1. Budget Expectations 2013-14
… promises to keep, And miles to go before I sleep*…
*Courtesy Robert Frost
Nandan Chakraborty Sachchidanand Shukla
Managing Director - Institutional Equity Research Sr VP & Economist 11 Feb 2013
nandan.chakraborty@axiscap.in 91 22 4325 1107 sachchidanand.shukla@axiscap.in 91 22 4325 1108

2. 11 Feb 2013 PRE-BUDGET REPORT
Key things to watch in this Budget BUDGET EXPECTATION 2013-14
STRATEGY
The FM has already stolen his own thunder by announcing a slew of measures outside the budget. Focus will now
be on Stability, Credibility on fiscal consolidation and Reform intent in order to reposition India as an attractive
investment destination:
♦ Stable policy regime to encourage normal business expectations and capital inflows
♦ Fiscal deficits cannot be tackled in one year. It is the trajectory that matters. Thus the budget should stress:
● Revenue increases without hurting growth: A roadmap for implementing GST and DTC
● Expenditure control: Roadmap for reining in subsidies through Direct Cash Transfers etc
● Quality of fiscal adjustment: i.e. in April-December, non-plan expenditure rose 12% (budgeted ~9%) while
plan expenditure rose <7% (budgeted 22%). Thus there are drastic capex cuts to make the fiscal deficit look
better; but this may endanger economic recovery. The FM should be cutting wasteful expenditure instead
♦ Roadmap for key bills: GST, DTC, Land Acquisition, Mining and the Insurance Bill
♦ Propping Savings: Planned reduction in fiscal deficit, higher tax breaks and regulatory tweaks to channelize
household savings into financial savings (ie MFs and Insurance)
♦ And Investments: Deepening the corporate bond market and steps to improve the regime for foreign capital
flows. Specific proposals include investment tax credit, depreciation benefits, a cut in the withholding tax rate for
debt instruments and a holistic policy for foreign investments
2

3. 11 Feb 2013 PRE-BUDGET REPORT
Tax measures BUDGET EXPECTATION 2013-14
STRATEGY
Rates may remain broadly unchanged though there could be some selective duty rejig
and pruning of exemptions:
♦ Customs duty: Expect reinstatement on Petro products, to provide ~Rs 490 bn in
Indirect taxes
revenues
♦ Excise duty: Selective hikes, lowering threshold for SMEs to Rs 10 mn. Also expect
diesel price hikes to be front ended, given bunching of state elections
Despite a clamour for higher tax rates for the rich, the budget may soften the blow by:
♦ Raising Income tax exemption limits for the middle class
Direct Taxes
♦ Incentivizing investments into Financial assets : Offering tax incentives for Pension
products/MFs or include Rajiv Gandhi Equity Savings scheme & Tinkering with LT
capital gains tax on Infrastructure/ Corporate bonds
3

4. 11 Feb 2013 PRE-BUDGET REPORT
Has the FM made his own budget a non event already? BUDGET EXPECTATION 2013-14
STRATEGY
The FM has announced a slew of measures since mid-Sep to soothe investor nerves
22000 Cabinet approves 49%
FDI in insurance, 26% Banking Laws (Amendment)
FDI in pension funds Bill, 2011; Companies
Bill cleared in LS
Govt approves FDI in Cabinet approves 10%
multibrand retail, aviation, divestment proposal in
20000 GAAR introduced
power exchanges and broadcast NMDC
services, Disinvestment in 5 PSUs
FM clears 49%
FDI in insurance, Rail fare
Sensex
pension sectors hike
18000
RBI cuts Repo
RBI cuts CRR & CRR by 25bps
by 25 bps
PM formally announced
launch of Direct Cash
UPA Wins Vote Transfer Scheme from
16000 Govt hikes diesel prices by
on FDI in Retail Jan 1, 2013
Rs 5/ltr, subsidised LPG
cylinders capped in LS & RS
RBI cuts CRR
by 25 bps
14000
Jul-12
Mar-12
Apr-12
Dec-12
Jan-13
Jun-12
Jan-12
May-12
Feb-12
Oct-12
Feb-13
Aug-12
Nov-12
Sep-12
Source: Bloomberg, Axis Capital
4

5. 11 Feb 2013 PRE-BUDGET REPORT
Policy Reforms pipeline – To do list BUDGET EXPECTATION 2013-14
STRATEGY
Government Reforms
Under Consideration Comments
Increasing FDI in insurance to 49% Parliament approval pending, opposition from BJP and Left
Allowing FDI in pension at 49% Parliament approval pending
Land Acquisition Bill Yet to be ratified by the Parliament post changes
Direct Tax Code(DTC) The DTC, touted as a big facelift of the Income Tax law, has seen a number of its provisions
get diluted. The govt is yet to give any firm indication on the new law
Preparation for implementation of Govt. has appointed two committees to prepare a report on implementation of GST. These
Goods & Service Tax (GST) committees will examine the issue of compensation to states for loss of revenue and the
design of GST
5

