Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp...

32
Budget Analysis 1 st February 2018 Budget Analysis 1 st February 2018

Transcript of Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp...

Page 1: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Budget Analysis1st February 2018

Budget Analysis1st February 2018

Page 2: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Budget: Key takeaways Fiscal deficit pegged at 3.5% of FY18E GDP & 3.3% of FY19E GDP. Slippage of 30 bps from original

target.

Overall market borrowing is forecasted to go to Rs.6.24 trillion in FY19BE from Rs.6 trillion in FY18RE. However, net market borrowings to go down to Rs.4.1 trillion in FY19BE Vs Rs.4.8 trillion in FY18RE.

Divestment target in FY19BE is Rs.800 bn; FY18 divestment target upped to Rs.1 trillion.

Infrastructure basket spend to go up by 21% in FY19BE (Rs.5.97 trillion).

MSP for major crops to be 1.5x of cost involved. Set farm credit target for agriculture sector at Rs.11 trillion for FY19BE Vs Rs.10 trillion in FY18RE.

Long Term Capital Gains (LTCG) exceeding Rs.1 lac will be taxed @10% without benefit of indexation. However, gains up to 31st Jan’18 will be grandfathered.

10% tax on distributed income by equity oriented mutual funds. Will affect balanced funds

Extends reduced corporate tax rate of 25% to companies with turnover <Rs2.5bn (Vs earlier <Rs.500 mn).

No change in tax for salaried tax payers. Standard deduction of Rs.40,000 in lieu of transport and medical expenses. 2

Page 3: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Budget: Key takeaways Launched flagship national health protection scheme to cover 100 mn families and 500 mn

beneficiaries. Will provide Rs5 lakh benefit per family per year coverage.

The government is budgeting 11.5% nominal and 7.2% real GDP growth in FY19BE. It has assumed deflator to be 4% in FY19BE.

As a % of GDP, Gross Tax Revenue is projected to be 12% in FY19BE as compared to 11.6% in FY18RE.

3

Page 4: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Budget: Revenue side

Direct Taxes projected to grow by 14.4% in FY19BE. Indirect taxes is expected to grow by 19.2% in FY19BE.

Non Tax Revenue growth is budgeted to grow by just 3.9% in FY19BE.

Divestment target for FY19 is Rs.800 bn as compared to revised estimate of Rs.1 trillion for FY18.

4

Page 5: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Budget: Expenditure side

Total expenditure is expected to increase by 10.1% in FY19BE. Subsidies is expected to increase by 10.9% in FY19BE (Rs.2.93 trillion).

Total Capital Expenditure is budgeted to increase by 9.9% in FY19BE (i.e. 1.6% of GDP). Total Revenue Expenditure is expected to increase by 10.2% in FY19BE.

5

Page 6: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Custom Duty Custom Duty

Pre Budget Post Budget

Food Processing

Fruit juices and vegetable juices including cranberry juice 30.0% 50.0%

Perfumes and to ilet ry preparat ions

Perfumes and toilet waters 10.0% 20.0%

Automobile part s

Truck and Bus radial tyres 10.0% 15.0%

Specified parts/accessories of motor vehicles, motor cars, motor cycles 7.5%/10% 15.0%

Footwear

Footwear 10.0% 20.0%

Elect ronics / Hardware

Cellular mobile phones 15.0% 20.0%

Smart watches / wearable devices 10.0% 20.0%

LCD/LED/OLED panels and other parts of LCD/LED/OLED TVs 7.5%/10% 15.0%

Watches and Clocks

Wrist watches, pocket watches and other watches, including stop watches 10.0% 20.0%

Amendment s not affect ing rat es of dut y

Tariff rate of BCD on Lithium-ion batteries 10.0% 20.0%

Tariff rate of BCD on medical devices 7.5% 10.0%

Source: Budget document 6

Page 7: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Cut in corporate income tax rate to 25% for companies with a turnover of uptoRs 2.5 bn (earlier for companies with a turnover of upto Rs 500 mn)

For companies under insolvency, aggregate amount of unabsorbed depreciationand loss brought forward shall be allowed to be reduced from the book profit

