allocation towards Namami Gange Positive The step would be in line with the government's ambitious target to spend close to ~| 60,000crore over the next five to 10 years to make the Ganga a pollutant free river. This move willprovide a huge opportunity for water treatment companies like VA Tech Wabag, which arebetting heavily on the Namami Gange project to bag domestic orders

Increased allocation and support to key infrastructure segments like roads, ports and airports

Positive The move will create ordering opportunities for EPC players like L&T

Key expectations Impact Our ViewRemoval of custom duty on import of petcoke Positive Pet coke is one of the important fuels used by the cement industry. This is expensive and

mostly imported. The situation is further compounded by the fact that the import duty on petcoke is 5% whereas on final product 'Cement' there is no basic customs duty. Hence, to removethe aberration in the structure of duties in cement vis-à-vis its inputs, we expect this move totake place in this Budget

Excise duty rationalisation on cement Positive At present, cement attracts a duty of 12% + | 120/MT whereas other core industries like coaland steel attract a duty of 5%. To reduce the construction cost and improve demand, we expectexcise duty on cement to reduce in the upcoming Budget

Levy of duty on imports Positive At present, import of cement is freely allowed without paying basic custom duty whereas allmajor inputs for cement manufacturing attract custom duty. Hence, to provide a level playingfield, we expect the government to levy duty on cement imports unless the import duty onpetcoke is removed

Cement

Capital Goods & Power

17


Key expectations Impact Our ViewRestoration of excise duty to 10% Positive Hike in excise duty by 200bps by the government has pushed up product prices, thereby

adversely impacting consumer sentiments. Restoration of excise benefit would help in volumegrowth of consumer goods companies

Implementation of GST Positive Implementation of GST would help eliminate multiple taxes for manufacturers and finally bebeneficial for customers

Customs duty on Magnetron & other reduce to nil Positive Magnetron & other inputs are essential & high value parts of microwave ovens which are majrlybeing imported. Duty reduction will result in more companies manufacturing microwaves in thecountry and will be able to tap export potential

Reduction in special addition duty (SAD) on parts/components Positive SAD pushes up the duty for the manufacturing sector along with countervailing duty to 17%against output excise duty of 12%. Benefit in SAD would encourage MNCs to manufacture inIndia under the government's "Make in India" plan

Reduction of custom duty on Titanium dioxide (TiO2) from 10% to 5% Positive TiO2 is a derivative of crude oil and important raw material for paint companies. Reduction incustom duty would help the industry to pass on the benefits to customers

Key expectations Impact Our ViewNew segment in cigarettes below 60 mm category should be included with excise duty of | 0.2 per stick

Positive New segment with ~one-sixth of excise duty would help in bringing back volume growth incigarettes. ITC & VST Industries would be major beneficiaries. As creation of below 65 mmcategory in 2012 Budget benefited cigarettes companies to boost volume of smaller sizecigarettes

Exempt energy drinks, mineral water & other non-flavoured non-sweetened drinks as additional 5% excise duty was levied in 2014 Budget

Positive The industry expects exemption in excise duty in aerated drinks. However, it is unlikely tohappen as excise duty in aerated drinks with high sugar was introduced in the last Budget.However, if the government agrees to exempt excise duty on 'aerated drinks', it would benefitTata Global Beverages as it has products like Tata GlucoPlus in its product portfolio

Increase in excise exemption limit for biscuits Positive Currently, biscuits with MRP less than | 100/kg enjoy exemption from central excise. Increasein exemption would expand margins for FMCG companies. Major players include Britannia, ITC& GSK. Increase in exemption limit would provide relief to already pressurised operating margins for these companies

FMCG

Consumer Durables

18


Key expectations Impact Our ViewDepreciation on hotel building to be increased to 20% Positive It is recommended that the depreciation rate be restored to 20% as the industry has to make

heavy investment in renovation, upgradation and upkeep of hotel buildings. Hence, there is aneed for higher rate of depreciation. However, we feel this move is also unlikely in this Budget

Key expectations Impact Our ViewExemption from MAT under 80IA for Infrastructure projects from the current rate of 18.5% to nil

Positive Imposing MAT negates tax benefit under section 80IA. We believe removal of MAT would leadto better cash flow for players. Key beneficiary: GVK Power, IRB Infrastructure, SadbhavEngineering, Ashoka Buildcon & IL&FS Transportation

A modified REITS type structure for infrastructure projects as InfrastructureInvestment Trusts (InvITs), which would have a similar tax efficient passthrough status, for PPP and other infrastructure projects

Positive We believe this move would boost big infrastructure developers in the form of freeing up ofequity, which again would be instrumental for a pick-up in the moribund capex cycle. Keybeneficiaries: GMR Infra, Jaiprakash Associates, IRB Infrastructure, Sadbhav Engineering

Allocation of fund to NHAI for road development Positive Due to many issues pertaining to BOT model, NHAI is planning to award more projects on anEPC model basis. Hence, allocating significant amount would be instrumental in EPC awarding,

Increase in road cess from | 2 per litre to | 4 per litre on petrol and diesel Positive Over the last decade, road cess, which is a part of internal and extra Budgetary resources of theGovernment of India, has been used as a key instrument to finance NHAI's road programmes.

