2. Equity View: The week ahead is the budget week with the
budget on 10th July and the railway budget on 8th July. The
following are the key expectations from the budget: From the
taxation perspective, we expect the government to give a very clear
road map for GST. We believe that the backbone which is the IT
network, is required for all states to implement GST is already
been put in place. There is a lot of concern as yet in terms of how
that thing will eventually work out and what kind of split in terms
of revenue will happen. So those are the things, which will be
worked out in the course of the next few quarters and we would
believe that by 1st April 2015, GST should come into existence. The
other big tax reform which is expected is the direct tax code. We
believe that this is something which has been hanging for a long
time, while it is not expected that it will be carried out in this
budget but a road map for it will be laid out and again by the
beginning of the next fiscal, we would expect even the direct tax
code to come into existence. In terms of personal taxation, there
is a lot of talk about medical reimbursements, conveyance
reimbursements and the tax slabs are likely to see some change. The
limits are likely to be pushed upwards by 50k to 1Lac rupees. Also
as per 80CC, 1lakh worth of investments, are being allowed as of
now. Those limits can also be extended. There is a lot of talk that
1L can go upto 2L. To boost housing, the tax exemption on the
interest component of housing loan, that limit is currently set at
1.5 L. That limit can also go up. All these things together, will
give some disposable income in the hands of the individual tax
payer and that should give a boost to the consumption space. As far
as the other sectors are concerned, key announcements which are
expected in terms of FDI is that Defense should see a 100% FDI.
Insurance, pension and e-commerce, these are again sectors, which
can see enhancement of limits as far as FDI is concerned. There
will also be some expectations in terms of announcement of new road
cess. So every litre of petrol and diesel that is being bought
currently, it could see a road cess of around 1-2 Rs. This will be
a revival of the road cess which happened during the Vajpayee era
and thats when the Golden Quadrilateral was built using the money
which was collected in form of petrol and diesel cess. So we
believe that this government will again go back to that model of
recovering the seed capital for highways and road projects through
this model. There is also a talk that there might be cess on the
railway which will go into improvement of railway infrastructure.
In terms of broader policy announcements as far as the
infrastructure space is concerned, those are largely out of the
realm of the budget. We believe that government would keep making
separate announcements and legislations to boost up infrastructure
activity.
3. There is already a talk that land acquisition bill will
probably get modified and some of the conditions which were put in
the land acquisition bill, which had made land acquisition,
especially large tracks of land for big industries, difficult to
come by, those things will probably get modified and we might see
an amendment to the land acquisition bill, anytime in the next 2-3
months. Another major sector which requires immediate reforms is
the labor side and the Rajasthan government has already made the
first step in terms of initiating modifications of the labor laws.
Labor laws have not been touched in India for almost 50 years
because of which there are strong labor unions. They become a big
impediment to the growth of the manufacturing space all across the
country. We believe that, initiation of reforms in the labor side
will happen, may be not during the part of the budget but outside
the budget sometime soon. Reworking under what qualifies as work
under MNREGA which is Rural employment guarantee scheme. The focus
would be to create durable assets in rural India through use of
skilled labor. It is quiet likely that the conditions for which
money is being paid would be reworked and some concrete assets
might be built using that. The most important development which
everyone is waiting to watch is what happens on the Fiscal side.
The fiscal deficit has been all over the place. The first two
months of this fiscal has seen a significant increase in the fiscal
deficit compared to last year. That is largely because of huge
unpaid bills which have rolled over from the last fiscal. We would
expect finance minister to give a clear road map in terms of what
is expected in terms of fiscal deficit for the next 3 years. We
would believe that the fiscal deficit which was pegged at 4.1% in
the interim budget should be pegged closer to 4.5% in the final
budget. This is a more feasible and attainable number compared to
4.1% which was given in the interim budget. We would also believe
that the finance minister would lay out a road map that by FY17 or
FY18, the fiscal deficit should be brought under 2% of GDP which is
something which can be sustained for longer period of time.
