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Stock Idea - Hindustan Unilever

Recommendation: Buy

CMP = Rs 231

Price target: Rs 280

Key points:

• The revenue of Hindustan Unilever Ltd (HUL) grew by 13.3% yoy to Rs 13,717.8 crore in CY2007 contributed by an increase in its volumes, a better product mix and price hikes effected during the year. Active cost-cutting measures across segments and prudent price hikes led to a 130-basis-point improvement in the company's OPM to 13.7%. The net profit of the company increased by 14.9% to Rs 1,769.1 crore.
• The home and personal care business comprising soap & detergent and personal care products (contributing around 73% to the total revenue) continued to show a double-digit growth of 12.2% yoy to Rs 10,046.4 crore. The food business posted a strong growth of 20.4% yoy to Rs 2,231.1 crore. The company's innovative and strong brand building capabilities have resulted in strong growth of 15.2%, 39.8% and 17.2% in its beverages, processed foods and ice cream sales respectively. 
• Exports were affected by the appreciation of the rupee and grew by 5% in rupee terms as against a growth in excess of 15% in dollar terms. The company is rationalising its product portfolio by exiting from low-value businesses to improve the performance of the export business going forward. 
• HUL completed the buy-back of 3.02 crore shares from the open market at an average price of Rs 207.13 per share, leading to an outflow of Rs 626.27 crore in CY2007. The equity capital reduced by 1.37% to Rs 217.7 crore. Total reserves declined from Rs 2,502.81 crore to Rs 1,221.49 crore in CY2007. This has led to a hefty improvement in the return ratios. While the return on capital employed improved from 72.6% to 102.2%, the return on net worth improved from 61.2% to 85.0% in CY2007.
• Better business performance, efficiencies through cost savings across segments and an efficient collection system resulted in strong operating cash flows of Rs 1,710.5 crore. Nitin Paranjpe (ex-executive director of the HPC segment) has been appointed as the managing director and chief executive officer (CEO) of the company.
• At the current market price of Rs 231, the stock trades at 24.8x its CY2008E earnings per share (EPS) of Rs 9.3.
• I maintain Buy recommendation on HUL with a price target of Rs 280.

Stock Idea - Genus Power Infrastructures & ICICI Bank

Genus Power Infrastructures

Recommendation: Buy

Price target: Rs 643

• Genus Power Infrastructure Ltd (GPIL) has bought a 6 mega watt (MW) power generation plant from Genus Power Products Ltd (GPPL).
• Subsequently, the shareholders of GPPL would receive one fully paid-up share of GPIL for every 60 fully paid-up shares of GPPL currently held by them.

 

ICICI Bank

Recommendation: Buy

Price target: Rs 1,528

• With a view to allay concerns over the difference in margins reported by ICICI Bank, India and the Prudential group UK, ICICI Bank had arranged a conference call to provide clarification.

Beware of nutritional supplements - Issued in public interest

As you are reading this site, you must be one of the investors - investing in stocks to make big bucks. Each one of you want to make it big - financially. We sometimes also invest in our health, go to gym and take nutrient suppliments and in effect hurt ourselves. Yes, you read it right - Dr. Shaprio has found that the nutrient supplements (consumed during weight loss / body building exercises) cause hair loss! Dr. Shapiro was the first to do a "strip incision" and the first doctor in the Southern U.S. to specialize in "micro-mini grafts." He developed this treatment to a state of the art procedure while others were and still are using plugs and other outdated methods.

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Stock Idea - Bajaj Auto

Recommendation: Hold

CMP = Rs 2,080

Price target: Rs 2,635

Key points:

• The courts have approved Bajaj Auto Ltd (BAL)'s demerger. March 14, 2008 is the ex-date for the price adjustment and March 25, 2008 is the record date for finalisation of the list of shareholders to be allotted shares in the two other companies. From March 14 BAL would trade on the price attributed to Bajaj Holdings & Investments Ltd (BHIL; also the new name for BAL). 
• For every one share held in the existing BHIL, the shareholders would get one share of the new BAL of Rs 10 each and one share of Bajaj Finserv Ltd (BFSL) of Rs 5 each. The new BHIL will hold 30% stake in both the new BAL and BFSL, which are expected to get listed by May 2008.
• From 14 March 2008 the price of the existing BAL will get adjusted to that of the existing BHIL. Sum-of-the-parts (SOTP) calculation attributes a value of Rs 1,044 per share to the existing BHIL. 
• I have fine-tuned estimates for FY2008 and FY2009 on account of a change in the company's product mix, its higher other income and lower tax rate. The stock is currently trading at 16.6x its FY2009E earnings and 11.6x its EV / EBITDA.
• I continue to value the stock using the SOTP valuation method and maintain Hold recommendation with a price target of Rs 2,635.

