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7/28/2019 India Union budget fy14
1/33
Union Budget: FY2014On the path of fiscal consolidation
March 2013
7/28/2019 India Union budget fy14
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Kotak 2
Union Budget: Credible given macro and political challengesTargets fiscal consolidation; Subsidy slippages likely but not alarming
Positives
Realistic: Nominal GDP growth of 13.4% appears realistic and backs tax collection estimates
Fiscal consolidation: Back in focus; Aim to bring down fiscal deficit to 3.6% by FY16
Intended target: Revival of infrastructure growth; Dependent on interest rate and policy environment
Inflation: Indirect tax rates unchanged positive for inflation
Markets: Lower securities transaction tax; easier access to foreign investors; more retail participation in equities
Subsidy: Gradual move towards a direct benefit transfer system based on the Unique Identification (UID)
Reform calendar: Goods and Services Tax (GST) and Direct Tax Code (DTC) To be tabled; Expected shortly
Challenges
Government borrowing: Net market borrowing remains unchanged but gross borrowing higher
Higher surcharge: To reduce earnings growth by ~2% in FY14
Reliance on non-recurring sources of income: Divestments, Spectrum, Service tax amnesty, PSU dividends
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Kotak 3
Fiscal deficit to influence long-term interest rate directionNet market borrowing unchanged; higher gross borrowing is a worry
Fiscal consolidation
Fiscal deficit includeshigher disinvestmentlower subsidy; grossmarket borrowing higherthan expected; borrowingat the longer end
Tax revenue projectionsrealistic
Net tax revenue growth at19%
Growth led by higher
surcharge and service taxamnesty
Non tax revenue includesspectrum allocation feesand auction fees of Rs40000 crore
Source: Budget documents
Expenditure:
-Plan expenditure over non-plan
-Reduction in fuel subsidieson the back of lower dieselsubsidies
- Food subsidy bill atRs90000 crore
Disinvestment receipts
Rs 55814 crore (includingstake sale in non governmentowned companies)
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Kotak 4
Fiscal discipline: Key for sovereign ratings and RBI action on ratesMedium Term Fiscal Policy Statement amended
FY12 FY13BE FY13RE FY14E FY15E FY16ERevenue deficit- Centre 4.4 3.4 3.9 3.3 2.7 2.0Fiscal Deficit-centre 5.9 5.1 5.2 4.8 4.2 3.6
Effective Revenue deficit 2.9 1.8 2.7 1.8 0.9 0.0
Source:budget documents
Effective Revenue Deficit=Revenue Deficit- grants for creation of capital assets
Realignment of the fiscal consolidation path for the centre
Medium term fiscal policy statement (as % of GDP)
Union Budget highlights: Focus on re-alignment of fiscal targets
Growth:FY14 nominal growth projected at 13.4% Taxes: Higher corporate tax surcharge and service tax rates; service tax amnesty scheme to increase tax mop up
Tax reforms: DTC: Referred to the standing committee; To be brought back to the house before the end of the budgetsession
GST: A draft bill on Constitutional Amendment and GST to be tabled in a few months
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Government Borrowing Program: Gross borrowing higher than expectedGilt yields now a function of RBI policy Key driver of valuations
Net market borrowing in line with expectations while gross market borrowing is higher despite lower fiscal deficit
Higher gross market borrowings of dated securities to keep long-term yields firm
Short term borrowings: T-bills financing smaller part of fiscal deficit in FY14; Buy-back of Rs500bn RBI likely to cut policy rates by 75bps in FY14
Source: Budget documents
Rs Crore FY10 FY11 FY12 FY13BE FY13RE FY14BENet market borrowings 398411 335414 436414 479000 467384 484000Short term borrowings(T-Bills) -3908 10000 116084 9000 45764 19844
Gross market borrowing 451093 447000 510000 569616 560000 629009Net market borrowing toFiscal deficit 96% 84% 84% 93% 90% 89%
Budgeted gross market borrowings higher; net largely unchanged
Net borrowing in line with expectations
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Indias consolidated fiscal deficit remains highFocus on improving Tax-GDP for achieving fiscal consolidationtargets
Source: Budget documents; From FY10 -oil and fertilizer bonds are above the line
Tax (gross)-GDP (%): higher tax rates and wider service tax net
