Minister tabled the Union Budget for the next financial year on Friday. The significant proposals in this budget include a hike in the
slabs of individual income tax, levy of Re 1 per litre as excise duty on petrol and diesel, hike in the peak excise duty, hike in excise duty for luxury cars, higher allocation for road infrastructure development, hike in the MAT rate, higher custom duty on crude oil and reduction in the tax surcharge for domestic companies.
The service tax net has been widened by adding some more services in the arena of service tax, but the limit has been retained at 10 percent which is a positive for sectors such as FMCG. The finance minister also reiterated the government's focus on education and generating skilled manpower with a higher allocation towards education.
In general, the markets have taken the budget with positive sentiments, especially the hike in income tax slabs. A rough calculation shows that individuals earning more than Rs 8 lakhs would be able to save Rs 50,000 from their tax burden. This directly means more money in the hands of consumers and investors, and hence an overall feel-good in the markets. As usual, the budget is going to have a positive as well as negative impact on various sectors. These are some significant sectors that will be impacted by the budget proposals in the next fiscal year:
Auto
As expected, the Finance Minister has proposed a hike in the excise duty for cars. The positive factor is the excise duty hike is only for luxury cars and the utility vehicles segment. The duty has been left unchanged for small cars. Analysts believe this is positive for the automobile sector as the demand in the luxury segment should not be elastic, and the volume growth in the sector would not be impacted as there is no change in the duty for small cars.
Although the hike in petrol and diesel prices is seen as a minor negative for the automobile sector, it would not have any major effect on the sales volumes of auto companies.
Oil
The Finance Minister has proposed a duty roll-back on petroleum prices. A basic duty of five percent on crude oil, 7.5 percent on diesel and petrol, and 10 percent on other products is proposed . This means the overall cost of petroleum products will go up. On the other hand, oil marketing companies are facing a tough task in passing the higher costs to consumers. The government is moderating the prices as a steep hike will push the inflation further up, which is already beyond comfortable levels.
Hospitality
The Finance Minister has announced some tax benefits for the hotel industry, especially on investments in the economy segment . This is a positive development as it will give a boost to the investment-intensive hospitality sector, and indirectly have a positive impact on tourism. The government is promoting tourism aggressively for the last few years.
Infrastructure
The allocation has been increased by almost 13 percent for road infrastructure improvement and defence projects. This reiterates the fact that spending on infrastructure development has been among the top priorities of the government. This is a positive development for companies in the infrastructure development space.
However, the gestation period for these projects is quite long and therefore investors with a long-term investment horizon only should look at investing in these stocks.
Power and energy
The power and energy sector got a mixed bag in the current budget. The Finance Minister has announced a cess (clean energy) on domestic and imported coal. This will have a negative impact on the companies that are operating in this segment . On the other hand, the Finance Minister has provided a boost to wind energy and solar energy-related companies by cutting duty on wind farm units.
industry was expecting an extension of the tax holiday (STPI) for another couple of years as it is struggling due to the global slowdown . No further extension has come as a disappointment for the IT sector, but analysts believe the markets were expecting it.
industry was expecting an extension of the tax holiday (STPI) for another couple of years as it is struggling due to the global slowdown . No further extension has come as a disappointment for the IT sector, but analysts believe the markets were expecting it.
INFORMATION TECHNOLOGY
Investors should hold on to their stocks. Entrants should buy at lower levels Investors should go for major and well-established IT companies since the market is subject to currency fluctuations
For investors:
AUTO
Excise duty hike lesser than what market expected The income tax breather will mean more disposable incomes, and hence more customers, increasing volume of sales for auto companies Investors can hold on to their current positions and accumulate at lower levels Investors can also explore the option of buying more during market corrections
OIL
The increased duty on crude oil, though moderate, will hike fuel prices This is a negative for oil and oil marketing companies Risk-averse investors should avoid exposure in these uncertain times
HOSPITALITY
Tax holiday for this industry will give impetus to investments in budget segment Frontrunning hospitality stocks will be good buys in these conditions
INFRASTRUCTURE
The market looks good for cement and steel manufacturing companies Investors can aim for longterm gains as the outlook is good for this sector
POWER AND ENERGY
Wind energy companies will benefit. Investors should pick stocks at lower levels Investors can hold on to their current positions in these sectors.
INFORMATION TECHNOLOGY
Investors should hold on to their stocks. Entrants should buy at lower levels Investors should go for major and well-established IT companies since the market is subject to currency fluctuations
Courtesy : Economic times