Key expectations Impact Our ViewDetailed roadmap for "Smart Cities" initiative including status of the | 7,060 crore earmarked during FY15 Budget and revised allocation, if any

Positive This could boost IT spending in developing smart facilities in healthcare, education, security,energy, logistics, financial services, hospitality and real estate verticals

Roadmap on Digital India initiative. Update on new IT and e-governance projects

Positive Upgradation of legacy IT systems could revive the domestic IT market across the entire valuechain (hardware, software products and services)

Focus on electronic hardware/semiconductor industry to boost local manufacturing and provide production-linked subsidies

Positive This could create incremental opportunities for Indian vendors given their existing relationshipswith leading semiconductor companies. It could also boost manufacturing and reducedependence on electronic imports

An update on the | 10,000 crore start-up fund created in the previous Budget last year

Positive Monetary or infrastructure benefits to start-ups and SMEs could breed innovation and increaseR&D spending for IP creation

Hotel

Infrastructure

IT

19


Key expectations Impact Our ViewAnnouncement of a National level Multi-modal policy for domestic logistics network

Positive Such a policy would encourage adequate linkage among different modes of transport allowingthe transporter to select the most economic transportation network reducing the overall cost ofmovement of goods from the production to consumption centre. Also, this would entail longterm benefit for the economy in terms of achieving a balanced modal mix

Roadmap of GST rollout Positive Due to the current tax structure, logistics players have smaller and fragmented warehousecapacity in virtually every state. However, with implementation of GST, tax will be levied onstock transfers and full credit would be available on inter-state transactions, which would lead toconsolidation of warehousing capacity leading to economies of scale for the logistics sector.Key stocks that are likely to benefit are TCI, Gati & Blue Dart Express

Key expectations Impact Our ViewIncrease in import duty on HR and CR coils and sheet from 7.5% to 10% Positive This move will increase the competitiveness of domestic players and curb the inflow of cheaper

steel in India. On the back of a fall seen in global steel prices, over the last few months a steepincrease has been seen in steel imports. During April 2014-January 2015, the total import ofsteel stood at 8.1 MT vs. 4.8 MT for the same period last year, indicating growth of 69%

Reduction of export duty on iron ore fines (from 30% to 10%) Positive Move will be positive for miners mining low quality iron ore fines, which find limitedapplication in domestic steel manufacturing

Withdrawal of 2.5% import duty in iron ore and coking coal Positive This move will aid in reducing the input costs for domestic players

Logistics

Metals & Mining

20


Key expectations Impact Our ViewClarity/roadmap on subsidy sharing mechanism Positive This move will provide visibility on the profitability of oil upstream and downstream PSU

companies. This will also allow companies to plan their investments in an efficient manner Extension of modified direct benefit transfer (DBT) scheme for kerosene Positive This will help to check and reduce leakages in the subsidy for kerosene, which will, in turn,

reduce gross oil under-recoveries and benefit PSU companiesRemoval of customs duty on LNG for all users and according of "declared good" status to natural gas

Positive This move will reduce gas prices for consuming sectors including city gas distributioncompanies. Gas utility companies will also benefit due to the increase in volumes on account oflower gas prices

Reintroduction of customs duty on crude oil Positive This move will benefit upstream companies including private players on account of higherrealisations and will be negative for oil refining companies due to negative impact on GRMs

Extension of tax holiday benefit from seven years to 10 years to companies engaged in production of mineral oil as well as natural gas

Positive This step will increase investments in the oil exploration & production segment and increaseprivate sector participation. Existing companies may also benefit from the policy if it applies toearlier blocks

Reduction in MAT rate and cut in cess for oil & gas companies Positive This move will promote E&P activities and mainly benefit private upstream companies that arecurrently under MAT rate. PSU upstream companies will also benefit due to the reduction incess

Key expectations Impact Our ViewTax deduction of 100% of profits and gains derived from operating and maintaining hospitals for a period of 10 consecutive assessment years in any 15 year period starting from date of operations of hospital facility, anywhere in India being allowed