Corporate Tax

Corporate Tax structure

Tax rate in %

Income* Basic Effective** Basic Effective**

Taxable Income: <Rs.10 mn 25 26.00 30 31.20

Taxabable Inc.: (Rs.10 mn to 100 mn) 25 27.82 30 33.38

Taxable Income: >Rs.100 mn 25 29.12 30 34.94

* Surcharge is payable only where total taxable income exceeds Rs.1 cr** Effective tax rates include surcharge, education cess, and secondary and higher education cess.Source: Budget document

Domestic company

Revenue <Rs.2.5 bn Revenue >Rs.2.5 bn

7

Page 8: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Allocation to various Government Programs (Rs bn) The flagship programs received a 7.1%

boost in allocations in FY19 budget (versus 14.5% boost in FY18 budget, indicating less populous budget)

Rural employment and housing, rural roads and cleanliness remain key focus

In Agriculture, focus is on irrigation and crop insurance

The government has continued to focus on education with increased allocation to child development programme, education mission and mid day meal programme

Key Government Programs

8

Allocat ion for t he flagship government schemes (Rs bn)

Scheme FY17RE FY18BE FY18RE FY19BE

MGNREGS 475 480 550 550

National Education Mission 283 296 296 326

National Health Mission (NHM) 226 271 313 306

Pradhan Mantri Gram Sadak Yojna 190 190 169 190

Integrated Child Development Scheme 166 208 200 231

Pradhan Mantri Awas Yojna (PMAY) 209 290 290 275

Green Revolution+White Revolution 117 154 128 161

National Programme of Mid-day Meals 97 100 100 105

Swachh Bharat Mission (SBM) 128 162 192 178

Others 380 448 430 535

Total 2,270 2,599 2,668 2,858

YoY growth 6.2 14.5 2.6 7.1

Source: Annual Budget Documents

Page 9: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

To take measures to develop two defence industrial production corridors in the country

The Government will also bring out an industry friendly Defence Production Policy 2018 to promote domestic production by public sector, private sector and MSMEs

Capital Outlay on Defence services has been enhanced by 8.5% to Rs 939 bn. Beneficiaries include – Bharat Electronics, BEML, Reliance Naval and Cochin

Shipyard

Defence

9

Page 10: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

FM has decided to keep MSP for the all unannounced crops of kharif at least at one and half times of their production cost (in line with that of Rabi crops)

Government to purchase produce at MSP rates, if not then compensate farmers through any other mechanism. Niti Ayog, in consultation with Governments will work on this.

Doubling of fund allocation to ministry of food processing Higher flow of institutional credit to farmers Since small farmers are not in a position to access APMCs, the government has

proposed to develop and upgrade existing 22,000 rural haats into GraminAgricultural Markets (GrAMs)

Beneficiaries include – M&M, Escorts, UPL and Insecticides

Focus on Rural and Agriculture

10

Page 11: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Bond Yields: Implication for Equities

Indian 10 Yr G-Sec yields have crossed 7.5%. Thought net borrowing figure is lower, market has not responded positively (due to rising global yields and higher oil prices).

Expect RBI to maintain status quo on rates. They may try to talk down bond yields.

Rising bond yields make equity market look more expensive (refer chart below).

Source: Bloomberg

Bond PE = 100 divided by the 10 Yr Gsec Yield. The Bond PE has come down

from 16x to 13.2x whereas the 1 Yr FW PE of Nifty is still high at 18.3x. The spread of ~500 bps is not sustainable (10 Yr average spread has

been <200 bps).

11

Page 12: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

• New regime for taxation of long-term capital gains LT Capital gains from equity shares/ equity oriented fund, or unit of

business trust to be taxed at 10%, without indexation. Gains upto 31st

January 2018 will be grandfathered.

• Dividend distribution tax to unit holders in equity oriented fund Level playing field between growth-oriented funds and dividend paying

funds

Capital Market

12

Page 13: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Equities: Valuation

Nifty is trading at 1 Yr Fw PE of 18.3x whereas the Mid Cap Index is trading at 1 Yr Fw PE of 22.5x.

10 Yr Avg: Fw PE of Nifty works to 15x and that of Mid Cap Index works to 14x.

One Standard Deviation (STDEV) of Nifty works to 360 bps and that of Mid Cap Index works to 200 bps.

Nifty is trading close to 1 STDEV above its 10 Yr Avg. Mid Cap Index is trading 4 STDEV above its 10 Yr Avg.