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Market Highlights & Stock Idea - Punj Lloyd

Punj Lloyd

Recommendation: Buy

CMP = Rs 319

Price target: Rs 620

Key points:

• A Punj Lloyd Ltd (PLL) led consortium with Malaysia's Dialog E & C Sdn Bhd and Petrosab Logistik Sdn Bhd has been awarded an order involving the engineering, procurement and construction (EPC) as well as commissioning of a 512-kilometre, 36-inch diameter onshore natural gas pipeline.
• The project is expected to commence immediately and be completed over the next 36 months. The order is valued at USD500 million.
• Though the exact quantum of work for PLL has not been disclosed, PLL is expected to carry out the EPC work of the complete contract.
• This would definitely help address the concerns of a slowdown in the order inflow for PLL. I am quite optimistic about future prospects of PLL and recommend Buy call with a price target of Rs 620 over next 6 months.

 

Market Highlights – Profit taking trims Sensex gains 

• The Sensex came off its early highs on selective profit taking and ended with marginal gains at 16,128. Even as major Asian indices like Nikkei, Hang Seng, Straits Times and Kospi managed to clock 1-2% gains, the Sensex failed to hold on to its early rally and closed way off its highs amid profit taking towards the closing hours.
• Riding on the back of yesterday's buoyant close and optimism in several international markets, the Sensex resumed 414 points higher at 16,541 and advanced sharply on sustained buying support to scale above 16,600 and touch an intra-day high of 16,683.
• After remaining above 16,500 for the entire first half, the Sensex came under the grip of profit taking and slipped below 16,100 to touch the day's low of 16,064, 59 points down. The Sensex finally ended the session with marginal gains of 5 points at 16,128, while the Nifty gained 6 points to close at 4,872.
• Among the frontliners, Cipla soared 4.26% at Rs 204, Grasim Industries rose 3.69% at Rs 2,892, Reliance Energy added 3.19% at Rs 1,328, ICICI Bank jumped 3.19% at Rs 2.98, Bharti Airtel advanced 2.73% at Rs 810.65, HDFC Bank gained 2.69% at Rs 1,367.80, Ranbaxy moved up 2.44% at Rs 464.35 and ONGC soared 2.02% at Rs 1,014.
• However, Tisco dropped 6.42% at Rs 766.45 while Hindalco declined 5.47% at Rs 191.80 and DLF, SBI, Satyam Computers, Infosys, Tata Motors and Reliance Communications lost 3-4%.

Stock Idea - Esab India

Recommendation: Buy

Price target: Rs 575

Result highlights:

• For Q4CY2007, ESAB India reported a growth of 11.5% in the net sales to Rs 87.7 crore, which was below our expectation. The consumables division reported a growth of 14.3% yoy to Rs 62.6 crore. The PBIT for the division grew by 37.8% to Rs 16.5 crore. The equipment division reported a dismal performance with revenues growing by only 5.2% to Rs 25.1 crore, while the PBIT for the division grew by 13.2% to Rs 4.7 crore.
• The operating profit for the company grew by 33.2% to Rs 19.2 crore. The operating performance of the company continues to be healthy and the margin reported an improvement of 350 basis points yoy to 21.9%. The other income grew by 8.1% to Rs 2.5 crore.
• The interest cost declined by 22.2% to Rs 20 lakhs, while the depreciation charge rose by 13% to Rs 1.6 crore. Consequently, the net profit grew by 31.4% to Rs 13.3 crore. For the full year, ESAB India reported a growth of 19.4% to Rs 342.9 crore in the revenues. The operating profit grew by 23% to Rs 80 crore resulting in an improvement of 70 basis points in the operating profit margin (OPM) to 23.3%. however, the net profit for the year grew by 25.1% to Rs 53.4 crore against our full year estimates of Rs 57.4 crore.
• The demand for welding products would continue to be buoyant due to the planned investments in core infrastructure sectors like roads, ports, airports, construction and the other industrial sectors in India. ESAB India, the market leader in welding products, is all set to tap this opportunity.
• At the current market price, the stock trades at 10.3x its CY2008 EPS and 5.2x EV/EBIDTA. I Buy recommendation with a price target of Rs 575 over next 3 months.

