Host of measures will help power sector

Image via Wikipedia

India was one of the first countries to adopt counter-cyclical measures to combat the slowdown and this helped our economy emerge from the slowdown in the shortest possible time. Finance minister Pranab Mukherjee, in his Budget of 2010-11, is clearly following up on this success, with a Finance Bill that focuses on all-round inclusive growth without losing focus on fiscal discipline.

The Finance Bill 2010 clearly seeks to balance three compulsions—strong economic growth, lower food prices and fiscal responsibility. His support programme extends to all stakeholders. Indian industry has been able to hold its head high in these difficult times thanks to robust consumer spending. The finance Bill promises to keep this dream run intact by providing for income tax relief so that there is more money to spend.

The need to generate more revenues has led him to impose a cess of Rs 50 per tonne on coal, to raise levies on petro products and hike MAT. At the same time, he has brought down the surcharge payable by domestic companies to 7.5%.

In the power sector, we have to work out the arithmetic. He has doubled the outlay on the power sector and increased the refinancing window enjoyed by IIFCL. Overall, the host of measures rolled out for non-transport infrastructure segment would help the sector.

The Finance Bill clearly states that the aim of the policy and tax measures would be to bring down the cost of power generation and transmission and the detailed sums on the sector will be worked out soon.

The Finance Minister has also sought to balance the short-term targets with longer terms goals. In the short-term, the challenge was the goal of achieving 10% growth per annum.

The major gaps in development particularly in infrastructure and rural sector have been given due attention.

In the medium term, the finance minister has brought down fiscal deficit as a step to fiscal consolidation. In doing so, he has largely depended on rolling back excise duties by 2%.

The government will borrow Rs 3.45 lakh crore next year. The FM gave the assurance that this borrowing would not impact efforts of the private sector to raise funds. Nonetheless, since private sector will have to invest much more in future, there may be some pressure on interest rates and this aspect should be watched.

I am optimistic that the recovery will be sustained and a considered withdrawal of the stimulus package will be his chosen...

Source: http://www.financialexpress.com/news/Host-of-measures-will-help-power-sector/584914/

Consumer sector may gain little from Budget

Image via Wikipedia

Better economic growth will see wages rise as well. Volume growth has been slower in recent quarters and steep price hikes that aided growth in fiscal 2009 and early fiscal 2010 are history

This year’s Budget will hold much interest for investors in consumer sectors such as home, personal care and food products. On the cost front, a sharp jump in food prices and rising inflation in other manufactured products has seen costs increase.

In addition, advertising as a percentage of sales seems to have permanently moved to a higher level. Better economic growth will see wages rise as well. Volume growth has been slower in recent quarters and steep price hikes that aided growth in fiscal 2009 and early fiscal 2010 are history. Large players have had to keep prices in check to hold on to their market shares even if their operating margins suffer in the near term.

Watch videos, play the budget game, and find out how the budget affects you. All that and more on Livemint.com’s exclusive Budget 2010 microsite

Another consumer sector that attracts investor interest is organized retail, in which the large listed players are seeing their revenue and profits growing again. Retailers have become more realistic about their expansion plans, focusing on sustainable growth, and lower rentals and operating costs have helped improve margins.

Graphic: Yogesh Kumar / Mint

Graphic: Yogesh Kumar / Mint

What could the Budget hold for investors in these sectors? A roll-back in indirect taxes, by about 2-3 percentage points, is on the cards. Most consumer goods companies have factories in excise-exempt locations. The impact will be limited to the extent of production in other locations. In addition, companies claim credit on taxes paid on inputs. So the net impact will be lower. In the past, the government has occasionally hiked duties on cigarettes when faced with a revenue shortfall. A similar move in this Budget will have a short-term effect on their shares. ITC Ltd has shown the ability to pass higher taxes to customers, with little impact on consumption in the longer run. Market sentiment for the stock, however, may sour in the near term, depending on the quantum of hike.

The effect of higher levies could be offset by measures taken to counter the effect of rising inflation, especially in food. Rural demand for consumer goods received a boost after the government’s social sector schemes saw disposable income rise. But food inflation is eating into rural budgets. This effect is being noticed even in mass categories in urban areas. Any specific measures to ease the burden of inflation on consumers will be welcomed by investors.

The Budget proposals are likely to have a neutral to negative impact on the sector, depending on the extent of hikes in taxes proposed by the government to increase revenues. Any retail sector-specific measures are not expected, unless allowing foreign direct investment in multi-brand retail formats is taken up. An announcement on a new deadline to introducing a common goods and services tax by 1 April 2011 or even earlier will be a big positive. The consumer goods sector has been underperforming the Sensex since January and will continue to do so, till volume growth and pricing power returns or inflation falls sharply.

Source: http://www.livemint.com/2010/02/23232719/Consumer-sector-may-gain-littl.html