Announcements in terms of specific sectors and stock market
perspective, we would believe that excise duty cuts have already
been announced in the automobile space in the last interim budget
and those have already been extended. There could be some further
relief as far as consumption space is concerned specially on the
durable side. In terms of other sectors, there could be some
changes with the taxation as far as MAT (Minimum Alternate Tax) is
concerned which could help some of the companies in the
infrastructure space. This is broadly what is really expected in
the upcoming budget. Again as we have been saying that budget at
the end of the day is just a accounting statement. Already we have
seen enough announcements from the governments side which has
demonstrated that it means business is committed to do significant
reforms and removing populist measures and subsidies. So all those
things will be taken positively by the market even if these things
mentioned above dont find a place in the budget, there would be
5-7% correction in the market. Any correction should be used as a
buying opportunity. We continue to maintain our year end Sensex
target of 29,300 and of course our long term target of 1,00,00 by
2020. We continue to advise our clients to go aggressively into
equity and increase their allocation to equity in short to medium
term.
4. News: DOMESTIC MACRO: Government extends the validity period
of industrial license to three years with a provision for further
extension of two years to improve ease of doing business in India.
RBI to conduct an INR 20,000 cr term reverse repo auction today to
address evolving liquidity condition. Indias Services PMI rose to a
17-month peak of 54.4 in June from a reading of 50.2 in May. RBI
restores the limit on Indian corporates overseas direct investments
under the automatic route to 400% of networth, compared with the
earlier limit of 100%. GLOBAL MACRO EURO The European Central Bank
leaves its main interest rate unchanged at a record low of 0.15%,
holding off fresh policy action while it waits for stimulus
measures announced last month to take effect. Euro zones services
PMI fell to 52.8 in June from 53.2 in May. United States US factory
orders fell 0.5% in May as compared to an increase of 0.8% in
April. US non-farm payrolls rose by a seasonally adjusted 288,000
in June following an upwardly revised 224,000 in May; the
unemployment rate ticked down to a five-and-a-half year low of 6.1%
in June from 6.3% in May. US trade deficit narrowed 5.6% in May to
$44.4 bn after hitting a two year high of $47 bn in April. China
Chinas HSBC services PMI rose to 53.1 in June from 50.7 in May.
Indices: Date Sensex Midcap Auto Bankex CD CG FMCG HC IT Metals
O&G Power Realty Teck 30/06/14 25,414 9,379 15,249 17,475 8,870
16,200 6,676 11,462 9,346 13,100 11,151 2,319 2,077 5,266 1/7/2014
25,516 9,434 15,743 17,559 8,957 16,406 6,699 11,418 9,259 13,366
11,090 2,325 2,099 5,237 2/7/2014 25,841 9,507 15,966 17,745 9,075
16,681 6,774 11,633 9,263 13,634 11,198 2,370 2,107 5,247 3/7/2014
25,824 9,491 16,093 17,695 9,129 16,674 6,793 11,763 9,294 13,560
11,065 2,350 2,076 5,254 4/7/2014 25,962 9,546 16,096 17,825 9,095
16,629 6,815 11,819 9,311 13,441 11,249 2,370 2,099 5,266 2.16%
1.78% 5.55% 2.00% 2.54% 2.65% 2.08% 3.12% -0.37% 2.61% 0.88% 2.23%
1.04% -0.01%
5. Commodities and Currency: Date USD GBP EURO YEN Crude (Rs.
per BBL) Gold (Rs. Per 10gms) 30/6/2014 60.0933 102.3269 82.0094
59.28 6809 28093 1/7/2014 60.137 102.8343 82.283 59.27 6752 28149
2/7/2014 59.9745 102.8982 82.022 59.05 6748 27964 3/7/2014 59.7225
102.4539 81.5415 58.62 6672 27901 4/7/2014 59.7939 102.6601 81.3203
58.6 6629 27859 0.50% Rupee Appreciated -0.32% Rupee Depreciated
0.85% Rupee Appreciated 1.16% Rupee Appreciated -2.64% -0.83% Debt:
Tenor Gilt Yield in % (Friday) Change in bps (Week) 1-Year 8.46 -3
2-Year 8.42 6 5-Year 8.65 3 10-Year 8.67 -8
6. Varun Goel Jharna Agarwal Nupur Gupta Ridhdhi Chheda
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