Stock Idea - Maruti Suzuki India

Recommendation: Buy

CMP = Rs 940

Price target: Rs 1,230

Key points:

• Maruti Suzuki Ltd (Maruti) is expected to be the biggest beneficiary of the Union Budget FY2009, which has given a fillip to the automobile sector by cutting the excise duty on small cars from 16% to 12%. The benefit of this reduction in the excise duty has already been passed on to the consumers by Maruti. The company has reduced the price of six models that qualify for the lower excise duty by 3.5% each. The positive impact of this reduction should result in a higher demand and become visible in a couple of months, i.e. from April or May onwards.
• The focus on increasing the disposable income in the hands of the consumer by rationalising the personal tax slabs and the recommendations of the Sixth Pay Commission scheduled for April 2008 are expected to spur spending on consumer goods and automobiles.
• The sedan version of Swift is slated for launch in the last week of March 2008. The "A star" compact car is planned to be launched in October 2008, simultaneously in the export and the domestic market. The success of these products could further fuel the volume growth for Maruti.
• Going forward, we believe the passenger car segment will report a better volume growth compared with commercial vehicles and two-wheelers on the back of an increase in the disposable incomes and changing demographics. Maruti would report a volume growth of 12.7% for FY2009.
• At the current market price of Rs 940, the stock trades at 12.2x its FY2009E earnings and 7.8x EV / EBITDA.
• I maintain Buy rating on the stock and retain Maruti Suzuki as my top pick in the automobile space with a price target of Rs 1,230 over next 6 months.

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Stock Idea - Aditya Birla Nuvo

Recommendation: Buy
CMP = Rs 1,602
Price target: Rs 2,035

Result highlights:

• The consolidated revenues of Aditya Birla Nuvo (ABN) in Q3FY2008 grew by 60% yoy to Rs 3,661.6 crore. The growth was driven by the solid performance of insurance business, which grew by whopping 185% yoy to Rs 1,485 crore contributing 41% to the overall revenues. Garments, insulators, financial services, carbon black and telecom businesses also contributed well to the overall growth.
• The share of high-growth businesses (garments, life insurance, BPO, software and telecom) to the total sales improved to 76% in Q3FY2008 as compared with 68% in the same period last year.
• However, the operating profit margin (OPM) declined by 630 basis points to 6.8% on account of margin pressure in the key business segments and increased contribution of insurance division (which is still at its nascent stage). Consequently, the operating profit declined by 17.1% to Rs248 crore.
• The segmental performance showed margin decline in all the businesses except telecom, insulators and software. Profit before interest and tax (PBIT) margin declined sharply in garments, rayon, BPO, fertilisers and life insurance businesses reducing the overall margins by 440 basis points to 3.3%.
• The net profit after minority interest declined by 46.4% yoy to Rs 30.2 crore due to higher depreciation costs and taxes as tax benefit from loss in insurance business is not fully reflected in the consolidated numbers.
• The company continued to invest the cash generated from the value businesses into the growth businesses like life insurance and telecom. The company is also planning for aggressive retail expansion and joint venture for value added fabrics. Recently, the promoters have increased their stake by issuing warrants worth over Rs 4,100 crore to themselves.
• At the current market price, the stock trades at a price/earnings ratio of 45.8x FY2009E consolidated earnings and EV/EBIDTA of 14.6x FY2009E.
• I maintain a Buy recommendation on ABN with a 12-month revised price target of Rs 2,035.