Source: Bloomberg

The valuation gap between Nifty and Mid Cap Index has steeply widened and cannot sustain for long. We

expect both of them to converge going

forward.

13

Page 14: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Equities: Outlook

The Budget looks neutral on the face of it but is slightly negative for capital markets. There has been no respite for large corporates on the taxation front.

After a few weeks the budget would be less relevant and focus will again shift to global factors, macroeconomics, earnings and valuations.

There is lot of comfort on global GDP and earnings growth. However, global valuations and rising bond yields are a concern that can be a hangover. Indian Macros could worsen if Brent goes and sustains >USD 70/bbl.

Domestic flows is one of the major drivers of Indian equities, which could remain so due to lack of opportunity in other asset classes. Hence, valuations of Indian equities could remain on the higher side.

Based on Bloomberg consensus numbers, the street is building in ~20% earnings CAGR for the Nifty and ~30% earnings CAGR for the Mid Cap Index. There is less room for further re-rating in earnings forecast.

On relative basis, our preference at this juncture is towards large caps as compared to mid caps. Nonetheless, the universe of mid & small caps is very vast so handpicking a basket of stocks should not be challenging.

Within the mid & small space our preference is for sound management backed companies that have scalability factor, healthy earnings growth visibility and room for valuations to expand.

14

Page 15: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Sector – Budget Highlights & Impact

15

Page 16: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Minimum Support Price based on 1.5x of the cost of production Institutional credit for agriculture sector raised from Rs 10 trillion to

Rs 11 trillion Development and upgradation of existing 22,000 rural haats into

Gramin Agricultural Markets (GrAM) Positive for agri input sector as it would boost demand through rise in farm

income and increase credit availability • Positive for Insecticides India, PI Industries, Godrej Agrovet

*Top Pick: Insecticides India

Agri Inputs - Positive

16

* Source: Kotak Securities – Private Client Research

Page 17: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Setting up Fisheries and Aquaculture Infrastructure Development Fund and Animal Husbandry Infrastructure Development Fund for financing infrastructure requirement of Fisheries and animal husbandry sectors respectively with Rs 100 bn corpus

Positive for aqua feed, animal feed and poultry players like Venky’s India, Godrej Agrovet, Avanti Feeds, Waterbase, etc

Acqua Feed & Animal Feed - Positive

17

Page 18: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Focus on improving farmer’s income MSP for kharif / rabi crops at least 1.5x of their production cost Increase in institutional credit for agriculture sector from Rs10trillion to

Rs11trillion Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp

Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck and bus radial tyre

Beneficiaries – JK Tyre, Apollo Tyre, MRF

* Top Picks – Maruti Suzuki, Mahindra and Mahindra, Escorts, FIEM Industries, Talbros Auto

Automobile and Auto Ancillary - Positive

18

* Source: Kotak Securities – Private Client Research

Page 19: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Continued focus on affordable housing through schemes like PMAY –Graminand PMAY – Urban to boost demand for tiles and plywood players

Planned construction of 20 mn toilets under Swachch Bharat Mission to be positive for sanitaryware and tile player

Positive for Kajaria Ceramics, Cera Sanitaryware, Asian Granito, Century Plyboards, Greenply and Supreme industries

Building material - Positive

19

Page 20: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Rural growth initiatives Various measures to boost rural income Positive for stimulating rural demand

• B2C companies like Havells, Bajaj Electricals, Eveready, Crompton consumer etc. to benefit

Emphasis on road construction Rs 5.97 trillion allocation for Bharat Mala project Positive for stimulating demand for Industrial goods

• B2B companies like L&T, Cummins India, Siemens, ABB, ACE to benefit Continued focus in power sector Rs 160 Bn allocation for Saubhagya Yojona and Rs 38 Bn for Deendayal

Upadhayaya Gram Jyoti Yojna Positive for rural electrification

• Companies like L&T, Siemens, ABB, CG Power to benefit

Capital Goods - Positive

20

Page 21: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Railways modernization initiatives Rs 950 Bn allocation for overall upgradation in the rail infrastructure including

signaling, automation, tracks. Two major urban projects in Mumbai & Bengaluru at the cost of Rs 570 Bn

• Companies like L&T, Siemens, Cummins India, Kalpataru power, Texmaco to benefit