Source: Budget Documents
0
2
4
6
8
10
12
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13RE
FY14BE
State
Centre
Fiscal consolidation: Decline in combined fiscal deficit (as % of GDP)
Net tax revenue growth of 19% budgeted for FY14 led largely by service and income tax collection estimates
Tax revenues: betting on increase surcharge and amnesty scheme for service tax
Gross tax to GDP improves; Still remains comparatively low at 10.9%
Corporate tax: No change in rates; surcharge raised from 5% to 10% on domestic companies
0
2
4
6
8
10
12
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
Fy04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13RE
FY14BE
7/28/2019 India Union budget fy14
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Improving tax collections: Key driver of fiscal consolidationNet tax revenue growth largely realistic; service tax growth to be watched
Receipts (Rs Crore) FY13BE FY13RE FY14BE%
growth
Growth onaccount of
nominalgrowth (Rs
crore)
Estimates of
increasedue to newinitiatives
Excise duty 194350 171996 197554 15% 23047 -
Customs duty 186694 164853 187308 14% 22090 -
Service tax 124000 132697 180141 36% 17781 29663
Corporate tax 373227 358874 419520 17% 48089 12577
Income tax 195786 206095 247639 20% 27617 13927
Total gross tax revenue 1077611 1038037 1235870 19% 139097 58736
Dividend receipts 50153 55443 73866 33% 18400
Disinvestment 30000 24000 55814 133% 30000
Telecom related 22000
Source: budget documents, Kotak estimates
Net tax revenue growth at 19% in FY14
Composition of key components of receiptsFY14 (Rs crore)
Net tax revenue growth of 19% budgeted for FY14
No changes in the tax rates
Service tax: Introduction of amnesty scheme for assesses between 2007-2012
Imposition of 10% surcharge on persons whose taxable income exceeds Rs1 crore per year
Surcharge on corporate tax raised from 5% to 10%
Tax revenue projectionsrealistic
Of the total Service taxgrowth, Rs 29663 crore onaccount of wider tax net andamnesty scheme
Corporate tax growthincludes ~Rs 13000 croreon account of increase insurcharge
Non tax revenue includesspectrum allocation feesand auction fees of Rs40000 crore
Disinvestment target of Rs40000 crore, stake sale innon Govt. Cos at Rs 14000crore
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Expenditure: Composition/efficiency to decide long-term growthCalibrated focus on plan over non-plan spend; capital spend rising
Focus on increasing share of plan expenditure to total expenditure
Plan expenditure targeted to rise to 33% of total expenditure from 30% (FY13)
Subsidy targets: the key to ensure there is no overshoot on non plan expenditure
Revenue expenditure still forms 86% of total expenditure
Trends in total expenditure (Rs Cr) Higher growth in plan expenditure in FY13
Composition of plan and non plan expenditure (% of total expenditure)
Source: Budget Documents
0
200000
400000
600000
800000
1000000
1200000
1400000
1600000
F
Y03
F
Y04
F
Y05
F
Y06
F
Y07
F
Y08
F
Y09
F
Y10
F
Y11
F
Y12
F
Y13RE
F
Y14BE
Rev Exp Cap Exp
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
FY07 FY08 FY09 FY10 FY11 FY12 FY13RE FY14BE
plan exp non plan exp
Source: Budget Documents
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Subsidy management, a politically sensitive subjectTarget to bring down subsidy to 2% of GDP by FY14
FY10 FY11 FY12 FY13BE FY13RE FY14BETotal subsidy 131025 164153 216297 190015 257654 231083
As % of GDP 2.1% 2.1% 2.4% 1.9% 2.6% 2.0%
-Food subsidy 56002 60599 72823 75000 85000 90000
-Fertilizer subsidy 52980 54977 67199 60971 65974 65971
-Petroleum subsidy 14954 38386 68481 43580 96879 65000
- Interest subsidy 2719 5223 5791 2493 2384 2050
-Other subsidy 4369 4968 2002 2493 7415 8061
Source: Budget documents
Lower subsidy burden estimated for FY12
Key components of subsidy (Rs cr)
Lower subsidies budgeted in FY12
- Food subsidy:Rs10000 crore provided for Food Security Bill
- Petroleum subsidy: Under recoveries not fully provided for but not alarming
- Key risk: Higher oil prices can upset fiscal deficit calculations
Petroleum subsidyincludes underrecoveries for FY13 tothe tune of Rs38500crore
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Oil Subsidy: Slippages a function of oil pricesNeed to hike diesel prices to reduce the under recovery
Budget provision for fuel subsidy under provided
