Budget 2012: How your personal finance portfolio has changed
Budget 2012 - Individuals get incentives to invest in stocks; mixed bag for industry.
This year's Union Budget seeks to give individuals a number of incentives to invest in shares. The proposed Rajiv Gandhi Equity Savings Scheme, for instance, will allow 50 per cent deduction to new retail investors who invest up to Rs 50,000 in equities if their annual income is below Rs 10 lakh a year. The scheme will have a lock-in of three years.
"This will not only reduce volatility in the stock market but also pave the way for distributed holding of equity shares," says Kishore Bang, co-founder & director, Nirmal Bang Group. Considering that only 2 per cent people in the country have demat accounts, there is a lot of scope for retail participation in the stock market.
Further, to boost stock market volumes, the Securities Transaction Tax (STT), which is levied on purchase or sale of shares on stock exchanges, has been reduced by 20 per cent from 0.125 per cent to 0.1 per cent on cash delivery transactions. This means from Rs 125 on every trade worth Rs 1 lakh, you will now have to pay just Rs 100.
According to analysts, this is unlikely to give a major push to volumes. Also, delivery-based transactions account for just 15 per cent volumes in the equity market.
The finance minister has also proposed a change in initial public offer, or IPO, norms so that more people can invest in these offers.
The budget seeks to make it mandatory for companies to issue IPOs of Rs 10 crore and above in the electronic form through the nationwide broker network of stock exchanges. This will ensure wider shareholder participation in important decisions of companies through electronic voting.
Money Today seeks views of experts on the Budget's impact on industry.
Proposal
Rs 15,888 crore provided for capitalisation of public sector banks, regional rural banks and other government financial institutions, including NABARD. A financial holding company will be set up to meet the capital needs of public sector banks.
IMPACT
Capitalisation is unlikely to be a significant driver of stock performance. "The issue of capital in banks has never been big in India. Very high short-term interest rates are the biggest issue. Worries over non-performing loans are no longer very significant," says Sankaren Naren, chief investment officer, ICICI Prudential Mutual Fund.
Proposal
Interest on savings account deposits up to Rs10,000 to be eligible for tax deduction.
IMPACT
Won't be a very significant driver of stock performance.
Proposal
Scheme for education loans by banks being implemented to ensure better flow of credit to students and extension of 1 per cent interest subvention to farmers.
IMPACT
The move will bring down provisioning and non-performing assets of public sector banks that have grown fast and have stressed balance sheets.
Proposal
Increase in excise duty on small cars, two-wheelers and light commercial vehicles from 10 per cent to 12 per cent.
IMPACT
Cars and utility vehicles to become expensive. Near-term demand will be hit.
Proposal
Excise duty on large cars and utility vehicles increased from 22 per cent to 24 per cent. Customs duty on imported cars increased from 60 per cent to 75 per cent where the value of the vehicle exceeds $40,000.
IMPACT
While excise duty increase is negative, boost to the infrastructure sector will prop up demand for commercial vehicles. Companies like Ashok Leyland and M&M to benefit.
Proposal
Direct import of aviation turbine fuel allowed. Higher foreign direct investment limit being considered.
IMPACT
Positive for airlines but infrastructure and logistics challenges for buying fuel abroad are a concern.
Proposal
Airlines allowed to access external commercial borrowings (ECBs) for working capital requirements for one year with a ceiling of $1 billion.
IMPACT
Will help airline companies get working capital at a lower rate, give respite to debt-laden airlines.
Proposal
Rate of withholding tax on interest payments on ECBs reduced from 20 per cent to 5 per cent for three years
IMPACT
Will lower borrowing cost. The major beneficiaries will be Jet Airways and Kingfisher Airlines.
Proposal
Increase in overall excise duty from 10 per cent to 12 per cent.
IMPACT
In view of tough competition, it will be difficult for general manufacturing companies to pass on the increase to customers.
Proposal
5 per cent increase in excise duty on filtered cigarettes and other tobacco products.
IMPACT
Increase likely to be passed on to customers.
