Budget 2010 impact on Auto, IT, Banking and more

For the auto sector, the budget did not roll back the stimulus package except for the 2% excise duty hike in passenger vehicles. The auto companies might pass on the hike to the consumers. Extension of R&D benefits will encourage investments in the sector.
Higher thrust on agriculture will boost demand for tractors and increased focus on road development will also boost the demand for passenger cars.

Impact on companies

Auto

What the Budget does

• Increase in excise duties on cars, MUVs and SUVs by 2% to 22%
• Standard excise duty on small cars, 2-wheelers and 3-wheelers increased from 8% to 10%.
• A weighted deduction of 200% for expenditure relating to in-house research and development.
• Higher allocation towards road development programme such as the NHAI and rural infrastructure.
• Increase in the rate of Minimum Alternate Tax from 15% to 18% of book profits
• Surcharge on domestic companies reduced to 7.5% from 10%
• Central excise duty on petrol and diesel increased by Re 1/lt each.

Impact on sector

• The budget did not roll back the stimulus package except for the 2% excise duty hike in passenger vehicles. The auto companies can pass the hike to the consumers.
• Extension of R&D benefits will encourage investments in the sector.
• Higher thrust on agriculture will boost demand for tractors and increased focus on road development will also boost the demand for passenger cars.

Impact on companies

• Greater thrust on road development will boost the sector as a whole.
• Higher thrust on agriculture, thereby tractor demand will aid M&M.
• Bajaj Auto, M&M and Tata Motors are rely on in house R&D and therefore the extension will benefit them.

FMCG

What the Budget does

The budget has recommended strengthening of food security and four prong strategy to promote agriculture sector. This includes reduction in wastages, thrust on food processing sector and green revolution in eastern states.

• Concessional duty and exemption from service tax for setting and expansion of cold storages, cold units and refrigeration units.
• Increase in duty of cigarettes, cigars, cigarillos, non smoking tobacco and branded unmanufactured tobacco
• Increase in MAT rate from 15% to 18% of book profit.
• 60% of the tax payers will have higher income in hand due to adjustment in income tax slabs.
• Higher allocation has been done for rural development and NREGS. This will promote rural development.

Impact on sector

• Concessional duties and exemption of service tax will help setting up of cold storages, cold units and refrigeration units.
• Readjustment of taxes will lead to higher income in hands of people
• Increase in duty on toilet preparation will increase prices of sanitary napkins.
• Rural development and employment generation schemes will improve the standard of living in the rural areas there by aiding the FMCG companies which are now focusing on rural growth.

Impact on companies

• Increase in duty on sanitary napkins will be negative for P&G, while increase in excise duty for cigarettes and tobacco is a negative for ITC, VST and Godfrey Phillips as it will increase the price of cigarettes.
• Focus on rural areas will benefit the sector as whole largely HUL, ITC, Dabur, Godrej Consumers
• Focus on food processing will benefit Nestle, ITC, HUL and Britannia.

Hotel

ITEM	Yes / No
Infrastructure status	No
Development of infrastructure	Yes
Tax benefits	No

What the Budget does

• Special Golden Jubilee package for Goa to preserve the natural resources of the State by restoring Goa’s beaches which are prone to erosion, and increasing its green cover
• Providing the tourism industry an investment linked deduction applicable to two star hotels and above across the country
• Infrastructure development
• Increase in MAT rate from 15% to 18% of book profits.
• Higher GDP growth of 9%.

Impact on sector

• Goa is a famous tourist destination and budget has made allocation to protect Goa’s beaches and increase in green cover.
• It has focused on development of infrastructure which is very important for tourism.
• Investment linked deduction will aid the hotel industry to expand and increase room capacity.

Impact on companies

The budget will benefit the sector has a whole as higher GDP growth would lead to more business travelers and  infrastructure development will help the sector grow.

Banking

• The RBI will give additional branch licenses to private sector banks and NBFCs that meet the central bank’s eligibility criteria.
• An additional sum of Rs 165 bn will be offered to the under-capitalized public sector banks to ensure that all PSU banks are able to attain a minimum 8% Tier-I capital by FY11.
• Banks’ target for agricultural credit for the year FY11 has been enhanced to Rs 3,750 bn.
• IIFCL which refinances bank lending to infrastructure projects will enhance its disbursements from Rs 90 bn in FY10 to Rs 200 bn by FY11

• Under the Debt Waiver and Debt Relief Scheme for farmers, the period for repayment of the loan amount by farmers has been extended by six months from December 31, 2009 to June 30, 2010.
• Scheme of 1% interest subvention on housing loan upto Rs 10 lakh, where the cost of the house does not exceed Rs 20 lakh has been extended by a year upto March 31, 2011
• With a view to strengthen and institutionalise the mechanism for maintaining financial stability, an apex-level Financial Stability and Development Council will be set up. Without prejudice to the autonomy of regulators, this council would monitor macro prudential supervision of the economy, including the functioning of large financial conglomerates, and address inter-regulatory coordination issues. It will also focus on financial literacy and financial inclusion

Cement

What the Budget does

• Clean energy cess on coal produced in India at nominal rate of Rs 50 per tonne to be levied and cess will also apply on imported coal
• Excise duty has been hiked from 8% to 10% on ad valorem basis and specific rates of duty on cement and clinker has also been raised upwards proportionately.
• Initiatives have been taken for housing and infrastructure development.
• Surcharge on domestic companies reduced to 7.5% from 10%.
• Restoration of duties on petroleum based products

Impact on sector

• Higher excise will not hurt the earnings of cement manufacturers as these costs are pass-through.
• Introduction of cess on coal and rollback of duties on petroleum products would increase their manufacturing cost.
• Higher focus on housing would led to higher cement demand

Impact on companies

The sector as such with big players like ACC and Ultratech would benefit

Pharma

What the Budget does

• Increase in weighted average deduction from 150% of R&D spend to 200%. This would encourage new drug development.
• Rate of minimum alternate tax (MAT) on book profits has been increased from 15% to 18%.
• Higher focus on healthcare Plan allocation for the Ministry of Health and Family Welfare has been increased.

Impact on sector

• • Increase in weighted average deduction on inhouse R&D will benefit the domestic pharma companies to focus more on R&D
  • However, increase in MAT is negative

Impact on companies

• Glenmark, Biocon, Dr Reddy’s, Sun Pharma and Cadila will benefit due to deduction on R&D
• Increased focus on healthcare will benefit the sector as a whole.