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Stock Idea - International Combustion (India)

Recommendation: Buy

CMP = Rs 423

Price target: Rs 519

Key points:

• After the dismal performance in the second quarter, the Q3FY2008 results of International Combustion India Ltd (ICIL) were inline with our expectation with the revenues reporting a growth of 18.4% to Rs 23.1 crore.
• The material handling equipment (MHE) division reported a growth of 7.6% year on year (yoy) to Rs 17.3 crore, while on a lower base the geared motor & geared box division (GMGBD) reported a growth of 61.5% to Rs 5.9 crore. GMGBD revenues are expected to pick up from FY2009.
• The operating profit grew by 35.4% to Rs 5.2 crore. The operating profit margin (OPM) improved by 280 basis points yoy to 22.3% on account of operating leverage. The net profit was up 59.8% yoy to Rs 3.1 crore, inline with our expectation.
• The current order book of the company stands at Rs 51 crore. Rs41 crore worth of orders are for the MHE division, while the balance Rs 10 crore of orders are for the GMGBD. We expect the order inflow to pick up from FY2009 particularly in the GMGBD given the opportunity from the B-2000 series geared motors and geared boxes.
• At the current market price, the stock trades at 9x FY2008E and 7.3x FY2009E. In terms of enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) the stock is quoting at 4.9x and 3.9x FY2008 and FY2009 estimates respectively.
• I maintain Buy recommendation on this scrip with a price target of Rs 519.

Stock Idea - ITC

Recommendation: Buy

CMP = Rs 193

Price target: Rs 247

Key points:

• In the 2008-09 budget, excise duty rates on non-filter cigarettes have been raised to bring them at par with the duty on the filter cigarettes of corresponding length. For the non-filter plain category (>60mm <70mm), the excise duty has been increased from Rs546/1,000 to Rs 1,323 / 1,000 whereas that for the micro category (<60mm) has been increased from Rs 168 / 1,000 to Rs 819/ 1,000.
• The excise duty on filter cigarettes remains unchanged. At present, cigarettes attract duty at varying rates depending upon their length and whether they are filter or non-filter. The steep hike in the excise duty on non-filter cigarettes will have a negative impact on non-filter cigarette volumes of the cigarette industry.
• The impact of the excise duty hike will be marginal on ITC, as only 20% of the overall cigarette volume of the company is generated from non-filter cigarettes. The proposed increased in the excise duty (up 142% for non-filter Plains and higher by 388% for non-filter Micros) will see large volume losses for bidis and non-filter cigarettes. ITC has brands such as Scissors, Bristol and Capstan in the non-filter segment. I expect ITC's non-filter cigarette volume to decline by around 2.5% in FY2009.
• With about an 80% market share in the filter cigarette segment and new launches under the regular category of filter segment (filer cigarette - <70mm, which contributes around 65% of ITC's cigarette sales), ITC would capture a large population that would be shifting from non-filter to filter cigarettes. Due to the large volume shift, filter cigarette volume may grow by 4.1% in FY2009. Consequently, the overall volume growth estimate for FY2009 is down to 2.8% from 5% earlier. And the FY2009 EPS estimate is down by 0.9% to Rs 9.80.
• Effective price hikes across filter cigarette segment and strong performance by the other businesses will lead to a 17.7% growth in the net profit of ITC to Rs 3,689.2 crore in FY2009. That would be 1% less than our earlier estimate of Rs 3,725.2 crore. The company's multiple revenue drivers will help it post a strong growth going forward. At the current market price of Rs 193, ITC trades at 19.7x its FY2009E EPS of Rs 9.80.
• I maintain Buy call on the stock with a price target of Rs 247 over next 3 months.

Small Cap Stock Investing for Beginners

Most stock investors trade in the small cap stock market with the same chance, but only few of them make really good money in penny stocks. Many of these people, who don't make enough profit don’t possess a high level of small cap market understanding. Before your first steps in micro cap investment, it's vital to understand the great advantage and risk of trading stock of companies with a market capitalization of between $200 million and $2 billion. The main advantage of small caps trading, is the opportunity to outperform institutional investors. Because mutual funds have restrictions that limit them from buying large portions of any one issuer's outstanding shares, some mutual funds would not be able to give the penny stock a meaningful position in the fund. To overcome these limitations, the fund would usually have to file with the SEC, which means tipping its hand and inflating the previously attractive price. So now it's the time to shed some light onto these terms.

