The next major trigger for the market is the Union Budget 2008-09. With general elections due in 2009, Union Budget 2008-09 to be presented on 29 February 2008 will be the last full-fledged budget of the Congress-led United Progressive Alliance government and it is therefore likely to be a populist budget. Thus, the Finance Minister (FM) is likely to provide higher allocations to several social initiatives like rural upliftment, employment, education, agricultural growth and public health.
Though populist measures will dominate the budget, FM is also expected to take steps to stimulate investment and consumption demand at a time when the economy is witnessing moderation from a solid growth last year. A reduction in personal income tax, if any, will result in increase in disposable incomes which in turn may boost demand for consumer goods.
Expectations are that the corporate income tax rate may be cut or the 10% surcharge on corporate tax may be abolished. The surcharge is 10% on a tax rate of 30%, making the effective corporate tax rate 33%. Another possibility is that of a cut in dividend distribution tax from 15% to 12.5%.
Meanwhile, FM may raise the Securities Transaction Tax (STT) slightly. STT is currently at 0.125% on delivery trades. STT is 0.025% on non-delivery trades on sell transactions. STT is 0.017 % in futures & options segment on sell trasactions.
It is also expected that the FM would announce some relief packages for troubled export sensitive sectors like textiles, rubber, jewelry, leather and IT services. These sectors have been hit by rupee’s surge in the past one year.
Pre-budget rally in capital goods stocks
Six stocks from the capital goods sector rose between 3.11% to 4.34% on expectation that the government will lay thrust on infrastructure sector in Union Budget 2008-09 to be announced on Friday, 29 February 2008.
The BSE Capital Goods index was up 498 points or 3.09% at 16,622.36.
Top gainers from the Capital Goods index were: Siemens (up 4.34% to Rs 1,679.80), Crompton & Greaves (up 4.11% to 324.60), Larsen & Toubro (up 3.83% to Rs 3,653.15), Bharat Heavy Electricals (up 3.55% to 2,258) and Punj Lloyd (up 3.11% to Rs 396).
Some of the key expectation for capital goods sector from the Union Budget 2008-09 include, reduction in exise duty on power equipments. Currently the duty is 16%.
Reduction in custom duty on project imports is also expected so as to provide a boost to infrastructure investments. Currently the maximum duty is at 10%.
The government may also likely to provide subsidy on shipbuilding. The previous subsidy of 30% had expired on August 2007.
Tractor makers in top gear as budget may focus on agriculture
Shares of the four tractor makers rose between 1.69% to 12.66% on hopes that the Union Budget 2008-09 may include provisions for increased spending in agricultural sector.
Punjab Tractors (up 12.66% to Rs 277.15), HMT (up 5% to Rs 96.25), Mahindra & Mahindra (up 4.90% to Rs 661) and Escorts (up 1.69% to Rs 108), edged higher.
As per reports, Union Budget 2008-09 to be announced on Friday, 29 February 2008, may include measures to help heavily indebted farmers.
Rise in agricultural spending is positive for tractor manufacturing firms, as it would lead to additional demand for farm products, including tractors.
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