Subsidy break down at various levels of crude oil price (Rs Bn)
Large increase in retail prices required
Gap between required market prices and current selling prices at various levels of crude oil
Source: Kotak MF estimates
Retail prices reqd to break-even (Rs)USD
90USD100
USD110
USD120
Current retailprice (Rs)
LPG (Rs/cyl) 689 747 805 863 435
Kerosene (Rs/lt) 39.6 43.1 46.7 50.2 14.4
Diesel (Rs/lt) 54.2 57.8 61.4 64.9 53.7
*Assuming Rs50bn net under-recovery burden on OMCs
International oil price (US$/bbl) USD100 USD105 USD110 USD115 USD120
Exchange Rate (Rs/US$) 54.5 54.5 54.5 54.5 54.5
Gross under-recovery for FY14E (Rs Bn) 785 963 1,141 1,319 1,497
Total Govt. subsidy assuming upstream share at 50% (Rs Bn) 342 431 520 609 698
Shortfall in provision (Rs Bn) 113 202 291 380 469
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Infrastructure : On-going area of thrustFocus on financing; Execution contingent on policies
Infrastructure Debt Funds (IDF) to be encouraged, Infrastructure tax-free bond of Rs50,000 crore in 2013-14,
Investment allowance at the rate of 15 percent to manufacturing companies that invest more than Rs100cr inplant and machinery during the period FY14-15
Plans for seven new cities have been finalised and work on two industrial cities at Dholera, Gujarat andShendra Bidkin, Maharashtra will start.
Roads: 3000kms of road projects in Gujarat, Madhya Pradesh, Maharashtra, Rajasthan and Uttar Pradesh tobe awarded in the first six months of 2013-14. A regulatory authority for road sector.
Ports: Two new major ports will be established in Sagar, West Bengal and in Andhra Pradesh to add 100million tonnes of capacity
Industrial corridor: Mumbai-Bengaluru and Bengaluru Chennai
Rs5,000 crore to NABARD to finance construction for warehousing.
Infrastructure thrust to continue, execution is key
Source: Budget documents
Plan Expenditure FY12 FY13BE FY13RE FY14BEAtomic Energy 4,290 5,600 3,175 5,880Civil Aviation 1,357 4,500 6,200 5,200Communication & IT 4,208 8,600 4,693 9,600Drinking Water & Sanitation 9,993 14,000 13,000 15,260Education
50,655
61,407
56,208
65,857
Power 5,809 11,025 5,858 11,161Transport 22,360 26,172 18,795 26,706Urban Development 6,152 7,012 5,837 7,567Water resources 576 1,500 650 1,500Railways 23,013 24,000 24,265 26,000Total 128,413 163,816 138,681 174,731
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Consumption: Positive for bottom of the consumption pyramid
Positive for Consumption: Headline tax rates unchanged; Direct Benefit Transfer positive
Tax credit of Rs2,000 to every person who has a total income upto Rs5lakh.
Tax benefit for first time home buyer: First time buyer of new property and availing a loan up to Rs 25Lakh is given an income taxdeduction of Rs1Lakh over and above the existing Rs 1.5Lakh for a home bought in FY14
Rajiv Gandhi Equity Savings Scheme: Threshold limit of income for eligibility under RGESS raised to Rs12Lakh from Rs10Lakh.Under this scheme income tax deduction of 50% to new retail investors for investment upto Rs50,000 directly in equities or mutualfunds in 3 successive years (lock in of 3 years)
Surcharge on rich: Imposition of 10% surcharge on persons whose taxable income exceeds Rs1 crore per year
Source: Budget documents
No changes in tax slabs
Income tax slabs for FY14 remains the same as in FY13
FY2013 FY2014
Individual income tax
Individual tax rates Upto Rs2,00,000 - Nil Upto Rs2,00,000 - Nil
Above Rs2,00,000 - Rs5,00,000 - 10% Above Rs2,00,000 - Rs5,00,000 - 10%
Above Rs5,00,000 - Rs10,00,000 - 20% Above Rs5,00,000 - Rs10,00,000 - 20%
Above Rs10,00,000 - 30% Above Rs10,00,000 - 30%
Exemption Nil Tax credit of Rs 2,000 for individuals w ith income upto Rs5,00,000
Senior Cit izen (60 years-80 years) Exemption limit - Rs2,50,000 Exemption limit - Rs2,50,000
Very senior citizen (80 years+) Exemption limit - Rs5,00,000 Exemption limit - Rs5,00,000
Education cess 3% 3%Super-rich Nil 10% surcharge if total income exceeds Rs10 mn
Corporate income tax
Tax rates 30% 30%
Surcharge rate 5% 10%
Education cess 3% 3%
Minimum Alternative Tax 18.5% of book profits 18.5% of book profits
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Financials sector related announcements
Recapitalisation of PSU banks : PSU Bank recapitalization target set at Rs14000 crore in FY14 as compared toRs12500 crore in FY13 .