The term "microcap stock" applies to companies with low or, so called, "micro" capitalizations, meaning the total value of the company's stock. Typically, penny stock companies have limited assets. They tend to be low priced and trade in quite low volumes. When we are talking about the penny stocks, we can define them as stocks that have very low value, highly speculative stocks, unlisted on the stock exchange, and with small market capitalization. If a stock has any of these it can be called penny stock. Although penny stocks do have a very low value, it is very difficult to say how low the value should be for some stock in order to be described directly as penny stock. There are a lot of opinions about the price of the stocks. They're not listed on the stock exchanges, they have a low market cap and, as it was said before, are highly speculative. Having the info is being armed. Information means success not only in business. And for the successful start, being armed with current terms and conditions means being ready for the successful finish.

Changes in the timings of BSE & NSE due to Sun Outage

This is to inform all the traders & investors on Bombay Stock Exchange (BSE) & National Stock Exchange (NSE) that there will be a change in the NSE and BSE market timings from March 4, 2008 to March 18, 2008 due to the sun outage. The changed timings will be as follows;

NSE MARKET TIMINGS during SUN OUTAGE
MARKET OPEN	09:55 AM to 11:45 AM
BREAK	11:45 AM to 12:30 PM
MARKET RESUME	12:30 PM to 04:15 PM
CLOSING SESSION	04:35 PM to 04:45 PM

 

BSE MARKET TIMINGS during SUN OUTAGE
MARKET OPEN	09:55 AM to 11:45 PM
BREAK	11:45 AM to 12:30 PM
MARKET RESUME	12:30 PM to 04:15 PM
CLOSING SESSION	04:25 PM to 04:45 PM

 

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Budget 2008-9: Key Highlights & Revised Tax Structure

Investment:

There is a clear boom in investment. The saving rate and the investment rate have gone up to 35.6% and 36.3% respectively by the end of 2007-08 against 29.8% and 28.2% in 2003-04. Even the foreign investment points to this boom during April-December 2007. The Direct Foreign Investment amounted to $12.7 billion and the Foreign Institutional Investment stood at $18 billion.

Power:

The XIth five-year plan (2007-2012) targets an additional power generation capacity of 78,577MW, which is more than the total capacity added in the previous three five-year plans. Commercial operations for 10,000MW is expected to be achieved by March 2008. The FM has provided Rs 800 crore in 2008-09 for the accelerated Power & Development and Reforms Project. However since the real drag on the sector is the poor state of transmission & distribution (T&D) the FM proposes to create a national fund for reforms in T&D sector.

Oil & Gas:

The bidding process under the New Exploration Licensing Policy had invited bids for 57 blocks in December 2007. It is estimated that investment of $3.5 billion to $8 billion will be attracted for exploration and discovery.

Biggest Gainers of the Budget 2008-9

Automobiles

• Maruti, Tata Motors, Bajaj Auto, Hero Honda, Ashok Leyland

Banking

• PSU Banks, ICICI, HDFC

Infrastructure

• L&T, BHEL, Punj Lloyd, Power Grid, Crompton Greaves

FMCG

• Nestle, HUL, Tata Tea, Heritage Foods

Hotels

• Indian Hotels, Taj GVK, Hotel Leela

Healthcare

• MNC Pharma Companies, Cipla, Apollo Hospitals, Fortis, Panacea Biotech

Biggest Losers of the Budget 2008-9

Cement

• Shree Cement, Madras Cement, ACC, India Cement

Information Technology (IT)

• Negative for the sector as the benefits under Sections 10-A and 10-B were not extended

Revised Tax Slabs of the Budget 2008-9

Old slab (FY2007-8)	Tax Rate (%)	New Slab (FY2008-9)	Tax Rate (%)
Upto Rs 1,10,000	Nil	Upto Rs 1,50,000	Nil
Rs 1,10,001 to Rs 1,50,000	10	Rs 1,50,001 to Rs 3,00,000	10
Rs 1,50,001 to Rs 2,50,000	20	Rs 3,00,001 to Rs 5,00,000	20
above Rs 2,50,000	30	above Rs 5,00,000	30

Note: # There is a levy of 3% education cess over the tax calculated as per above slabs.