Smart cities Mission Rs 2 trillion outlay for developing 99 smart citiesCompanies like L&T, Siemens, Cummins India, Kalpataru power, Elgi

Equipment, Maharashtra Seamless to benefit

Capital Goods (cont)

21

Page 22: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Enhanced allocation for railways, road and highways to contribute to cement demand improvement

Continued focus on urban development to be positive for cement companies in terms of healthy volume offtake

Enhanced farmer income to result in rural demand revival which was lacking in past few years

Positive for all cement companies

Cement - Positive

22

Page 23: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Rural growth initiativesVarious measures to boost rural/ low income growth

Impact: Positive, particularly on rural economy• Positive impact across the board, more for cos with greater rural exposure

Changes in Customs DutiesHike in BCD for items such as fruit juices, vegetable juices, vegetable oils including

palm oil, deodorants Impact: Negative in most cases (except deodorants), since these items are raw materials for

listed Indian FMCG companies• Net impact modest in most cases

No changes in cigarette dutiesSimilar to other GST items, govt has not tinkered with duties for cigarettes

Impact: Positive to a limited extent, GST council could change rates later• Absence of immediate negatives is a positive for cigarette manufacturers

FMCG - Neutral

23

Page 24: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Allocation for road and highways enhanced by 16% YoY to Rs 710 bn Allocation for railways enhanced by 32% YoY to Rs 551 bn

Continued focus on urban development with allocations of Rs 418 bn Rs 330 bn for PMAY-Gramin, Rs 315 bn for PMAY-Urban and Rs 190 bn for PMGSY to benefit

affordable housing focused players Irrigation allocation of Rs 26 bn under Pradhan Mantri Krishi Sinchai Yojana to benefit various

EPC companies

Capital Outlay on Indian Railways increased by 22% to Rs 915.6 bn Increase in airport capacity more than five times to handle a billion trips a year Created a dedicated Affordable Housing Fund to be funded from priority sector lending shortfall

and fully serviced bonds by central government

Positive for road players like IRB, Sadbhav, Dilip Buildcon, NCC, Simplex Infra, KNR, PNC Infra, Vascon Engineers, etc

Infrastructure - Positive

24

Page 25: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Increase in custom duty of footwear from 10% to 20% and footwear component from 15% to 20% Marginally increase cost of imported non leather shoes (particularly sports)

• Marginally negative for Mirza International

Minimum days employment criteria for new employees (of 150 days) has been extended to leather sector for claiming Benefits under 80-JJAA Positive for small leather players, insignificant impact on large player like

Mirza• Neutral for Mirza International

Leather & footwear - Neutral

25

Page 26: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Levy of Social Welfare Surcharge of 10% on custom duty on imported goods To benefit companies like VIP Industries ltd which faces competition from

international luggage brand including Samsonite

*Top Pick: VIP Industries

Lifestyle - Positive

26

* Source: Kotak Securities – Private Client Research

Page 27: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

The Union Budget proposes a significant boost to spending on various infrastructure segments: Roads (16% YoY growth); Railways (32% YoY growth); Urban development (2% increase in allocation); Shipping (20% YoY increase) Positive for steel companies as higher outlay for housing, road and railways projects would

help demand for steel.

Introduction of 20% Tariff rate of Export Duty on Electrodes of a kind used for furnaces. The effective rate of Export duty on such electrodes will, however, remain Nil. Though currently the duty is nil, but the Government has the avenue to raise export duty

on electrodes upto 20%. If imposed in the future, this would impact the profitability of the companies like Graphite India and HEG

*Top Picks: Jindal Stainless Hisar, MoIL, National Aluminium

Metals & Mining - Neutral

27

* Source: Kotak Securities – Private Client Research

Page 28: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Heavy work on in full swing on the western dedicated freight corridor (WDFC) - first phase of which is expected to be commissioned in FY20E WDFC is expected to benefit companies involved in container rail

operations, inland container depots and container freight stations Companies to benefit included Concor, Allcargo, Navkar Corporation

and Gateway Distriparks Budgetary support of Rs 4.95 bn for FY19 vs. 3.51 bn in FY18 for Cochin

