B udget I mpact A nalysis - J une 2 009

1. Budget Impact Analysis -June 2009

2. Budget 2009 = Inclusive Growth + Economic Reforms • Budget 2009 expected to be one of the closely watched events in the world following the UPA’s remarkable victory at the polls • Budget to remain one of the major event risks and play a crucial role in dictating market trends in the near term • The new government faces a daunting task of striking a balance between promoting social welfare and pushing economic reforms • Infrastructure sector expected to receive higher budgetary allocation with a view to sustain the economic growth momentum • The “Aam Aadmi” who is reeling under the impact of a weak economic scenario & job losses to remain high on the government’s agenda • Government to consider increased allocation to NREGS & Bharat Nirman, food subsidies to BPL families and raising the tax slabs on individual income

3. Budget 2009 >>> A Tight Rope Walk Act • Government to counter the challenge of balancing higher spending and attaining fiscal prudence through the following measures: • Policy Action : A new FRBM Act is under consideration to address the concerns of bloating fiscal deficit • Disinvestment : Diluting small stakes in PSUs can rake in billions to the government exchequer. Though outside the budget’s ambit, the 3G auction can be a big money spinner • Deregulation : Despite being a sensitive issue, government may consider a modest hike in fuel prices due to rise in global crude oil prices • Increase in FDI Cap : In order to encourage the flow of foreign capital, the FDI limit in insurance may be hiked to 49% from the existing 26%. ECB norms too may be relaxed

4. Budget -Impact On Sectors AUTO BANKING INFO TECH REALTY FMCG METALS OIL & GAS PHARMA

5. Extension of excise duty benefits Rationalisingspecific dutyand higher excise levy on Utility Vehicles Improved access to finance through NBFCs Extension of depreciation benefits for commercial vehicles Automobiles Measures Impact Positive for revenues and earnings of auto companies Will revive volumes of bigger cars as against the current preference for smaller cars Will boost demand in rural and semi-urban areas A big positive move in favor of truck manufacturers

6. Raising FDI cap in insurance from 26% to 49% Removal of 10% voting right cap on FIIs in banks Hike in interest rate subsidy for agricultural loans Raising deduction limit u/s 24 of IT Act for interest on housing loans Banking &Financial Services Measures Impact Will encourage and drive higher participation of foreign players To largely benefit small cap private players Ensures sustained credit flow to the agri sector Significant increase in demand for housing loans

7. Excise duty likely to be increased from 8% to 10% Benefits of tax holiday for the food processing industry Levy of import duty on edible oils Reduction in VAT from 12.5% to 4% on biscuits FMCG Measures Impact Companies outside the excise free zones to be hit Will drive modernisation and higher investment in the sector Importers to be adversely affected Would cut down costs and drive higher volume growth

8. Extension of STPI benefits beyond FY 2010 Reduction in excise duties on electronic items Removal of service tax on packaged software Information Technology Measures Impact Provides a boost to investments and generates employment Significant drop in costs of hardware as well as software equipments Reduces the cost of software packages

9. Imposition of 10 - 20% safeguard duty on HR Coils Increase in excise duty on steel products Import duty on aluminium products may go up Metals Measures Impact Will provide support to the domestic steel players Will lead to a marginal rise in domestic steel prices Rise in the prices of imported aluminium products

10. Increase in crude oil import duty to 3 - 5% from 0% now Deregulation of auto fuel prices Hike in excise duty of petrol and diesel Including Natural Gas in the list of Declared Goods Oil& Gas Measures Impact Negative impact on oil refining companies Improves earning visibility of OMCs and also upstream companies Will adversely affect PSU and private oil companies Natural Gas to attract a uniform sales tax

11. Possible hike of excise duty to 8% from the existing 4% Tax incentives on exports Peak customs duty may remain at the existing 10% In - house R&D weighted tax deduction to remain at 150% Pharma Measures Impact Negative impact on the revenues of Pharmaceutical companies Will benefit the net realisations of Pharma companies No major impact on sector earnings No incremental positive or negative impact

12. Reintroducing Sec 80IB which gives tax waivers on smaller housing units Higher FSI for developers who focus on low cost housing Allow corporates to raise funds via ECBs Reduction in stamp duty and land registration charges Realty Measures Impact Minimises tax outflow and shifts focus on affordable housing The move will significantly improve margins for such developers Better access to funds at competitive rates Reduces effective purchase price of property to the buyer

13. Budget 2009 –The Countdown Begins… • Overall sentiment & expectations to have a positive bias on account of the UPA winning a decisive mandate • Headroom for fiscal profligacy limited, given that the combined deficit of Central & State Governments is in excess of 10% GDP • Though few populist measures can marginally impact tax collection, it boosts consumerism and indirectly contributes to the tax kitty • Policy push for reforms and road map to contain fiscal deficit will remain the key drivers of FII inflow • Upcoming Q1 FY10 results, monsoon and global cues to dictate market direction post-budget

14. Indian Budget –Some Interesting Facts… • The word ‘budget’ comes from the French word ‘bougette’, which means a little bag • Except in the year of general elections, the budget is usually tabled on the last working day of February to facilitate the Parliament to review and modify the budget proposals by April 1st • R.K.Shanmukan Chetty, the FM in Nehru’s cabinet between 1947-49 presented the first budget of independent India on November 26th 1947 • Morarji Desai was the only FM to present a record number of 10 budgets - including 2 of them on 29th February, his birthday • Indira Gandhi was the only woman to hold the post of Finance Minister • The employees of the Finance Ministry printing the budget papers are kept in complete isolation for one week before the budget

15. Funds In Action • DiversifiedEquityFunds Birla Sunlife Frontline Equity Birla Sunlife MidCap Fund DSP BR Top 100 Equity HDFC Top 200 IDFC Premier Equity Plan-A Reliance Vision Sundaram BNP Paribas Select MidCap • InfrastructureFunds Canara Robeco Infrastructure Fund DSP BR T.I.G.E.R Fund ICICI Prudential Infrastructure Fund TATA Infrastructure Fund

16. Thank You… Praveen P Research Associate Ph-080 25550129/30 E-mail: praveen@sprisminvest.com Ravi Kumar S Ph-080 41503210/11 E-mail: ravis@sprisminvest.com

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