Dalal Street Investment Journal

Budget 2013: Nothing To Cheer

George Washington once said, “We must consult our means rather than our wishes”. This line relates well to what our own Finance Minister P Chidambaram did while announcing the Union Budget for 2013-14. The intent seems to be in place, but what about the resources? This is one question that we are looking to answer. The buildup of expectations preceding the budget was sky high this time around, more so because this was the last annual budget before we go to elections next year. The fight, obviously, was between populism on one hand and prudent financial management on the other.

So, is it a populist or a prudent budget? There are many who find that the budget to be a rather balanced one. To put it in simple words, even just no bad news is good news in context of what has been presented. The statesman in Chidambaram has played his cards rather smartly. While he has chalked out a moderately generous hike in spending for 2013-14, it has not been clarified as to where the funds would come from.

In our preceding issue, we had very clearly spelt out on what is expected from the FM if the markets are to maintain their upward momentum. It is rather good to note that most of it is reflecting in the budget. But the moot point about it is that the quantum isn’t really up to the mark. There is a void between what has been assured or done and what the need was. Take, for instance, the RGESS. While the FM has taken good note of the need to extend the applicability of the scheme, and the quantum of eligibility has been raised from Rs 10 lakh to Rs 12 lakh, this does not look to be too impressive a change. Also, one good thing that the FM has done is to set aside Rs 9000 crore for the compensation to be provided to states once the GST is rolled out. This hints at the intent of the government in taking forward reforms by implementing the GST soon. Will it be able to do this is something that we will know soon enough.

One thing that comes out very clear from the budget is that the government has come up with something that can neither be cheered nor quite be complained about. In fact, there are some grey areas that need to be clarified. The first instance of this came in the form of FIIs panicking over the proposed change in the way the Tax Residency Certificates (TRCs) will be used for claiming tax benefits. The issue has, for the time being, been relegated to the background. However, it will very soon come to haunt the markets again if no further clarifications on its applicability become clear. So, there seem to be a whole lot of provisions which could be counterproductive rather than being of any help. The cover story obviously throws more light on what all has been done with reference to important impact points, particularly with reference to the markets.

The Indian pharma companies have been doing quite well, riding on the patent expiries that have been happening in the developed markets. There are many companies which have thrived on this, thanks to their conscious investments in R&D and the wherewithal that India owns in terms of excelling in high end pharma production. We have analysed one such company in this issue - Aurobindo Pharma. This company has established itself well on the global pharma platform and has been particularly successful in the US markets. It certainly makes up for a good investment option in the current scenario. Our research team has worked on the details of why this stock will deliver good returns to you.

Real Estate as an asset class has its own significance. We have a small feature telling you about what the two key real estate markets; Bengaluru and Delhi NCR have to offer you. We also have two other recommendations which form a part of the issue this time. Our Low Price recommendation is LT Foods and the Choice Scrip this time is Sun Pharma. Both the stocks have a good set of fundamental factors running in their favour. Hold them as they are recommended for a better value creation strategy.

Presently there are no macro triggers for the markets. The markets are taking cues from global happenings which at least for the time being seem to be good. The main indices in the US have touched their five-year highs. The pain inflicted by the failure of the financial system way back in 2007 seems to have been cured finally. Will our markets follow suit and breach their highest levels? I am quite positive on it. The way things are shaping up in 2013, we are sure there are better times ahead.