Shipyard Limited(CSL), which would benefit CSL

*Top Picks: Cochin Shipyard, Allcargo and Concor

Shipping and Logistics - Positive

28

* Source: Kotak Securities – Private Client Research

Page 29: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

29

RATING SCALEDefinitions of ratingsBUY – We expect the stock to deliver more than 12% returns over the next 9 monthsACCUMULATE – We expect the stock to deliver 5% - 12% returns over the next 9 monthsREDUCE – We expect the stock to deliver 0% - 5% returns over the next 9 monthsSELL – We expect the stock to deliver negative returns over the next 9 monthsNR – Not Rated. Kotak Securities is not assigning any rating or price target to the stock. The report has been prepared for

information purposes only. RS – Rating Suspended. Kotak Securities has suspended the investment rating and price target for this stock, either because there

is not a Sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing,

an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock

and should not be relied upon.NA – Not Available or Not Applicable. The information is not available for display or is not applicableNM – Not Meaningful. The information is not meaningful and is therefore excluded.NOTE – Our target prices are with a 9-month perspective. Returns stated in the rating scale are our internal benchmark.

Page 30: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Disclosure/Disclaimer

Kotak Securities Limited established in 1994, is a subsidiary of Kotak Mahindra Bank Limited. Kotak Securities is one of India's largest brokerage and distribution house.

Kotak Securities Limited is a corporate trading and clearing member of Bombay Stock Exchange Limited (BSE), National Stock Exchange of India Limited (NSE), Metropolitan Stock Exchange of India Limited (MSE). Our businesses include stock broking, services rendered in connection with distribution of primary market issues and financial products like mutual funds and fixed deposits, depository services and Portfolio Management.

Kotak Securities Limited is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). Kotak Securities Limited is also registered with Insurance Regulatory and Development Authority as Corporate Agent for Kotak Mahindra Old Mutual Life Insurance Limited and is also a Mutual Fund Advisor registered with Association of Mutual Funds in India (AMFI). We are registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014.

We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in last five years. However SEBI, Exchanges and Depositories have conducted the routine inspection and based on their observations have issued advise/warning/deficiency letters/ or levied minor penalty on KSL for certain operational deviations. We have not been debarred from doing business by any Stock Exchange / SEBI or any other authorities; nor has our certificate of registration been cancelled by SEBI at any point of time.

We offer our research services to clients as well as our prospects.

This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. Persons into whose possession this document may come are required to observe these restrictions.

This material is for the personal information of the authorized recipient, and we are not soliciting any action based upon it. This report is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It is for the general information of clients of Kotak Securities Ltd. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients.

We have reviewed the report, and in so far as it includes current or historical information, it is believed to be reliable though its accuracy or completeness cannot be guaranteed. Neither Kotak Securities Limited, nor any person connected with it, accepts any liability arising from the use of this document. The recipients of this material should rely on their own investigations and take their own professional advice. Price and value of the investments referred to in this material may go up or down. Past performance is not a guide for future performance. Certain transactions -including those involving futures, options and other derivatives as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. Reports based on technical analysis centers on studying charts of a stock's price movement and trading volume, as opposed to focusing on a company's fundamentals and as such, may not match with a report on a company's fundamentals.

We do not have any information other than information available to general public with regard to budget proposals. The industry expectations are based on information received from sources like respective industry associations, FICCI, CII, companies, media and other public sources. This report contains budget expectations of our experts and its impact on specific sectors and companies, which may or may not come true.

Opinions expressed are our current opinions as of the date appearing on this material only. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance or other reasons that prevent us from doing so. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice. Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein.

Disclaimer

30

Page 31: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited.

We and our affiliates/associates, officers, directors, and employees, Research Analyst(including relatives) worldwide may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company/company (ies) discussed herein or act as advisor or lender / borrower to such company (ies) or have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of Research Report or at the time of public appearance. Kotak Securities Limited (KSL) may have proprietary long/short position in the above mentioned scrip(s) and therefore may be considered as interested. The views provided herein are general in nature and does not consider risk appetite or investment objective of particular investor; readers are requested to take independent professional advice before investing. This should not be construed as invitation or solicitation to do business with KSL. Kotak Securities Limited is also a Portfolio Manager. Portfolio Management Team (PMS) takes its investment decisions independent of the PCG research and accordingly PMS may have positions contrary to the PCG research recommendation. Kotak Securities Limited does not provide any promise or assurance of favourable view for a particular industry or sector or business group in any manner. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and take professional advice before investing.

