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    Hello and welcome to a webchat on 'Assessing the impact of Budget on markets Union Budget 2016' with Tirthankar Patnaik, India Strategist, Mizuho Bank

  • A


    What is your broad assessment of the Union Budget 2016? What are the positive announcements and disappointments as far as the the capital markets are concerned?


    We have always seen the budget along three dimensions: 1. Path of fiscal prudence 2. Realistic numbers (Which can be achievable) 3. Progress along directions pointed out in the long-term program of the Govt. We believe on the first and third items above, the budget has delivered. We continue to assess the numbers to see if they fit the 3.5% target for FY17.

  • P


    What impact do you see on the auto sector in wake of the 1% cess on cars, SUVs and diesel cars?


    We believe the auto sector could have done without additional taxation, given current volume growth trends. However, it's important to note that the additional cess is _higher_ on the more expensive segments of the PV space, viz. luxury cars/Diesel cars.

  • G


    The markets had expected higher allocation for re-capitalisation of state-owned banks. Do you see that the allocation of Rs 25,000 crore is insufficient? What would be view on the impact on the major PSU banks in the near to medium?


    Yes, the capital allocation to PSU banks has been meaningfully lower than expectations. That in itself ought to be negative for PSU banks, were it not for the fact that the Govt. has mentioned additional allocation as needed. We believe the final capitalization figure would be considerably higher. What is positive for banks is the softening of yields, thanks to the commitment to the fiscal prudence path, by the FM. This would translate into support for treasury books of these banks (and they are considerable). In addition, the announcement of Mr. Vinod Rai to head the Bank Bureau Board on the weekend shows renewed commitment by the Govt. on the PSU bank space.

  • R


    FM proposed that it may raise excise duty on most tobacco products by 10-15%. Reacting to the news, shares of cigarette makers including ITC, Godfrey Phillips and Golden Tobacco slumped. What is your outlook on ITC? Do you see further weakness?


    Taxation on tobacco and related products has faced a steady increase over the last many years, so much so that companies in the sector increasingly depend on additional revenue channels, esp., the larger players. The sustained impact of these tax increases has begun to hurt sales, with double-digit volume growth now translating into double-digit 'de-growth'. Would not want to comment on specific stocks, but the outlook is no longer bullish on the sector.

  • M


    The budget proposes incentive for deep-sea energy exploration. How do you approach oil exploration companies? What is your take on ONGC and RIL?


    With crude oil around US$30/bbl, and likely to remain for the next 2-3 years, interest in deep-sea exploration does need fiscal support, and we believe this is a step in the right direction. However, we also believe the current environment provides sufficient opportunities for E&P companies to scout for assets worldwide, given the rock-bottom valuations they carry. Would not want to comment on specific stocks please.

  • V


    Do you see the Budget's focus on rural economy would boost both discretionary sectors such as the auto (two-wheelers) and FMCG sectors going forward?


    The higher taxation of autos should be marginally negative, particularly with no relief on personal taxation, which would've left additional disposal income with the consumer. Along with the additional service tax rate (factoring in the additional 0.5% cess), we believe consumption could have been supported better.

  • N


    FM says the rent paid deductions may surge up to Rs 60,000 from Rs 24,000 per annum. Do you see this benefitting the realty pack in an indirect manner? What are your top bets from this pack?


    Would not want to mention specific stocks please. We believe that more than rent paid deductions, the relief on additional exemption of Rs50,000 on loans of Rs35,00,000 and below, where the cost of the house is less than Rs50,00,000 would have a higher impact.

  • R


    While the FM was presenting his budget, markets tanked nearly 600 points as a knee jerk reaction. But later it recovered some of the lost ground. How would you rate the Budget for markets? Good, Neutral, Bad?


    The prevailing weak macro environment leaves very little scope for maneuverability for the FM, and in that light, we believe the Budget has managed to deliver on low expectations. We would rate the budget 7/10 given these constraints.

  • D


    According to FM, education is the next big step. The budget aim is to set up higher education financing agency with corpus of Rs 1000 crore. Moreover, government aims to set up 5700 multi-skill schools nationwide. More Navodaya Vidyalayas are likely to come up in remaining areas under Sarva Siksha Abhiyan. Do you feel one should invest in the shares linked to the education sector? What is your outlook on MT Educare, NIIT and ZEE Learn?


    The FM outlined nine major thrust areas in the Budget, viz., 1. Agri and farmers’ welfare 2. Rural sector and employment 3. Social sector healthcare 4. Education skills and job creation 5. Infrastructure investment 6. Fin sector reforms 7. Governance and ease of doing biz 8. Fiscal discipline 9. Tax reform to improve compliance Education and skill development clearly remain on the Govt.'s priority in the FY17 budget. However, please note that Navodaya Vidylayas, and the SSA are predominantly rural-focused, and therefore may not necessarily translate into significant private, and related spend in the sector. Would not want to comment on specific stocks please.

  • L


    What additional incentive could have the FM proposed as far as capital markets are concerned?


    Our sense is that capital markets have heaved a sigh of relief, with limited additional taxes, e.g., on long-term capital gains (no change), and the STT hike restricted to options. For the capital markets per se, the lack of support for consumption in the Budget (Near-zero additional income, or lower taxes), is likely to continue on the wishlist.


    Thank you, Mr Patnaik for your time and advice. We also thank our readers for sending in questions


    Most welcome