Benefit for small home loan borrowers: Individual buying a new property and availing a loan up to Rs 25Lakhis given an income tax deduction of Rs1Lakh over on the interest component and above the existing Rs 1.5Lakh.This is applicable only in FY14
Double taxation issue on securitization transactions: Income of the securitization trust (SPV) which isfacilitating financial institutions to securitize their assets would be exempt from tax. At the time of distribution ofincome, SPV will pay tax at 30% and income received will be tax free in the hand of investors.
Interest rate subvention extended to private banks: Subvention at 4% on timely repayment of crop loans tocontinue and now will be extended to private banks as well
Clarification for amount to be eligible for deduction for write-off in case of banks: Clarification that taxdeduction under section 36(I) (vii) available on both rural and urban loans.
Insurance related announcements:
Insurance amendment and pension Bills are likely to be tabled in the parliament in this budget session.
Branch opening in tier 2 cities and below without IRDA approval
Permission to banks to act as an insurance agent.
Introduction ofCommodity Transaction Tax (CTT) on non-agri products to the tune of 0.01%
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Kotak 14
Proposals related to capital markets
Budget focus on capital market. Key provisions include:
Tax residency certificates: Proposal to amend sections 90 and 90A in order to provide that submission of a taxresidency certificate is a necessary but not a sufficient condition for claiming benefits under the agreements referred to in
sections 90 and 90A Securities Transaction Tax:
STT on equity futures reduced from 0.017% to 0.01%
STT on redemption of MF/ ETF units at fund house/ exchange reduced from 0.2% to 0.001%
Commodities Transaction Tax: introduced on non-agricultural commodities at 0.01%
Surcharge on Dividend Distribution Tax:
increased from 5% to 10% DDT on debt fund investments (other than liquid funds) for individual investors increased from 12.5% to 25% (plus
surcharge and cess)
Eligible securities: List of eligible securities for Pension and Provident funds to include ETFs, debt mutual funds andasset backed securities
FIIs participation in currency derivatives: FIIs permitted to participate in exchange traded currency derivative segmentto the extent of their INR exposure
Stock exchanges allowed to introduce a dedicated debt segment Inflation linked instruments to be introduced a first in India. To be used to wean away investors from gold
Uniform KYC norms to make it easier for foreign investors such as sovereign wealth funds etc
Depository participants authorized by SEBI will be free to register different classes of portfolio investors subject to KYCnorms
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FY14 Union Budget: Sectoral Impact
U i B d t FY14 S t l I t
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Kotak 16
Union Budget FY14: Sectoral ImpactConsumers: negative; Autos mixed bag; media marginally negative
Union Budget FY14: Sectoral Impact
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Kotak 17
Union Budget FY14: Sectoral ImpactMixed bag power, neutral telecom, capital goods-positive
Union Budget FY14: Sectoral Impact
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Kotak 18
Union Budget FY14: Sectoral ImpactOil and metals: Largely neutral
NELP- National Exploration Licensing Policy
Union Budget FY14: Sectoral Impact
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Kotak 19
Union Budget FY14: Sectoral ImpactReal estate-positive, Infra-positive, Cement- marginally positive
Union Budget FY14: Sectoral Impact
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Kotak 20
Union Budget FY14: Sectoral ImpactMidcaps- Largely positive
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What has changed in India?
