Get More Info

  • Views Search

    Portfolio Tracker
  • : Our View on Budget 2006-07

    Our View on Budget 2006-07

    In the pre-budget article today morning, we highlighted a quote - "Reality leaves a lot to the imagination". How true it turned out to be! Perhaps this sums up the Budget 2006-07. Even as the stock markets were up (after a volatile first half), probably, the markets were happy because nothing happened! Nevertheless, here is our view on the budget.

    What was the theme of the Budget 2006-07?
    From "We make our own destiny" to "I believe that growth is the best antidote to poverty", the Finance Minister Mr. Chidambaram's Budget proposals for 2006-07 were full of enthusiasm. The FM also believes that there are "reasons to celebrate", what with the economy chugging at over 8% GDP growth combined with noticeable improvement in the government's balance sheet. And there was enough for the 'aam aadmi' in line with the common minimum programme of the UPA-led coalition government.

    What is our rating on the budget?
    On a scale of 1 to 5 (5 being the highest), we would rate the budget at 1.

    In our view, the FM has failed to take any bold steps even as he emphasizes the need to walk on the 'path of honour and courage'. For instance, the absence of any major policy decision as far as the energy sector is concerned gives an impression that the FM has not even intended to walk the tightrope, which one would have expected. Subsidy is another area the FM has failed to give proper attention. In our view, tinkering of excise and customs duty is not a path breaking reform! It is more out of compulsions, given our international trade agreements. To sum it up, the budget proposals lacked vision and therefore, were a damp squib.

    To his credit, there are some proposals with respect to rural electricity and scheduled implementation of Bharat Nirman, which are steps in the right direction. But we are only disappointed at the pace and the scale of these projects.

    Which sectors benefited the most?
    In an otherwise uninteresting Budget 2006-07, following sectors/companies are likely to benefit:

    1. Small cars now cheaper: Considering the reduction in excise duty on small cars (under 1,200 cc in the case of petrol-based ones and 1,500 cc in the diesel-powered vehicles of not more than 4,000 mms) from 24% to 16%, we expect around Rs 25,000 to Rs 30,000 reduction (assuming that manufacturers pass on the entire reduction to customers). So, more volumes sales for the likes of Maruti and Tata Motors. We also expect tractor sales to grow at a steady rate, considering the agricultural credit push.

    2. Engineering: Apart from the metro-rail projects in few metros, the FM has also proposed 1,000 kms of access-controlled Expressways (totaling seven) connecting key metros and state-level capitals. We expect the larger engineering companies (with specific focus on road construction projects) to benefit. However, it has to be borne in mind that the project will be awarded through an international bidding process and it remains to be seen whether domestic engineering companies have the scale and balance sheet to compete (barring HCC", Gammon and IVRCL). There is also a proposal to set up five ultra mega power projects with capacity of 4,000 MW each and the government intends to award the contract by December 2006. A big positive for engineering majors.

    3. Textiles: Apart from few excise and customs duty reduction, the key positive is that the FM has highlighted the fact that the sector is a significant employment generator and there is a need to boost domestic competitiveness. We draw comfort on this front.

    Which sectors were affected the most in light of the budget proposals?
    Instead of focusing on sectors that are negatively impacted by budget proposals, we have a number of sectors that have not been given the attention they deserve. Take the cases of tourism, power, telecom, financial services that are typically significant employment generators. Probably, the banking sector is likely to face the heat on account of the government's rural focus. We expect margins to come under pressure, as some of the scheme proposed may not be commercially viable.

    So, what we do we take home?
    Nothing! One way to look at the budget proposals is that despite the lack of major support or visionary leaders at the top, India, as a developing economy, has come a long way. And the FM has not done anything negative to spoil the sense of confidence that corporates now have as compared to a decade ago. This is definitely a huge positive.

    What is the post-budget equity strategy?
    While the short-term traders may not be happy about the 25% increase in STT (securities transaction tax), for a long-term investor i.e., investor with a three to five year view, nothing has changed. Equities still remain a high-risk asset class. Equities tend to be rewarding in the long-term. Provided there is a decent stock selection process and more importantly, there are still promising long-term stories available at reasonable valuations even in this market. Buy those stocks and hold for the long-term and you do not have to worry about yearly budget announcements.

     Research ReportsTop 100 Indian companies with Buy/Sell price limits
     StockSelectBuy/Sell recommendation every week in your mailbox
     Mid-Cap SelectBuy/Sell recommendation every fortnight in your mailbox
     FundSelectMutual Fund Advisory with downloadable database

    More Views on News

    Insider Leaks Equitymaster Stock Picks (The 5 Minute Wrapup)

    Jul 25, 2017

    Equitymaster HQ has been infiltrated. Valuable stock ideas have been leaked. Who's responsible?

    Raymond and Other 'For Profit' Companies Who Don't Care about Shareholder Returns (The 5 Minute Wrapup)

    May 27, 2017

    What happens when minority shareholders are short-changed in the normal course of business?

    Why Commission Driven Model In Mutual Funds Should Be Eliminated... (Outside View)

    Feb 15, 2017

    PersonalFN believes SEBI has taken a step back-apparently in the admission of it going overboard with the regulations.

    This Book Changed How I Looked at the World of Man and Money (Vivek Kaul's Diary)

    Aug 24, 2016

    And here's your chance to claim a free copy of this book...

    The Developed World is Dying because of Demographics, Debt, and Deflation (Vivek Kaul's Diary)

    Aug 12, 2016

    And Why India's demographic dividend could turn out to be a doubtful debt...

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!


    © Equitymaster Agora Research Private Limited |
    Why Personalfn? | Why Equitymaster? | Terms of Use | Contact Us | About Us