Budget 2012: What will impact auto, banking and real estate?
March, 02nd 2012
It seems to be a complicated Budget for Mr Pranab Mukharjee. The growth rate is declining, inflation has touched its peak, interest rates are constant at higher levels and fiscal deficit expected to be very high and to add glitter to the gloom expectations are very high in terms of personal tax structure.
We could not meet our GDP growth targets whereas our expenditure and fiscal deficit targets have surpassed. Inflation for the year is expected to be around 7.5 to 8%. Rising cost of imports especially crude oil and declining rupee is another cause of concern for the govt. Budget may be tricky this time for the individuals as well as corporate. Following can be important points related to individuals:
Tax Slab for male candidates may increase to Rs 2.10 lakhs from Rs 1.80 lakhs and for women it may go up to Rs 2.25 Lakhs from Rs 2.00 Lakhs.
Deduction under section 80C may increase to Rs 1.50 Lakhs instead of Rs 1.00 Lakhs. Whereas, additional limit in infrastructure bonds may remain same. There can be announcements on Direct Tax Code relating to implementation from next financial year. Few new services will be added to the service tax basket. Food security bill will be introduced during the Budget and a specified fund would be allocated for the food security in the country.
Following sectors may be impacted during Budget: Automobile: Increase in excise duty on diesel vehicles is certain and it may be accompanied by petrol vehicles as well. Whereas, there may be a sharp cut in import duty on vehicles imported to India. Diesel price de-regulation is in conversation since a long-time, but the Govt will get rid of it by increasing nominal amount of duty on the same. Automobile industry will be impacted mildly negatively after the announcements. We are also expecting sharp decline in the sales numbers of diesel vehicles after Budget. Automobile companies will be forced to increase the prices of vehicles and suffer losses on the back of declining sales numbers. The price increase may range from 3% to 6%. On the other hand, RBI's credit policy may bring sigh of relief by cutting interest rates during March or most probably in April. Another area of concern for automobile sector is; rising crude oil prices due to disturbance in Iran. Nothing seems to be positive for the sector. We hold underperform rating on the overall sector.
Banking: There can be certain guidelines on the banking industry during Budget speech. Finance minister may guide banks to have stringent credit policies to avoid defaults. There can be clarity on issuing new banking licenses which would further increase competition in the industry. Again, banking industry would face ups and downs throughout the year. There would be increased liquidity on the back of the declining interest rates but demand would be slow because of slow-down in real estate and automobile industry. International situations would also add pressure to the banking industry. Increasing defaults from the corporate would put a question mark on the assets quality of the banks. We believe banks would be neutral through-out financial year 2012-13.
Real Estate: Govt is working on introducing independent regulatory body for the Real estate sector. Govt has appointed a committee to perform the primary research and assigned the responsibility to design the structure for regulatory body. There can be further clarity on the development in the same area. Few new regulations or acts can be introduced or amended related to residential and commercial properties. This is one of the most un-organized industries in India. It's the prime focus of the Govt. to stream line real estate industry in order to control black money and flow of funds within the country. This step would benefit large cap companies in the segment of construction and contracting. Now, the intermediation process in the real estate industry would be more regulated and with hassle free procedures. There would be more income for the Govt in terms of tax collection from the sector. Rental income would also be part of effective tax structure now. If Govt. will introduce regulatory body the industry may emerge as a victor in the coming years