India: Macro snapshot
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Kotak 22
GDP growth : Bottoming out
Inflation high: Supply-driven;
Core inflation moderates
Currency: A battle between thecurrent account and the capitalaccount
India: Macro snapshotSilver lining: GDP growth bottoming out; core inflation moderating; monetary policy easing
GDP growth
GDP growth likely to be 5-5.5% in FY13from 6.2% in FY12
Infrastructure bottle necks persist
Growth to bottom in FY13; Likely to be ~6% inFY14
Gradual recovery in GDP to aid macro ratios
Inflation
WPI Inflation sticky at ~7%
Fiscal deficit 5.2% of GDP in FY13; 4.8%in FY14BE
RBI policy to focus on core inflation
Food inflation: structural and partly cyclical
Fuel inflation policy driven
USD/INR likely to range between 53-57 inFY14
Currency INR volatility on low import cover
BOP dependent on capital flows
USD 24bn FII inflows in CY12;USD8.8Bn in CYTD13
Forex reserves at USD293bn
Interest rates: Easing cycle
Headroom to cut CRR and policy rates
Lower policy rates to transmit to lowerlending rates
ROCE and WACC spread to expand
Monetary policy
CRR cut by 200bps since Jan 12
Policy rate cut by 75bps since Jan 12
CRR at 4% and repo rate at 7.75%
SLR reduced to 23%; cut of 100bps
The changing face of India
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Kotak 23
The changing face of IndiaA USD1.8Trn economy with USD1.2Trn market capitalization
The positives Past Present
Mind-set change ofentrepreneur/politicalleadership
Inward looking Global aspirations
Risk-averse Focus on scale; FDI and M&A are emerging themes
Regulatory driven Market driven - Willing to embrace competition
Capital Domestic; Constrained Global; Capital loses its nationality; in abundance
Asset-liability mis-match in funding Opening up long-term funding sources
Reliance on domestic banksBanking on insurance, debt, private equity, FDI, FII,ECB/FCCBs
Politics Predominantly Centre dirven Increased dominance of States
Privatization approach
Public offer of government stakes in
PSUs Industry privatization; Competitive bidding
Capital markets Narrow investable universe Broad universe: 179 US$1Bn+ companies by market cap
The challenges Present Future
GDP
Elite model Mass participation in growth
Services driven economy Manfacturing+Services driven economy
Physical infrastructure Physical+social infrastructure
Focus on agriculture Focus on Rural GDPFocus on growth Focus on growth + environment + governance
PolicyLeakages in social spend and revenuecollection
Direct Benefits Transfer
Simplification/Unification of tax system
Resources: Allocation Resources: Auctions
Inflation likely to stabilize at ~7-7.5%
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Kotak 24
Inflation likely to stabilize at 7 7.5%Room for RBI to cut policy rates as aggregate demand moderates
Inflation likely to average ~7-7.5% in FY13; 6.5-7% in FY14EWPI inflation (YoY change), 2007-14E (%)
Average WPI inflation at 8.4% in FY2012; FY13E average inflation likely at ~7-7.5% assuming hike in fuel prices
Core inflation (non-food manufacturing inflation) has moderated to 4.1% in Jan13; likely to range between ~4.1-4.3% in March13;
Pass through of oil price hikes remains an upside risk