Positive Being a capital intensive sector, hospitals take four or five years to break even. As the deductionis available only for five consecutive years from the year they start functioning, they miss out ontax benefits when they are needed most

Hospitals sector should be exempt from minimum alternate tax Positive This move would enable companies to invest more in setting up new hospitalsIncrease in tax holiday from the current five years to 10 year time frame under section 80-IB for private healthcare providers in non-metros for minimum of 50 bedded hospitals instead of current 100 beds

Positive This move would enhance small private hospitals in Tier II/III cities

Continuance of weighted R&D deduction of 200% for five more years Positive This will reduce tax burden

All excisable goods used for R&D should be exempted from central excise duty Positive This will boost R&D spend

Oil & Gas

Healthcare

21


Key expectations Impact Our ViewIncentive in the form of tax pass through status for REITs Positive This will pave the way for REIT listing in India, which would lead to compression in capital rate

and better valuation for developers. Additionally, it will free up capital for developers. Keybeneficiaries: Oberoi Realty, DLF, Prestige Estate & Phoenix Mills

Removal of MAT on SEZ developer & units Positive This would be positive for SEZ developers like Mahindra Lifespace as this would not only leadto better cash flow through tax saving but also lead to better demand for SEZ units

Tax incentives for affordable housing Positive The government has already emphasized on Housing for All by 2022. To achieve this target, thegovernment needs to come out with some fiscal incentive. Key beneficiaries: MahindraLifespace, Sobha Developers

Allocation of funds towards development of smart cities by modernising existing mid-sized cities

Positive This move would provide a huge opportunity for real estate developers as newer cities wouldcreate demand for housing. Key beneficiaries: Mahindra Lifespace, Godrej Properties, PrestigeEstates, etc.

Increase in the deduction limit on account of interest on loan in respect ofself occupied house property from | 2 lakh to | 2.5-3 lakh

Positive Currently, where all buyers are in a wait and watch mode, increase in exemption may lead tobetter residential demand across cities

Key expectations Impact Our ViewEasing of import duty on gold from the current 10% to 8% Positive The reduction of import duty on gold will not only bring down the effective price of gold but

also help in bringing down the quantum of smuggled gold. This move will be positive fordomestic jewellers like Titan Company, Tribhovandas Bhimji Jewellers, PC Jewellers, TaraJewels, etc

Roadmap on rollout of GST Positive With the introduction of GST, domestic retailers will be able to avoid the double duties (paidcurrently). We expect that after rollout of GST, retailers are likely to witness an operating marginexpansion of 100-150 bps. This move will be positive for retailers like Shoppers Stop, FutureRetail, Trent, Reliance Retail, etc.

Exemption of service tax on electricity charges paid by retailers to landlords/lessors

Positive This will aid in reducing the operating cost for retailers

Abatement for levy of service tax on renting of immovable property Positive Availability of such an abatement would reduce the operating cost and also bring downworking capital requirement to some extent

Retail

Real Estate

22


Key expectations Impact Our ViewRationalise tax structure: Telcos shell out money to the government under various heads like spectrum usage charges, license fees, service tax and income tax. The government may look at simplifying tax and fees structure for telecom operators. This would benefit the whole industry in terms of lower outgo

Positive The reduction in tax would also improve the EPS across telecom companies. However, we feelany major reduction will be less likely because of the burgeoning fiscal deficit

Tax rebates for broadband services; this would give a push to fixed broadband sector, which has been able to add just 15 million subscribers in the last 17 years

Positive The government may introduce sops for broadband since it will also provide impetus to thegovernment's NOFN target of providing broadband to the Gram Panchayats

Tax incentive for mobile phone production in India; In the backdrop of "Make in India", tax incentives could encourage mobile phone production in India

Neutral The country imports mobile handsets worth approximately | 58500 crore while exports havefallen from | 11850 crore in 2013 to | 2450 crore in 2014. Though the Budget announcementwill not make an overnight impact in domestic manufacturing, it will certainly be a push in theright direction

Rationalise the tax structure for DTH and MSO players as they have to face the brunt of double taxation by paying entertainment tax to the state and service tax to the Central government.; Any reduction in the service tax or entertainment tax will make services cheaper for subscribers and help in faster penetration of digitisation. Further, it will also reduce the EBITDA margins of DTH players and MSOs to some extent, although the exact impact cannot be quantified

Positive The MSOs have to currently pay huge sums of money as taxes to the government. There is along standing dispute between the liability of this taxes between LCOs and MSOs that are alsoslowing down the digitisation process. Any uniformity/rationalisation in service orentertainment tax would help the industry, as a whole

