IIFL Institutional Equities, a part of the IIFL Group, one of the leading players in the Indian financial services space, in a recent report on the Union Budget 2012 said that the FY13 Union budget has failed to create an enabling environment for accelerating growth and containing inflationary expectations.
According to IIFL report, in all likelihood, FY13 real growth will be in the 6-6.5% range and the much required revival in investment cycle may be further delayed. The renewed hope of acceleration in growth driven by reforms is now in doubt.
In the backdrop of slowing growth, the budgeted revenue estimates could well turn out to be aggressive despite the 2% raise in indirect taxes. On the expenditure side, the oil subsidy estimate will more likely be overshot, report stated.
IIFL is of the opinion that FY13 fiscal deficit will more likely be close to 5.5% of GDP, unless the oil import bill comes off sharply. Big steps have been taken to curb tax evasion and avoidance but the benefits may not be visible immediately.
Caught between decelerating growth and sticky outlook on inflation, RBI may be constrained to go slow on cutting policy rates. The rate cuts in FY13 will more likely be in the 75-100bps range, much less than our estimate of more than 200bps early in the year. The monetary policy is unlikely to be as benevolent and will be less of a tailwind to growth revival, IIFL said.
With no fundamental macro triggers for sustaining the market rally, any further valuation expansion almost entirely depends on foreign portfolio flows. Earnings bias remains on the downside, in our view. Cyclical stocks that rallied the most in the past two months are the most at risk, brokerage added.
Direct beneficiaries from the budget are – M&M, Tata Steel, IndiaCements, Jain Irrigation
Direct losers from the budget are – ONGC, Cairn, Oil India, Sun Pharma, Cadila, Sesa-Sterlite, Ashok Leyland, Tata Motors
The report was published by IIFL’s Institutional Equities Research desk.
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