BUDGET EXPECTATIONS FOR 2010.

 WHAT THE STREET EXPECTS FROM THE UNION BUDGET 2010.

The Government is facing a dilemma. Growth v/s Fiscal Discipline. The key is to ensure a balance between the two.

• The Street does not expect an aggressive across-the-board roll back of stimulus.

• However selective hikes in excise duties in the range of 2%-4% cannot be ruled out for certain sectors like Automobiles, Cement, FMCG etc.

• Social sector programmes, benefits for exporters and support to SME's will continue.

• No major changes in most taxes as GST ( Goods and Services Tax ) and DTC ( Direct Tax Code ) shall be implemented in the near future.

• Expect disinvestment of ~INR 300-400 bn in FY11. Prominent candidates- Coal India, SAIL, BSNL, Hindustan Copper.

• Fiscal health set to improve on higher tax collections and disinvestment proceeds. Centre's gross fiscal deficit ( GFD ) to be ~5.8% of GDP in FY11. Net borrowing by the Centre in that case shall be within INR 4 tn.

India's stimulus package accounted for less than 1% of GDP. Countries such as China and US announced packages worth 10% or more of their respective GDP's. Moreover, India's stimulus package was more broad based and was not spent for bailout of any particular industry or sector.Hence the roll back will be selective and gradual.

LONG TERM CAPITAL GAIN v/s STT ( SECURITIES TRANSACTION TAX )

It is possible that the roadmap for the DTC ( Direct Tax Code ) implementation will mention removal of the special treatment for long term capital gains.This can make long term capital gains taxable at a marginal rate applicable for some individuals/corporates. However, such a move will weigh negatively on the markets. 

On the other hand given the strong primary market activity queued up in FY11 the government may consider scrapping STT which will provide a distinct boost to the capital markets. However its difficult to digest that the government may sacrifice the revenue of ~INR 80-90 bn from this source.


SECTOR SPECIFIC EXPECTATIONS WILL BE POSTED DURING MARKET HOURS TOMORROW.

Regards,

Rahul T.