Reduction in license fees from 10% to 6% for DTH operators; Reduction in license fees will augur well for the DTH player making them more competent versus MSOs who do not pay any license fees

Positive Dish TV would emerge as the key beneficiary if there is any headway on this aspect

Key expectations Impact Our ViewRestoration of excise duty on branded apparel (excise duty of 10%, with 70% abatement)

Negative In last year's Budget, the excise duty on branded apparel was reversed to help the industryduring a tough demand environment. Branded apparel players like Kewal Kiran Clothing, Arvind,Page Industries, etc. will be negatively impacted

Reduction in excise duty on man-made fibres from the current 12% to 6% Positive Will be beneficial for man-made textile manufacturers like JBF Industries, Indo Rama Synthetics,Bombay Rayon Fashions, Grasim Industries, Alok Industries, etc

Telecom & Media

Textiles

23

Market’s sensitivity to Budget : A sneak into the History

Budget Date Sensex BSE AutoBSE

BankexCapital Goods

BSE FMCG

BSE Oil & Gas

BSE Power

3-Feb-04 -3.7 -2.0 -1.3 -9.2 -7.4 -6.88-Jul-04 0.4 3.8 -6.5 10.4 0.9 1.128-Feb-05 0.2 -2.2 2.7 12.2 -6.2 1.4 9.428-Feb-06 3.7 9.3 -1.9 3.5 10.4 -1.5 5.128-Feb-07 -4.3 -3.8 -7.8 -3.6 -6.8 -2.2 -4.629-Feb-08 1.0 -0.1 -6.0 1.3 4.0 4.3 0.216-Feb-09 3.3 2.4 -0.3 0.5 2.9 10.2 4.86-Jul-09 -1.3 -6.5 3.1 0.7 3.2 -7.0 -2.626-Feb-10 -0.2 -0.7 3.4 2.6 -2.2 -3.6 -1.628-Feb-11 -3.4 -7.2 -1.9 -8.9 -2.4 -0.8 -8.116-Mar-12 -2.6 -2.3 -2.8 -3.5 1.7 -1.0 -1.628-Feb-13 -3.7 -4.0 -6.1 -9.4 -3.9 -6.1 -6.617-Feb-14 -3.3 -0.5 -6.6 -2.8 -2.1 -4.4 -5.311-Jul-14 -0.4 -0.4 -3.9 -2.9 0.2 -6.1 -2.8

Budget Date Sensex BSE AutoBSE

Bankex Capital Goods

BSE FMCG

BSE Oil & Gas

BSE Power

3-Feb-04 3.9 10.5 3.9 6.7 -1.4 7.98-Jul-04 7.3 2.9 10.4 11.1 1.3 11.228-Feb-05 -3.3 -4.9 -1.7 -5.3 -1.1 -3.7 -7.428-Feb-06 8.8 6.5 1.2 10.4 12.3 10.9 11.128-Feb-07 1.0 -4.7 2.1 2.7 -2.6 1.9 1.129-Feb-08 -11.0 -7.4 -23.7 -13.1 0.7 -9.2 -13.116-Feb-09 -3.9 9.3 -14.8 -5.3 -4.9 0.5 -4.66-Jul-09 8.0 22.4 4.4 0.5 10.5 5.7 3.826-Feb-10 7.4 6.3 8.2 4.4 6.7 6.6 3.628-Feb-11 9.1 12.6 12.3 6.7 4.8 8.3 7.516-Mar-12 -1.8 1.3 0.5 -2.3 9.9 -3.4 -4.228-Feb-13 -0.1 -4.4 -1.3 -1.8 4.4 -3.7 -5.617-Feb-14 6.6 6.2 16.6 23.2 4.6 10.4 6.711-Jul-14 2.0 5.3 2.7 -4.6 2.4 -0.8 -3.7

% Return 1 month prior budget % Return 1 month post budget

2.2

0.9 1.10.7 0.5

-1.4-1.5-1.2-5.8-3.4-4.0 -1.4-2.3-1.3

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

2004

2004

*

2005

2006

2007

2008

2009

2009

*

2010

2011

2012

2013

2014

2014

*

% Return on the budget day

Source: Bloomberg, ICICIdirect.com Research

* Interim budget

Pankaj Pandey Head – Research [email protected] Research Desk,ICICI Securities Limited,1st Floor, Akruti Trade Centre,Road no.7, MIDCAndheri (East)Mumbai – 400 [email protected]

Disclaimer

ANALYST CERTIFICATIONWe /I, Pankaj Pandey, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

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ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances.This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. 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