Proposal
Increase in import duty on flat steel from 5 per cent to 7.5 per cent
IMPACT
Move will encourage growth of the steel sector. Flat steel producers like Tata Steel and JSW Steel will be beneficiaries.
Proposal
Reduction of import duty on equipment and machinery for exploration and prospecting.
IMPACT
Will lower the cost of raw material.
Proposal
Access to ECBs to part-finance the rupee debt of existing power projects with no limit, relaxation of ECB tax norms.
IMPACT
Positive for companies as ECBs were not allowed for new sanctions. Will reduce cost of loans.
Proposal
Steam coal exempted from basic Customs duty and countervailing duty, or CVD, of 1 per cent till 31 March 2014.
IMPACT
Will lower the cost of imported coal and benefit imported coal-based power plants and companies like Adani Power, Tata Power and Reliance Power, among others.
Proposal
Extension of the sunset date for power sector undertakings to allow them to claim 100 per cent tax deduction on profits for 10 years.
IMPACT
Gives opportunity to developers to commission power plants next year and avail of benefits.
Proposal
Additional depreciation of 20 per cent in the initial year extended to new assets acquired by power generation companies.
IMPACT
Will lower cost of funds for the power sector. Positive for companies with high external borrowings.
Proposal
Tax-free infrastructure bond limit increased to Rs 60,000 crore from Rs 30,000 crore last year. NHAI to award contracts for 8,800 km roads in 2012-13 compared to 7,300 km in 2011-12.
IMPACT
This will provide low-cost long-term funds to infrastructure finance companies. The main beneficiaries will be Power Finance Corp, Rural Electrification Corporation and IDFC.
Proposal
Relaxation of ECB norms.
IMPACT
Easy availability of funds and relaxation of ECB norms are likely to accelerate road projects. Beneficial for L&T, BHEL, IRB, ITNL, and other engineering, procurement and construction companies.
Proposal
Differential duty structure abolished in favour of a unified rate Proposed unified rate is 12 per cent plus Rs 120 per metric tonne for non-mini cement plants and 6 per cent plus Rs 120 per metric tonne for mini cement plants.
IMPACT
Neutral. Will result in a nominal increase in duty and price. Any change will be passed on to consumers.
Proposal
Customs duty on imported coal abolished
IMPACT
Positive for companies using imported coal.
Proposal
Interest subvention on affordable housing retained.
IMPACT
The key beneficiaries will be LICHF and Dewan Housing, whose loans have a low ticket size. The other beneficiaries will be Gruh Finance and Aadhar Housing (subsidiary of Dewan Housing) with rural focus.
Proposal
1 per cent tax deducted at source on property transactions.
IMPACT
This will improve transparency in the long run.
Proposal
Service tax exemption for construction of mass housing up to 60sq m under the Scheme of Affordable Housing in Partnership. Relaxation of ECB tax norms
IMPACT
Beneficial for real estate companies in low-cost housing.
Proposal
Increase the cess on crude petroleum oil produced in India to Rs 4,500 per metric tonne from Rs 2,500 per metric tonne.
IMPACT
Negative for both refiners and marketing companies as earnings will be impacted.
Proposal
Oil & gas pipeline infrastructure eligible for viability gap funding.
IMPACT
Will increase investments in these areas.
Proposal
Partnership firms to be brought under Minimum Alternate Tax, or MAT (20 per cent).
IMPACT
Sun Pharmaceutical to be hurt the most as all its tax-exempt facilities are owned by partnership firms. Now, there is a good chance that they will pay 20 per cent MAT. If this gets confirmed, earnings will be lower by 10-11 per cent.
Proposal
The government has extended the research and development tax benefit (200 per cent weighted average deduction) for five years.
IMPACT
Continuance of the benefit. So, no additional impact expected.
Proposal
Service tax increased form 10 per cent to 12 per cent.
IMPACT
Negative for companies like Hathway and Dish TV, but the increase, say experts will be passed on to customers.
Proposal
Service tax exemption on copyrights related to recording of cinematographic films.
IMPACT
Positive for film producers.