Headroom to cut repo rate by another 75bps in CY13
Expect RBI to cut repo rate to 7% from the current level of 7.75%
CRR and Open Market Operations (OMOs) to be tools used by RBI to manage liquidity in the system
Source: RBI, Kotak estimates
Policy rates have started moderatingIndias policy rates (%)
24
7.2
-2
0
2
4
6
8
10
12
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
Headline inflation Headline inflation (with diesel price hike)
6.7
Source: RBI, Kotak estimates
3
4
5
6
7
8
9
10
11
Mar-01
Sep-01
Mar-02
Sep-02
Mar-03
Sep-03
Mar-04
Sep-04
Mar-05
Sep-05
Mar-06
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
Sep-12
Mar-13
Sep-13
Reverse repo rate Repo rate CRR
Rupee to be range bound in the near term
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Kotak 25
Rupee to be range bound in the near termCurrency: a function of capital flows
INR likely to range between USD/INR 53-57 in FY14
INR movement: to remain range bound
USD/INR movement
Source: IMF, Merrill Lynch Estimates, Kotak estimates
(8.0)
(6.0)
(4.0)(2.0)
0.0
2.0
4.0
6.0
8.0
Brazil China India Russia South Africa
2010 2011 2012 2013
Indias high CAD on account of oil prices and gold imports
CAD/GDP (%) across countries
Source: Bloomberg
2011 2012 2013ECurrent account (45.9) (78.2) (83.4)
CAD/GDP (%) (2.7) (4.2) (4.5)Trade balance (130.6) (189.8) (195.4)
- Exports 250.0 310.0 294.3
- Imports 381.0 500.0 489.7
o/w Oil imports 105.0 155.0 170
o/w Non-oil imports 276.0 345.0 319.7
- gold 34.0 56.0 50.0
Invisibles (net) 85.0 112.0 112.0
Capital account 62.1 67.8 78.0
% of GDP 3.7 3.7 4.2
-Foreign investment 39.7 39.2 45-Banking capital 5.0 16.2 13
-Short-term credit 11.0 6.7 9
-ECBs 12.5 10.3 11
Overall balance 13.1 (12.8) (5.4)
Average exchange rate(USD/INR)
45.63 47.96 54.0
Average Indian crude (USD/bbl) 85.1 111.7 110.0
Source: RBI, Kotak MF estimates
Financing the Current Account Deficit a key challengeIndias Balance of Payments position (USDbn)
25
45
60
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
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Market Outlook: Valuations and Risks
Indian equities: A vast investable universe
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Kotak 27
Key attraction for global investors
India: Investable universe expandsNo of companies as per market capitalization
Source: Capitaline
BSE 200: latest ownership pattern
27
Details on December 31, 2012 (BSE-30 Index: 19,427)
Analyzed M cap (BSE-200)
US$ bn 1,069Rs bn 57,875
Portfolio romoters FIIs MFs BFI Individual Others
US$ bn 537 201 35 80 78 76
Rs bn 29,068 10,861 1,911 4,318 4,216 4,094
% of BSE-200 50.2 18.8 3.3 7.5 7.3 7.1
Source: BSE, NSE, Kotak Institutional Equities
BSE-200 own ership over the last 20 quart ers
Analysis done for BSE-200 stocks taking market cap. at t he end of each quarter (US$ bn)
Indiannon-Govt Foreign Govt MFs
Individual Others Total LIC
Dec-08 138 43 139 85 20 36 43 43 548 23
Dec-09 251 75 280 187 41 77 82 83 1,076 52
Dec-10 324 93 295 252 46 100 99 103 1,313 67
Dec-11 226 64 202 162 32 68 69 69 893 44
Dec-12 270 77 213 225 37 83 80 84 1,069 56
Source: BSE, NSE, Kotak Instutional Equities
BFIFIIs
Promoters
0
50
100
150
200
250
300
350
CY1999
CY2000
CY2001
CY2002
CY2003
CY2004
CY2005
