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Expect markets to receive Budget 2013 positively: Ambit Capital
February, 20th 2013

The Union Budget for FY'14 is likely to be a 'dream budget' that will deliver the promised fiscal consolidation as well as imbibe progressive tax reforms, says an Ambit Capital pre-budget report.

It expects the Finance Minister to peg the budget estimate at 4.8 per cent of GDP, thereby offering fiscal consolidation of 50 bps vs FY13.

The brokerage expects the stock market to receive this budget positively and sees the oil & gas and B2C sectors to benefit the most from the budget.

"We expect the oil & gas sector to be a key beneficiary of the likely disinvestment of Indian Oil, because this will ensure the continuance of diesel price reforms. Our oil and gas analyst views ONGCBSE -0.42 %, BPCL, HPCL and Indian OilBSE 0.73 % as plays on this theme," the report says.

"From a medium-term perspective, retailers are likely to benefit the most from the eventual implementation of GST," it says.

Following are the sectors that are expected to get impacted by the Union Budget 2013:

Oil & Gas: (Positive Impact)

Decision: The government plans to disinvest its stake in Indian Oil in FY'14. Furthermore, the government appears to be considering: (a) reinstating custom duty on crude imports; and (b) changing the pricing mechanism for autofuel to 'Export Parity' pricing.

Impact: A 5 per cent custom duty on crude implies an increase in government revenues by Rs 200 billion, but this will also increase fuel underrecoveries by the same amount unless it is passed on to the consumers. Hence, this would be: (a) a negative for OMCs (due to an increase in total fuel under-recoveries),

(b) positive for Cairn India (due to higher crude realisation), and (c) neutral for upstream PSUs (as higher crude realisation will offset higher underrecoveries).

We believe there is high probability of this being implemented, which appears to be broadly built in the price of OMCs. We allot a very low probability to export parity pricing going through because this would make OMCs' business unviable.

FMCG: (Negative Impact)

Decision: Headline service tax and excise duty revenues are likely to be left unchanged at 12 per cent with a clear focus on getting rid of exemptions and concessional rates so as to prepare for GST implementation.

Impact: The FMCG sector is the most exposed to a decision to remove exemptions and concessions to excise duty given that a multitude of items such as condensed milk, tea, starches, vegetable saps, sugar, and cocoa are currently exempt from excise duty.

Companies with high pricing power are likely to be more immune to the negative impact of such a decision. Key consumer companies with strong pricing power are HULBSE -0.63 %, GCPL, Marico, GSK Consumer, and Colgate. However, with price elasticity being high, such a change could have a negative impact on earnings.

Consumer Goods: (Positive Impact)

Decision: Imposition of a higher tax rate on the super rich and increase in government spends mid-year are likely.

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