After a tough last year, retailing companies are back to reporting profits. Apart from signs of economic revival and changing consumer sentiment, the move by retailers to curtail costs has supported margin expansion. Though near to medium term outlook is not so heartening, the long term growth prospects of the retail sector are intact. The same is on account of expectations of revival in economic growth. There is immense opportunity, as consumption levels in India are extremely low and aspiration levels are high.
The Union Budget 2010's measures are likely to boost the sales of the sector with the increase in spending power. The tax relief extended to individuals is expected to result in higher disposable income and hence higher consumption. Apart from this, the budget has been neutral for the sector. Rather it has once again overlooked the sector in terms of granting industry status which brings clarity on taxes and duties applied.
Budget Measures
Individual tax payers have been given the benefit of lower tax slabs and higher exemption limits.
Surcharge on domestic companies reduced to 7.5% from 10%
Increase in the rate of Minimum Alternate Tax from 15% to 18% of book profits
Customs duty on gold ores and concentrates for use in manufacture of gold is being fully exempted. These goods will, however, be levied concessional CVD at the rate of Rs 140 per 10 gm of gold content.
Custom duty on precious metals indexed as follows- on gold and platinum from Rs 200 per gm to Rs 300 per gm. In case of silver the hike has been of Rs 500 to Rs 1,500 per kg.
Budget Impact
Increase in disposable income in the hands of the people will result in increase in consumption. Thus, in general increase in spending power is expected to boost the growth of the retail sector.
Increase in excise and custom duty on precious metals would result in higher prices of jewellery. This might impact sales as this industry is price sensitive. However, considering the Indian consumer's flare for jewellery and the increase in disposable income, the hike may not have a material impact.
Company Impact
Retailers such as Trent, Pantaloon, Shopper's Stop and Titan would benefit on account of increase in disposable income of consumers.
After a tough last year, retailing companies are back to reporting profits. Apart from signs of economic revival and changing consumer sentiment, the move by retailers to curtail costs has supported margin expansion. Though near to medium term outlook is not so heartening, the long term growth prospects of the retail sector are intact. The same is on account of expectations of revival in economic growth. There is immense opportunity, as consumption levels in India are extremely low and aspiration levels are high.