RBI’S CREDIT POLICY – 19th March 2013…..25bps cut in repo rate

· Repo Rate – The repo rate under the liquidity adjustment facility (LAF) has been reduced by 25bps to 7.5%

· Reverse Repo Rate – Reverse repo rate, determined with a spread of 100 bps below the repo rate, automatically adjusts to 6.5%.

· Cash Reserve Ratio – The cash reserve ratio (CRR) of scheduled banks has been retained unchanged at 4.00%.

Our Take

The credit policy announcement was largely in line with market expectations. Going forward, the RBI has indicated limited headroom for further monetary easing on the back of sustained increase in retail inflation. Commenting on the inflation guidance RBI said – “Notwithstanding moderation in non-food manufactured products inflation, headline inflation is expected to be range-bound around current levels over 2013-14 in view of sectoral demand-supply imbalances, the ongoing corrections in administered prices and their second-round effects. In addition, elevated food prices, including pressures stemming from MSP increases, and the wedge between wholesale and retail inflation have adverse implications for inflation expectations”.

On the liquidity front, the RBI commented that it will continue to actively manage liquidity through various instruments, including open market operations (OMO), so as to ensure adequate flow of credit to productive sectors of the economy.

On further rate cuts the RBI said that - “Risks on account of the CAD remain significant notwithstanding likely improvement in Q4 over an expected sharp deterioration in Q3 of 2012-13. Accordingly, even as the policy stance emphasises addressing the growth risks, the headroom remains quite limited”.

Overall we believe, the credit policy is neutral for the markets. However the new political development today, will have implications in the short term and the markets could come under pressure. 

Key Takeaways - IIP Jan 2013

Index of Industrial Production (IIP) has grown at 2.4% for January 2013 (above market expectations of ~1.3%) compared to -0.5% in December 2012 (MoM) [revised upwards from -0.6%] and 1.0% in January 2012 (YoY). The cumulative growth for the period April-Jan 2012-13 stood at 1.0% vs. 3.4% over the corresponding period of the previous year.

Outlook – IIP headline data for January came above street expectations. The growth in IIP was mainly on the back of strong growth in manufacturing, electricity sector & consumer non durables. On the other hand, mining & capital goods continue to show signs of slowdown

Going forward, investors will keep an eye on the monetary policy action to be taken by RBI on 19^th Mar13. We recommend investors to accumulate quality blue chip stocks with medium to long term perspective, as India continues to remain an attractive equity investment destination. We recommend investors to focus on rate-sensitive sectors like banking, auto etc. and on quality stocks in reform led sectors like oil and gas sector and media.

Sector-wise growth indicator

· Manufacture sector growth at 2.7% vs. 1.1% (YoY)

· Mining sector growth at -2.9% vs. -2.1% (YoY)

· Capital sector goods growth at -1.8% vs. -2.7% (YoY)

· Electricity sector growth at 6.4% vs. 3.2% (YoY)

· Basic goods growth at 3.4% vs. 1.9% (YoY)

· Intermediate goods growth at 2.0% vs. -2.5% (YoY)

· Consumer durables goods growth at -0.9% vs. -7.5% (YoY)

· Consumer non durables goods growth at 5.3% vs. 10.6% (YoY)

Budget 2013-14: No change in tax slabs

This is the most watched part of the Union Budget. Has P Chidambaram shown kindness to the common man?

Are you happy with these tax slabs and I-T exemption limits?

Finance Minister P Chidambaram presented his 8th Union Budget today. In terms of taxes, he proposed that the personal income tax exemption limit will remain unchanged at Rs 2 lakh.

If you are one among people who earn up to Rs 2 lakh annually, you do not have to pay any taxes. Click next to check your tax slabs

No Tax: For an annual income up to Rs 2 lakh

10% Tax: For an annual income of more than Rs 2 lakh and up to Rs 5 lakh

20% Tax: For an annual income of above 5 lakh and up to Rs 10 lakh

30% Tax: For an annual income exceeding Rs 10 lakh

>Person taking home loan for the first time will get tax cut of Rs 1 lakh.

> Home loan exemption increased from Rs 1.5 lakh to Rs 2.5 for up to Rs 25 lakh loan.

