Executive Summary for Union Budget 2008-2009
Union Budget 2008 – 09, No Negative, A Big Positive.
EXECUTIVE SUMMARY
Kisan Ratilal Choksey Shares & Securities Pvt Ltd. 1102 Stock Exchange, Dalal Street, Fort, Mumbai-400001
Tel: 91-22- 66535000 Fax: 91-22-66338060
Date: 29/02/2008
The FM had following challenges before the Union Budget 2008-09
1) Maintain GDP growth rate at 9% and above
2) Control inflation below 5%
3) Manage the Global threat of slowdown and its consequential impact on the Indian economy.
We believe, The Union Budget 2008-09 meets these challenges
FM plans the roadmap to 9% GDP growth
(1) To maintain GDP at 9%, agriculture growth of 4% was important.
a) The FM gives the thrust to agriculture by announcing the loan waiver scheme, amounting to Rs. 60,000 crore.
The farmer is absolved of paying outstanding loans; a feel good factor is created that will encourage farmers to invest in the sector and sustain the growth.
b) PSU banks were in trouble with outstanding loans of farmers that were otherwise Non-Performing Assets (NPA). The Budgetary Support would clean their Balance Sheet of these banks and provide them Rs. 60,000 crore over a period of 3 years. This would infuse sufficient liquidity in the system and accelerate core lending activity of banks in future and coming quarters.
c) An important measure is also taken to encourage Public Private Partnership (PPP) in irrigation by setting up Irrigation and Water Resources Finance Corporation (IWRFC) with initial capital of Rs.100 crore.
(2) Income Tax: FM attempts to boost consumption demand in the economy by increasing the disposable income of the tax payers. The FM had reduced the rates of tax in 1997; he has played with the base this time.
a) Threshold limit for all assesses is increased from Rs. 1.10 lakhs to Rs. 1.50 lakhs, with slabs being charged as- between Rs 1.5 lakhs to Rs. 3 lakhs-10% , Rs. 3 lakhs to Rs 5 lakhs-20% and above Rs 5 lakhs-30%. He has also sweetened the tax proposals for women assesses and senior citizens.
b) The FM has made an attempt to decouple India’s growth story from global slowdown by giving this fiscal stimulus of lower taxes to boost the consumption demand in the economy.
(3) Indirect taxes: 2% across the board reduction in excise will go along way in
a) For controlling the cost of Production & inflation
b) Lower prices would also spur the consumption demand
Increase in Short Term Capital Gains Tax (STCG) to 15% from the current 10% and differential treatment of STT are sentiment dampeners. STT treatment will affect arbitrage players where as STCG increase will not affect long term investors.
STCG increase is probably to encourage long term investment and avoid crash situations of Jan 2008 in future by discouraging investors from day trading.
Conclusion:
Budget has no apparent negatives. It has neither affected infrastructure thrust as it continues lay emphasis on infrastructure growth through policies implemented earlier. The power and road sector get special boost.
View on Markets
In our view, markets are governed by the fundamentals of the economy and companies more than provisions in the budget.
We expect market to consolidate in near term and post-June 2008 market is expected to gradually move up with support of quality stocks. Our view on Sensex EPS for FY09 stands at Rs1040 with 20% growth for the year. That discounts the current Sensex of 17578 by less than 17x.
We recommend to investors to continue their faith in India’s economic growth and stay invested in equities by adding further investments during this period of consolidation which is best explained as low valuations under crisis of confidence and relatively attractive valuations.
For Detailed Budget Report Kindly Log on to www.krchoksey.com it will be released at 11.00 am on 1st March 2008.
Union Budget 2008 – 09
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