The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

No part of this material may be duplicated in any form and/or redistributed without Kotak Securities' prior written consent.

Details of Associates are available on our website ie www.kotak.com

Research Analyst has served as an officer, director or employee of subject company(ies): No

We or our associates may have received compensation from the subject company(ies) in the past 12 months.

We or our associates have managed or co-managed public offering of securities for the subject company(ies) in the past 12 months: No

We or our associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received compensation or other benefits from the subject company(ies) or third party in connection with the research report. Our associates may have financial interest in the subject company(ies).

Research Analyst or his/her relative's financial interest in the subject company(ies): Escorts, Maruti, Talbro, L&T, Everready, Maharashtra Seamless, MIRC Electronics, IRB Infra, Dhilip Buildcon, KNR Construction, PNC Infra, Vascon Engg, Century Plyboaard, Venky’s, Avanti Feed, Waterbase, Graphite, HEG, Time Technoplast – Yes

Kotak Securities Limited has financial interest in the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: Apollo Tyres, Bajaj Auto, BEL, Blue Dart, Castrol India, Concor, Engineers India, Greaves Cotton, Havells, Hero Moto Corp, Hindustan Unilever, Hindustan Zinc, IGL, IRB, ITC, JSW Steel, Kansai Nerolac, KNR Construction, L&T, M&M, Marico, Maruti, MGL, Motherson Sumi, MRF, Nalco, NBCC, Pidilite Ind, Shree Cement, Sterling Tools, Tata Motors, Tata Sponge, TV18 Broadcast, Ultratech Cement, VIP Ind, Voltamp, Voltas - Yes

Disclaimer

31

Page 32: Budget Analysis - Kotak Securities...Beneficiaries – Escorts, Mahindra and Mahindra, Hero MotoCorp Custom duty increase on tyres Basic custom duty increased from 10% to 15% on truck

Our associates may have actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report.

Research Analyst or his/her relatives has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No.

Kotak Securities Limited has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No

Subject company(ies) may have been client during twelve months preceding the date of distribution of the research report.

"A graph of daily closing prices of securities is available at www.nseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes. (Choose a company from the list on the browser and select the "three years" icon in the price chart)."

Kotak Securities Limited. Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051. CIN: U99999MH1994PLC134051, Telephone No.: +22 43360000, Fax No.: +22 67132430. Website: www.kotak.com/www.kotaksecurities.com. Correspondence Address: Infinity IT Park, Bldg. No 21, Opp. Film City Road, A K Vaidya Marg, Malad (East), Mumbai 400097. Telephone No: 42856825. SEBI Registration No: NSE INB/INF/INE 230808130, BSE INB 010808153/INF 011133230, MSE INE 260808130/INB 260808135/INF 260808135, AMFI ARN 0164, PMS INP000000258 and Research Analyst INH000000586. NSDL/CDSL: IN-DP-NSDL-23-97. Our research should not be considered as an advertisement or advice, professional or otherwise. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and the like and take professional advice before investing. Investments in securities market are subject to market risks, read all the related documents carefully before investing. Derivatives are a sophisticated investment device. The investor is requested to take into consideration all the risk factors before actually trading in derivative contracts. Compliance Officer Details: Mr. Manoj Agarwal. Call: 022 - 4285 8484, or Email: [email protected].

Level 1: For Trading related queries, contact our customer service at '[email protected]' and for demat account related queries contact us at [email protected] or call us on: Online Customers - 30305757 (by using your city STD code as a prefix) or Toll free numbers 18002099191 / 1800222299, Offline Customers - 18002099292

Level 2: If you do not receive a satisfactory response at Level 1 within 3 working days, you may write to us at [email protected] or call us on 022-42858445 and if you feel you are still unheard, write to our customer service HOD at [email protected] or call us on 022-42858208.

Level 3: If you still have not received a satisfactory response at Level 2 within 3 working days, you may contact our Compliance Officer (Mr. Manoj Agarwal ) at [email protected] or call on 91- (022) 4285 8484.

Level 4: If you have not received a satisfactory response at Level 3 within 7 working days, you may also approach CEO (Mr. Kamlesh Rao) at [email protected] or call on 91- (022) 4285 8301.

Disclaimer

32