> Home loan interest to save Rs 30, 900 for tax payer in 30% bracket.

> Tax administration reform committee to be set up

> FY14 fiscal deficit seen at 4.8% versus 5.2% in FY13.

> FY14 revenue deficit aim at 3.3%.

> Tax credit of Rs 2,000 for everyone in the Rs 2 - 5 Lakh bracket

> Surcharge of 10% for the super rich

> Surcharge to be for everyone with an annual taxable income of over 1 crore.

> Surcharge hiked to 10% from 5%.

> All additional surcharge for only one year.

> 10% surcharge on companies with income over Rs 10 crore.

Budget 2013: What's Cheaper, What's Costlier

As India watched the Finance Minister's monetary moves, did he surprise or deliver just as predicted?

Excise duty on Cigarette increased by 18%

6% percent duty on mobile phones that cost above Rs 2000

Eating out to get more expensive. All A/C restaurants will have to pay service tax.

100% custom duty on luxury cars

4% duty on silver

Duty on set top box to be increased

TDS at 1 per cent on properties being sold for more than Rs 50 lakh.

No excise duty for handmade carpets of choir and jute.

Vocational courses and testing activities in relation to agriculture to be exempt of service tax.

To reduce abatement rates on luxury apartments.

Lower Securities Transaction Tax on mutual funds

Duty-free gold limit raised

Stocks that benefit from Budget 2013-14

Here’s a list of stocks that made the most out of the Union Budget 2013-14 presented by Finance Minister Chidambaram.

1. Allocation to Education at Rs 65877 cr up 17%
Positive for Educomp Solutions, Everonn Education, Aptech, EdServ Softsystems

2. To allot Rs 14873 cr to JNNURM in FY 2013-14. Will help in purchase of 10000 buses by hill stations

Positive for Ashok Leyland, Tata Motors, Eicher Motors, Force Motors

3. Infrastructure debt funds encouraged promoting investment in infrastructurePositive for GMR Group, GVK Power and Infrastructure

4 .To set up a Regulatory Authority for Road ProjectsMore road projects to be awarded in the next 6 monthsPositive for IRB Infra, IL&FS Transportation, L&T, GMR, GVK, Ashoka Buildcon, Reliance Infra

5. House loans up to Rs 25 lakh will be allowed additional deduction of interest of Rs 1 lakhLIC Housing Finance, HDFC

6. Blocked NELP blocks to be clearedPositive for ONGC, Reliance Industries, Cairn India

7. To review Natural Gas Pricing PolicyPositive for ONGC, Oil India and RIL

8. To provide Rs 14,000 cr for PSU Bank capitalization. Capital infusion of Rs 12,517 cr to PSU banks by March 2013Positive for SBI, PNB, BoB, Bank of India, Canara Bank, Oriental Bank of Commerce, Union Bank of India 

9. Generation-based incentives for wind energy projects. Low cost finance provided for viable renewable energy projectsPositive for Suzlon Energy 

10. Propose Technology upgrade scheme for textile sector to Rs 2400cr in FY14Positive for Arvind Mills, Aarvee Denim, KG Denim 

11. 289 FM radio channels to be auctioned in FY14. 294 more cities to be connected by FM RadioPositive for ENIL, HT Media, Reliance Broadcasting

12. To reduce STT on equity futures, MF units. STT reduced from 0.17% to 0.1%.Positive for IIFL, Motilal Oswal Securities, Religare Securities 

Budget 2013: 5 facts about your taxes

The Finance Minister P Chidambaram presented the Union Budget for the financial year 2013-14 and there are several changes that will impact you as an individual. The end result is a reduction in the overall taxes that most of you will pay to the government.

Tax credit for low income individual

There is a benefit provided to those individuals who fall into the lowest income tax slab of Rs 2.2 lakh to Rs 5 lakh, in the form of a rebate of Rs 2,000 in their taxes. This will mean a savings in tax for those who fall into this specific tax bracket. For those between Rs 2 lakh and Rs 2.2 lakh the total tax to be paid would be available as a credit.