CY2006
CY2007
CY2008
CY2009
CY2010
CY2011
CY2012
CY2013
>1bnUS$ >5bnUS$ >10bnUS$
125 new Billion Dollar companies added between FY00-11No of companies as per market capitalization
Source: BCG
Valuations - still within the historical trading range
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Kotak 28
Valuations - still within the historical trading range
Source: BSE, RBI, Kotak Institutional Equities
Past performance cannot be regarded as a guarantee or indicator of future performance
Valuation of Indian Markets
28
4
8
12
16
20
24
28
Feb-03
Feb-04
Feb-05
Feb-06
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
Feb-13
12 months rolling forward P/E (X)
0
2
4
6
Feb-03
Feb-04
Feb-05
Feb-06
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
Feb-13
10
20
30P/B (X) RoE (%) (RHS)
4
8
12
16
20
Feb-03
Feb-04
Feb-05
Feb-06
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
Feb-13
EV/EBITDA (X)
1,000
5,000
9,000
13,000
17,000
21,000
Feb-03
Feb-04
Feb-05
Feb-06
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
Feb-13
Sensex 10X 12X 15X
(3,000)
1,000
5,000
9,000
13,000
17,000
21,000
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-08
Jan-10
Jan-11
Jan-12
Jan-13
0.0
0.6
1.2
1.8
Sensex M3 adj P/E (X, RHS)Poly. (M3 adj P/E (X, RHS))
Nifty valuation summary
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Kotak 29
Nifty valuation summary
Valuation summary of Nifty sectors, Feb 22, 2013, March fiscal year-ends, 2012-14E
Source: Company, Kotak Institutional Equities estimates
29
Mkt cap. EPS growth (%) PER (X) EV/EBITDA (X) Price/BV (X) Div yield (%) RoE (%)
(US$ mn) 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2012 2013E 2012 2013E 2014EAutomobiles 52,244 30.5 (11.8) 25.4 11.8 13.3 10.6 8.7 8.1 6.3 3.9 3.2 1.4 1.6 33.0 23.9 24.2
Banking 127,344 26.1 16.3 7.2 16.0 13.8 12.9 2.7 2.4 1.4 1.6 16.7 17.5 16.8
Consumers 68,344 24.0 21.1 16.4 38.1 31.4 27.0 28.4 23.6 19.9 14.8 13.3 1.5 2.3 38.9 42.4 43.9
Cement 24,946 32.4 20.0 14.8 18.4 15.4 13.4 10.9 8.6 7.1 2.8 2.5 1.1 1.1 15.3 16.1 16.0
Diversified 2,832 (51.5) 40.7 149.0 24.8 17.6 7.1 12.8 10.0 6.9 1.3 1.2 5.4 6.9 14.9
Energy 122,239 16.0 5.6 (0.5) 10.9 10.3 10.3 5.9 5.9 5.5 1.5 1.4 1.9 2.3 14.0 13.4 12.2
Industrials 28,927 10.5 (2.9) (2.1) 12.9 13.3 13.6 10.3 10.3 9.8 2.6 2.2 1.6 1.5 20.0 16.4 14.1
Metals & Mining 57,601 (3.1) (4.8) 20.9 11.8 12.4 10.3 7.6 8.1 6.9 2.1 1.9 2.7 2.1 17.6 15.0 16.0
Property 8,881 (22.1) 79.7 33.1 40.2 22.4 16.8 18.5 14.0 10.8 1.8 1.7 0.9 1.1 4.4 7.4 9.2
Pharmaceuticals 34,934 (17.5) 74.0 3.8 36.3 20.9 20.1 18.7 13.0 12.7 5.6 4.6 0.5 0.6 15.5 21.8 18.9
Telecom 21,642 (29.6) (36.0) 84.8 27.6 43.1 23.3 7.8 7.2 6.0 2.3 2.2 0.5 8.4 5.2 8.8
Technology 110,646 19.9 25.5 9.0 22.3 17.8 16.3 15.4 12.4 11.0 5.9 4.8 1.5 1.8 26.4 27.2 25.0
Utilit ies 39,018 (1.5) 18.2 11.3 14.2 12.0 10.8 11.6 9.7 8.2 1.6 1.5 2.1 2.5 11.1 12.2 12.4
NIFTY 699,597 13.0 9.5 10.3 16.0 14.6 13.3 10.2 9.4 8.2 2.7 2.4 1.6 1.8 16.8 16.4 16.1
NIFTY ex-Energy 577,358 12.0 10.9 13.8 17.8 16.1 14.1 12.3 10.9 9.2 3.2 2.8 1.5 1.7 18.1 17.7 17.7
NIFTY ex-Energy ex Com 519,757 15.2 13.7 12.8 18.9 16.6 14.7 13.5 11.5 9.7 3.4 3.0 1.4 1.6 18.2 18.2 18.0
Notes:
(a) Following companies are excluded: Kotak Mahindra Bank.