Sources: Morgan Stanley, Credit Analysis & Research, Kotak Securities, Espirito Santo Securities & ICICI Direct
"This will not only reduce volatility in the stock market but also pave the way for distributed holding of equity shares," says Kishore Bang, co-founder & director, Nirmal Bang Group. Considering that only 2 per cent people in the country have demat accounts, there is a lot of scope for retail participation in the stock market.
Further, to boost stock market volumes, the Securities Transaction Tax (STT), which is levied on purchase or sale of shares on stock exchanges, has been reduced by 20 per cent from 0.125 per cent to 0.1 per cent on cash delivery transactions. This means from Rs 125 on every trade worth Rs 1 lakh, you will now have to pay just Rs 100.
According to analysts, this is unlikely to give a major push to volumes. Also, delivery-based transactions account for just 15 per cent volumes in the equity market.
The finance minister has also proposed a change in initial public offer, or IPO, norms so that more people can invest in these offers.
The budget seeks to make it mandatory for companies to issue IPOs of Rs 10 crore and above in the electronic form through the nationwide broker network of stock exchanges. This will ensure wider shareholder participation in important decisions of companies through electronic voting.
Money Today seeks views of experts on the Budget's impact on industry.
BANKING
Proposal
Rs 15,888 crore provided for capitalisation of public sector banks, regional rural banks and other government financial institutions, including NABARD. A financial holding company will be set up to meet the capital needs of public sector banks.
IMPACT
Capitalisation is unlikely to be a significant driver of stock performance. "The issue of capital in banks has never been big in India. Very high short-term interest rates are the biggest issue. Worries over non-performing loans are no longer very significant," says Sankaren Naren, chief investment officer, ICICI Prudential Mutual Fund.
Proposal
Interest on savings account deposits up to Rs10,000 to be eligible for tax deduction.
IMPACT
Won't be a very significant driver of stock performance.
Proposal
Scheme for education loans by banks being implemented to ensure better flow of credit to students and extension of 1 per cent interest subvention to farmers.
IMPACT
The move will bring down provisioning and non-performing assets of public sector banks that have grown fast and have stressed balance sheets.
AUTOMOBILE
Proposal
Increase in excise duty on small cars, two-wheelers and light commercial vehicles from 10 per cent to 12 per cent.
IMPACT
Cars and utility vehicles to become expensive. Near-term demand will be hit.
Proposal
Excise duty on large cars and utility vehicles increased from 22 per cent to 24 per cent. Customs duty on imported cars increased from 60 per cent to 75 per cent where the value of the vehicle exceeds $40,000.
IMPACT
While excise duty increase is negative, boost to the infrastructure sector will prop up demand for commercial vehicles. Companies like Ashok Leyland and M&M to benefit.
AVIATION
Proposal
Direct import of aviation turbine fuel allowed. Higher foreign direct investment limit being considered.
IMPACT
Positive for airlines but infrastructure and logistics challenges for buying fuel abroad are a concern.
Proposal
Airlines allowed to access external commercial borrowings (ECBs) for working capital requirements for one year with a ceiling of $1 billion.
IMPACT
Will help airline companies get working capital at a lower rate, give respite to debt-laden airlines.
Proposal
Rate of withholding tax on interest payments on ECBs reduced from 20 per cent to 5 per cent for three years
IMPACT
Will lower borrowing cost. The major beneficiaries will be Jet Airways and Kingfisher Airlines.
CONSUMER COMPANIES
Proposal
Increase in overall excise duty from 10 per cent to 12 per cent.
IMPACT
In view of tough competition, it will be difficult for general manufacturing companies to pass on the increase to customers.
Proposal
5 per cent increase in excise duty on filtered cigarettes and other tobacco products.
IMPACT
Increase likely to be passed on to customers.
METALS AND MINING
Proposal
Increase in import duty on flat steel from 5 per cent to 7.5 per cent
IMPACT
Move will encourage growth of the steel sector. Flat steel producers like Tata Steel and JSW Steel will be beneficiaries.
Proposal
Reduction of import duty on equipment and machinery for exploration and prospecting.