Interest limit

There is an additional deduction available on interest repaid on a loan for a first time house purchase. The benefit here has been increased by an additional Rs 1 lakh and this will be over and above the Rs 1.5 lakh limit available, if the house price is less than Rs 40 lakh and the loan is Rs 25 lakh or less. This benefit can be claimed in the next year if not exhausted in the first year.

Higher surcharge

The finance minister has announced that a surcharge of 10 per cent will be present on income above Rs 1 crore. All taxpayers falling within this category, will have a higher amount of tax to be paid. Since the limit is so high, a large population of this country would be exempted. There are 42,000 people who disclosed taxable income of over Rs 1 crore.

Tax free bonds

There will be another year in which tax free bonds will be available as various institutions have been allowed to issue such bonds for one more year. This will mean that the investors can reduce their tax liability by investing in such instruments and the income earned here would not be taxable.

Tax deduction at source
Anyone selling a house property worth Rs 50 lakh or more, will have to ensure a 1% tax deduction at source on the amount of the sale and will have to deposit this with the government. What this could also mean is an increase in the procedure and administrative work at the time of sale of the property. 

Women & Budget: 4 Things that matter

The Budget 2013-14 had several positives for women. Here are four things that should matter the most.

1. A Bank for Women
The Finance Minister has announced the plan to set a bank for women with an initial investment of Rs 1000 cr. The bank is likely to be inaugurated by October 2013.The proposed bank will offer credit to women and women run businesses. It will support women SHGs and women livelihood.
The bank will also largely employ women. Bank to “address gender related aspects of empowerment and financial inclusion”

2.Addressing Women Safety
The government proposes to tackle women safety issues and has announced a Rs 1,000 crore ‘Nirbhaya Fund’. The Ministry of Women and Child Development will plan the structure, scope and application of the fund.The finance minister also announced an additional Rs 200 crore-allocation to the Ministry of Women and Child Development. With the additional funding the Finance Minister seeks to ensure “that vulnerable women – single mothers, widows and suchlike – are taken care of and can live with dignity”.The Finance Mininster has set a gender budget at Rs 97,134 cr for the financial year 2013-14 

3. Budget and Young Women
Skill Development Scheme to benefit young women. The National Skill Development Corporation will set the curriculum and standards for training in different skills. Those who pass this training test will be awarded a certificate and a monetary award at about Rs. 10000.Government will initially invest Rs 1000 cr on this scheme

4.Duty Free Gold
The Finance Minister in Union Budget 2013-14 has decided to allow women passengers bring in duty free gold jewellery worth up to Rs 1 lakh into the country.

Aam Aadmi and this year's Budget: 5 things to know

Finance Minister P Chidambaram's Budget has been getting mixed responses. But what is in store for the Aam Aadmi (Common Man)?

1 . Rajiv Gandhi Equity Savings Scheme

The scope of the UPA government’s ambitious Rajiv Gandhi Equity Savings Scheme was widened in Union Budget 2013-14. The scheme has been liberalized to encourage retail investors to devote funds into mutual funds. Tax benefits under the scheme have been extended to 3 years.
The Finance Minister also raised the income level of investor eligible for the scheme from Rs 10 lakh to Rs 12 lakh per annum.
Under the Rajiv Gandhi Equity Savings Scheme, an individual with an income of up to Rs 12 lakh gets tax incentives for investing up to Rs 50,000 in the stock market.

2. Tax Exemption for first home loan borrowers
The Union Budget was encouraging for people seeking home loans. First time borrowers home loans up to Rs 25 lakh during the financial year 2013-14 will be allowed an additional tax deduction of interest of up to Rs 1 lakh. This may cheer prospective homebuyers.

3

. Tax Credit in Lowest Slab

While the Union Budget did not have any substantial changes in the personal income tax slabs, the Finance Minister offered a minor relief to those in the lowest tax bracket.Finance Minister announced a tax credit of Rs 2000 for those with taxable income in the Rs 2-5 lakh bracket.

 

4. Urban HousingFinance 

Minister proposed an Urban Housing Fund with a corpus of Rs 2000 cr to increase the availability of residential accommodation in urban areas. National Housing Board will set up the Fund in consultation with the RBI

5. Inflation-indexed bonds to Protect Saving
Inflation has been a huge headache for the Aam Aadmi in the last few years.
Union Budget 2013-14 announced the issue of inflation-indexed funds. The Finance Minister via these funds seeks to protect savings of the poor and middle classes from the impact of inflation.
The instrument will be in the form of ‘inflation-indexed bonds or inflation-indexed national security certificates. The structure and tenure of the instruments will be announced in due course”.