India: Valuation premium over regional markets reasonableRe rating depends on policy momentum
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Regional Valuations
P/E, Earnings growth, P/B of global indices, Calendar year-ends, 2011-13E (as of Feb 21, 2013)
Re-rating depends on policy momentum
Past performance cannot be regarded as a guarantee or indicator of future performance
Source: Bloomberg
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Country Index 2012 2013E 2014E 2012 2013E 2014E 2012 2013E 2014E
Brazil MSCI BRAZIL 13.2 10.7 9.8 (23.9) 23.3 9.7 1.4 1.3 1.2
China MSCI CHINA 11.2 10.2 9.1 0.6 10.2 11.6 1.6 1.5 1.3
France MSCI FRANCE 12.1 11.4 10.2 (5.2) 6.5 11.5 1.2 1.2 1.1
Germany MSCI GERMANY 10.6 11.2 10.0 18.7 (5.4) 12.8 1.5 1.4 1.3
Hong Kong MSCI HONG KONG 17.6 15.9 14.4 (12.1) 10.5 10.2 1.4 1.3 1.3
India MSCI INDIA 15.8 13.8 12.0 10.2 14.9 15.0 2.5 2.2 1.9
Indonesia MSCI INDONESIA 16.8 14.7 12.7 5.4 14.4 15.6 3.7 3.2 2.7
Japan MSCI JAPAN 26.8 19.8 13.7 (28.1) 35.7 44.9 1.2 1.2 1.1
Korea MSCI KOREA 10.1 8.7 7.6 30.0 15.9 12.7 1.2 1.1 1.0Malaysia MSCI MALAYSIA 15.3 14.2 13.0 11.2 7.4 9.6 2.0 1.9 1.8
Mexico MSCI MEXICO 21.2 18.2 15.8 30.9 16.6 15.0 2.1 1.9 2.6
Philippines MSCI PHILIPPINES 21.0 19.0 17.8 14.3 10.8 11.1 3.5 2.9 2.9
Russia MSCI RUSSIA 5.4 5.3 5.2 (12.4) 0.7 3.8 0.8 0.7 0.7
Singapore MSCI SINGAPORE 14.8 14.3 13.2 5.9 3.0 8.9 1.5 1.5 1.4
Taiwan MSCI TAIWAN 18.9 15.0 13.3 5.0 25.9 13.1 1.8 1.7 1.6
Thailand MSCI THAILAND 14.6 12.3 11.1 12.9 18.4 11.6 2.4 2.2 1.9
UK MSCI UNITED KINGDOM 12.4 11.6 10.6 (9.1) 6.4 9.5 1.8 1.7 1.6
US MSCI UNITED STATES 15.0 13.9 12.5 6.4 7.7 11.7 2.3 2.1 1.9
EM MSCI EM (EMERGING MARKETS) 12.2 10.8 9.7 1.7 13.1 10.9 1.6 1.5 1.3
EM Asia MSCI EM ASIA 12.8 11.2 9.9 11.1 14.5 12.5 1.7 1.5 1.4
P/E (X) Earnings grow th (% ) P/B (X)
Key risks to Indias macro story
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Key risks to India s macro story
US policy: sequestration
Euro-zone issues to keep markets guessing
Fiscal union seems to be the only way out, but still some time away
Stability depends on the full support of the ECB
Global oil prices
While oil price risks have abated for the time being, the correlation with Current Account Deficit (CAD) remains high
A USD1/bbl increase in oil prices expands Indias current account deficit by ~USD700m
Geo-political tensions can push oil prices higher
Local issues
Politics outweighs economics; General elections in 2014 can create uncertainty
Reform progress to address Indias triple deficits (Fiscal, current account, governance)
Key constraints for infrastructure build-out: land, coal and declining domestic financial savings rate
Rising CAD and high gold imports weighing on external finances
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Disclaimer:This material should not be construed as an offer to sell or the solicitation of an offer to buy any Security in any jurisdiction where suchan offer or solicitation would be illegal. We are not soliciting any action based on this material and is for general information only. Thismaterial is relevant only to clients who qualify as eligible counterparties. Emerging markets securities may be less liquid and morevolatile and are subject to a number of additional risks, including but not limited to currency fluctuations and political instability ascompared to developed markets. The price and value of the investments referred to in this material and the income from them may godown as well as up, and investors may realize losses on any investments. Future returns are not guaranteed and a loss of the wholecapital may occur. Before acting on any advice or recommendation in this material, clients should consider whether it is suitable for theirparticular circumstances and, if necessary, seek professional advice. Clients may read relevant offer document or prospectus beforeinvesting. Past performance is not a guide for future performance. Investments in mutual funds are subject to market risk. The KotakMahindra group does not provide tax advise to its clients, and all investors are strongly advised to consult with their tax advisersregarding any potential investment.
Kotak Securities Limited. Regd. Office: Bakhtawar, 1st Floor, 229, Nariman Point, Mumbai - 400021.Tel No 022-66341100. Correspondence Address: Infinity IT Park, Bldg. No 21, Opp Film City Road, A K Vaidya Marg, Malad (East), Mumbai400097. Tel no: 66056825. SEBI Reg No: NSE INB/INF/INE 230808130, BSE INB 010808153/INF 011133230, OTC INB 200808136,MCXSX INE 260808130. AMFI ARN 0164. Investments in securities are subject to market risk; please read the SEBI prescribedCombined Risk Disclosure Document prior to investing. Derivatives are a sophisticated investment device. The investor is requested to
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