Other articles on Budget 2008-9:

• Budget 2008-9: At a Glance
• Budget 2008-9: Suggested Changes to Customs & Excise Duty, Direct Taxes, Capital Market & Corporates

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Budget 2008-9: Suggested Changes to Customs & Excise Duty, Direct Taxes, Capital Market & Corporates

Key proposals - Customs Duty

• Considering the appreciation of the rupee, the peak rate of custom duty has been retained at 10%
• Duty on project imports has been reduced from 7.5% to 5% along with a 4% additional countervailing duty (CVD) on specified power projects
• Duty on steel making scrap and aluminium scrap has been reduced from 5% to nil
• In case of certain life saving drugs and on the bulk drugs used for the manufacture of such drugs, the custom duty has been reduced from 10% to 5% without any CVD
• No duty on specified parts of set top boxes and specified raw materials for use in IT / electronic hardware industry

Key Proposals - Excise Duty

• As a stimulus to the manufacturing sector, the general excise duty rate has been reduced from 16% to 14%. The FM has also reduced the excise duties on specific sectors where growth is slowing
• Excise duty on pharmaceutical products has been reduced from 16% to 8%
• Excise duty on buses and their chassis has been reduced from 16% to 12%
• Excise duties on small cars have been lowered from 16% to 12% and for hybrid cars from 24% to 14%
• Excise duty on two- and three-wheelers has been reduced from 16% to 12%
• No change in service tax rate but four new services are brought under the tax net
• Reduction in central sales tax from 3% to 2%

Key Proposals - Direct Taxes

• Rationalisation of personal income tax by increasing the annual income bracket for each tax slab
• No change in the corporate tax rates or surcharges

Key Proposals - Capital Market

• The rate of tax on short-term capital gain has been raised from 10% to 15%
• Transactions on commodity futures will have to bear a commodity transaction tax on the same line as STT
• STT paid to be treated like any other deductable expenditure against business income
• STT in the case of the options will be on the option premium where the option is not exercised and the liability will be on the seller. If the option is exercised the levy will be on the settlement price and the liability will be on the buyer

Key Proposals - Corporate Sector & Tax

• Exemption of tax deduction at source for corporate bonds has been listed in recognised exchanges
• Extension of amortisation benefits of certain preliminary expenses has been made to the service sector
• Companies engaged in production of seeds and manufacture of agricultural implements has been allowed to claim 150% deduction on any expenditure on in-house scientific research
• To promote outsourcing of research, it is proposed to allow a weighted deduction of 125% on any payment made to companies engaged in research and development
• Five-year tax holiday has been proposed for hospitals set up between April 1, 2008 to March 31, 2013 and satisfying specified conditions
• Five-year tax holiday has been proposed for hotels set up between April 1, 2008 to March 31, 2013 and satisfying specified conditions
• Parent company have been allowed to set off dividend received from its subsidiary company against dividend distributed by the parent company, provided the dividend received has suffered DDT (dividend distribution tax) and the parent company is not a subsidiary of another company

Budget 2008-09 - At a Glance

Given 2008 is the election year, the finance minister tabled a populist budget aimed at pleasing a large section of rural population and also the salaried middle class. Apart from the substantial increase in budgetary allocation for rural and social infrastructure, the budget has proposed huge debt waiver and relief worth Rs 60,000 crore to farmers. But in spite of the increased expenditure, the fiscal prudence has been maintained with fiscal deficit target set at 2.5% for 2008-09.

In fact, debt waivers and relief to farmers, enhanced rural allocation and reduction in personal tax liability is expected to increase the disposable income and boost overall consumption demand in the economy. The implementation of sixth pay commission would further add to the consumption boom. This is expected to revive the growth in consumer durables and goods sector, which was showing a distinct slowdown and also to sustain the growth momentum in the economy. What's more important is the fact that the FM has also focused on controlling inflation by reducing peak excise duty rate. Moreover, the fiscal deficit target of 2.5% (as against Fiscal Responsibility & Budget Management target of 3% for 2008-09) indicates that the government might reduce its borrowing and thereby target the money supply in the economy to control inflation.


The FM has not tinkered with the corporate tax. The continued focus on spending on infrastructure and initiatives taken to boost consumption could have a positive impact on corporate earnings. In fact, there could be some upgrade to the earning estimates of consumer driven companies such as automotive and FMCG. This makes it a well-balanced budget that not only woos the vote bank but also provides fiscal stimulus to sustain the growth momentum in the economy with control on inflation. However, the budget has dampened market sentiments due to increase in the short-term capital gain tax from 10% to 15% and modifying the security transaction tax (STT) that could be unfavourable for traders and arbitragers.