6. 11 Feb 2013 PRE-BUDGET REPORT
Sectoral expectations: Summary... BUDGET EXPECTATION 2013-14
STRATEGY
Sector Key budget expectations Impact
Positive for Tata Power/
Steel/ Motors, Hindalco,
General ♦ Lower dividend distribution tax from foreign subsidiaries (current 15%)
Sterlite, Sun Pharma,
Godrej Consr, etc.
Autos ♦ Increase in excise duties, esp on large diesel passenger vehicles Negative: M&M
♦ Elevated govt borrowing program to pressurise yields/ liquidity (-).
Industry lobbying for full tax deductability on NPA provns (+). Positive for Insurance:
Banks & Fin Serv
♦ Pub Sr banks: Recapitalisation (+)/ Agri loan target growth>15% (-) HDFC, ABNL
♦ Insurance: Increase in FDI limit to 49%
♦ Import duty hike on power eqpt by 5-10% from current 20-27%
♦ Higher depreciation rate on capex from 15% to 25%
Positive: L&T, Suzlon
Capital goods ♦ Restoration of subsidy for wind power Negative: BEL
♦ Outlays: decrease in Defence by 5%, Watch Railways (50% jump to
Rs 300 bn) & JNNURM (urban devt: maintain at Rs 150 bn)
6

7. 11 Feb 2013 PRE-BUDGET REPORT
…Sectoral expectations: Summary... BUDGET EXPECTATION 2013-14
STRATEGY
Sector Key budget expectations Impact
Negative: Cos may not be
Cement ♦ Reshuffle in excise duty structure leading to increase in net duty able to pass on the hike due
to weak demand
♦ GST can reduce cascading taxes and decrease price differential with
FMCG unorganised players Positive for all (GST) , ? ITC
♦ Increase in excise duty for cigarettes (mkt expectn~10% increase)
♦ Clarity on FY14 NBS subsidy: current DAP subsidy at Rs 14.5K/ te Positive: Coromandel, Zuari
Fertilisers
♦ Industry lobbying for regulation on DAP imports due to high inventory if DAP imports regulated
♦ Increase in limits in tax free bonds (Rs 600 bn, Rs 20K per individual)
♦ Freight hike for coal in Railway budget (-) Positive for all pvt infra
Infrastructure and
♦ Decrease debt cost: Refinancing of INR debt thru ECBs. IIFCL to developers and pvt power
Power gencos
guarantee pvt infra bonds
♦ Lower dividend distribution tax from SPV if re-invested in capex
Positive for Dish TV and
Media ♦ Lower excise and customs duty on set top box
Hathway Cable
7

8. 11 Feb 2013 PRE-BUDGET REPORT
…Sectoral expectations: Summary BUDGET EXPECTATION 2013-14
STRATEGY
Sector Key budget expectations Impact
Metals ♦ Hike in import duty for steel to 10% vs. 7.5% currently Positive for all steel cos
♦ Re-introduction of 5% customs duty on crude oil
Positive: Cairn, RIL
Oil n Gas ♦ Clarity on FY13 subsidy sharing formula (US$56/bl for upstream cos)
Negative: BPCL, HPCL, IOC
♦ Clarity on domestic natural gas pricing
♦ Increase in limit for income tax deduction on interest on home loans
Realty ♦ Extension of 1% interest subvention on home loans by 1 yr Positive
♦ Industry lobbying for infra status for affordable housing
♦ Infra status to Tower companies
♦ Reduction in multiple taxes/ levies
Telecom ♦ Auction mobilisation – amt and timeline? (-) Positive
♦ Many proposals may be addressed separately through the National
Telecom Policy/ Spectrum Enactment Act
8

9. Axis Capital Limited
Axis House, C2, Wadia International Centre, P.B Marg, Worli, Mumbai 400 025, India.
Tel:- Board +91-22 4325 2525; Dealing +91-22 2438 8861 - 69;
Fax:- Research +91-22 4325 1100; Dealing +91-22 4325 3500
This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Nothing in this document should be construed as investment or financial
advice, and nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of companies referred to in this document. The intent of this document is not in
recommendary nature
Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the
merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors
Axis Capital Limited has not independently verified all the information given in this document. Accordingly, no representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of the
information and opinions contained in this document
The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This information is
subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval
Axis Capital Limited, its affiliates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this
document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a
separate, distinct and independent of each other. The recipient should take this into account before interpreting the document
This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through analysis of Axis Capital Limited. The views expressed are those of analyst and
the Company may or may not subscribe to all the views expressed therein
This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any
purpose. Neither this document nor any copy of it may be taken or transmitted into the United State (to U.S.Persons), Canada, or Japan or distributed, directly or indirectly, in the United States or Canada or distributed
or redistributed in Japan or to any resident thereof. The distribution of this document in other jurisdictions may be restricted by law, and persons into whose possession this document comes should inform themselves
about, and observe, any such restrictions
Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise
from or in connection with the use of the information.
Copyright in this document vests exclusively with Axis Capital Limited.
9