10 things to know about Budget 2013-14

Finance minister P Chidambaram presented a budget that set the S&P BSE Sensex packing. Here are 10 things you need to know about the Budget 2013-14:

Rich pay more taxes:
It is time for the rich to be worried as they would have to pay an additional surcharge of 10% on taxable income of over Rs 1 crore. This is because the budget raises taxes for them. The rich buying luxury cars will also have to pay 100% customs duty on high end sport utility vehicles. However, the budget gives relief to the common man through an additional Rs 1 lakh deduction on interest paid on home loans of up Rs 25 lakh.

Tax revenue:

The slowdown in the economy has hurt as Total tax revenue for the central government fell short of the target at Rs 7.42 lakh crore. In the year 2012-13 it was estimated that the total tax revenue would be around Rs 7.7 lakh crore. The finance minister has set an ambitious target of Rs 8.84 lakh crore for 2013-14. The amount that the government raises through levying taxes is known as the tax revenue which is generally an aggregation of income tax, corporation tax, excise duty, customs duty and service tax.

Fiscal deficit:

Fiscal deficit is the difference between the total expenditure of the government in a year and the revenue receipts cum the recoveries of loans. Fiscal deficit also represents the amount that the government will have to borrow to fund its shortfall. The lower the deficit the better it is for the country as it brings down inflation and interest rates. The fiscal deficit was estimated at Rs 5.1 lakh crore in last year’s Budget, however, this was revised to Rs 5.2 lakh crore today. So Mr Chidambaram has achieved that target and promises to take it down further. He has also promised that it would be 4.8% in 2013-14 at Rs 5.43 lakh crore. International investors and credit rating agencies pay a significant attention to this number.

Disinvestment:

Mr Chidambaram has increased the target of disinvestment to Rs 40,000 crore. The process of selling the stake of the central government in companies that it controls or in some cases where it has a small holding refers to disinvestment. In 2012-13, the government estimated of Rs 30,000 crore on the amount that would be raised through disinvestment.

Plan expenditure:

The Finance minister has set the target for plan expenditure at Rs 5.55 lakh crore for 2013-14, which is 30% higher than 2012-13. This is the expenditure that is incurred by the central government in consultations with the Planning Commission. Here the expectation is that Expenditure should result in helping create better infrastructure and facilities across the country.

Non-plan expenditure:

The target for non-plan expenditure is set at Rs 11.09 lakh crore. Expenses like salaries, pension, administrative costs, defence expenses, subsidies are all under non plan expenditure. A total of Rs 9.7 lakh crore was estimated to be spent under the non-plan expenditure in 2012-13. In the year gone by, India has spent more than Rs 10 lakh crore.

Growth outlook: 

For everyone to prosper, the country needs faster economic growth. Mr Chidambaram in his budget did not give any predictions on the growth rate. He expects India would get back to high economic growth ways through measures announced. “The overall economy is expected to grow in the range of 6.1 to 6.7% in 2013-14,” said the economic survey on Wednesday. There is an assumption here that India would have a normal monsoon, which along with moderation in inflation as per the Economic Survey, should enable low interest rates and mild recovery of global growth.

Surprises in the budget:

The subsidy bill is estimated to be more than expected by the market at Rs 2,57,654 crore. The stock market built a significant expectation from the budget. At the time of going to press, the S&P BSE Sensex and NSE Nifty fell 1% at a time when markets across Asia surged. This indicates that the stock market is not too convinced about the ability of the government to manage its finances.

Expensive or cheap: 

Any changes in duties or taxes make things consumed cheap or expensive. In this year’s budget, finance minister P Chidambaram has made sports utility vehicles, yachts and high-end mobile phones (of value over Rs 2,000) more expensive. Cigarettes will also get expensive. Handmade carpets, electric hybrid cars and leather and leather goods including footwear could get cheaper.

BEST OF BUDGET: MUST READS