IMPACT
Will lower the cost of raw material.
POWER
Proposal
Access to ECBs to part-finance the rupee debt of existing power projects with no limit, relaxation of ECB tax norms.
IMPACT
Positive for companies as ECBs were not allowed for new sanctions. Will reduce cost of loans.
Proposal
Steam coal exempted from basic Customs duty and countervailing duty, or CVD, of 1 per cent till 31 March 2014.
IMPACT
Will lower the cost of imported coal and benefit imported coal-based power plants and companies like Adani Power, Tata Power and Reliance Power, among others.
Proposal
Extension of the sunset date for power sector undertakings to allow them to claim 100 per cent tax deduction on profits for 10 years.
IMPACT
Gives opportunity to developers to commission power plants next year and avail of benefits.
Proposal
Additional depreciation of 20 per cent in the initial year extended to new assets acquired by power generation companies.
IMPACT
Will lower cost of funds for the power sector. Positive for companies with high external borrowings.
CONSTRUCTION AND INFRA
Proposal
Tax-free infrastructure bond limit increased to Rs 60,000 crore from Rs 30,000 crore last year. NHAI to award contracts for 8,800 km roads in 2012-13 compared to 7,300 km in 2011-12.
IMPACT
This will provide low-cost long-term funds to infrastructure finance companies. The main beneficiaries will be Power Finance Corp, Rural Electrification Corporation and IDFC.
Proposal
Relaxation of ECB norms.
IMPACT
Easy availability of funds and relaxation of ECB norms are likely to accelerate road projects. Beneficial for L&T, BHEL, IRB, ITNL, and other engineering, procurement and construction companies.
CEMENT
Proposal
Differential duty structure abolished in favour of a unified rate Proposed unified rate is 12 per cent plus Rs 120 per metric tonne for non-mini cement plants and 6 per cent plus Rs 120 per metric tonne for mini cement plants.
IMPACT
Neutral. Will result in a nominal increase in duty and price. Any change will be passed on to consumers.
Proposal
Customs duty on imported coal abolished
IMPACT
Positive for companies using imported coal.
REAL ESTATE
Proposal
Interest subvention on affordable housing retained.
IMPACT
The key beneficiaries will be LICHF and Dewan Housing, whose loans have a low ticket size. The other beneficiaries will be Gruh Finance and Aadhar Housing (subsidiary of Dewan Housing) with rural focus.
Proposal
1 per cent tax deducted at source on property transactions.
IMPACT
This will improve transparency in the long run.
Proposal
Service tax exemption for construction of mass housing up to 60sq m under the Scheme of Affordable Housing in Partnership. Relaxation of ECB tax norms
IMPACT
Beneficial for real estate companies in low-cost housing.
OIL & GAS
Proposal
Increase the cess on crude petroleum oil produced in India to Rs 4,500 per metric tonne from Rs 2,500 per metric tonne.
IMPACT
Negative for both refiners and marketing companies as earnings will be impacted.
Proposal
Oil & gas pipeline infrastructure eligible for viability gap funding.
IMPACT
Will increase investments in these areas.
PHARMACEUTICAL
Proposal
Partnership firms to be brought under Minimum Alternate Tax, or MAT (20 per cent).
IMPACT
Sun Pharmaceutical to be hurt the most as all its tax-exempt facilities are owned by partnership firms. Now, there is a good chance that they will pay 20 per cent MAT. If this gets confirmed, earnings will be lower by 10-11 per cent.
Proposal
The government has extended the research and development tax benefit (200 per cent weighted average deduction) for five years.
IMPACT
Continuance of the benefit. So, no additional impact expected.
MEDIA
Proposal
Service tax increased form 10 per cent to 12 per cent.
IMPACT
Negative for companies like Hathway and Dish TV, but the increase, say experts will be passed on to customers.
Proposal
Service tax exemption on copyrights related to recording of cinematographic films.
IMPACT
Positive for film producers.
Sources: Morgan Stanley, Credit Analysis & Research, Kotak Securities, Espirito Santo Securities & ICICI Direct
