Union Budget 2011-12 - All's Well If Oil's Well - Motilal Oswal

UNION BUDGET 2011-12: All's well if oil's well

While we think that the government has been realistic in its tax revenue projections, it has routinely overshot its subsidy estimates by a margin.

We estimate FY12 subsidy burden to be Rs1.7t vs government's estimate of Rs1.4t. As a result, our fiscal deficit estimate stands at 4.8% vs budgeted 4.6%.

We believe the budget assumes lower oil prices (~80-90% of actual) and normal monsoons, inturn driving a strong agricultural growth (critical for 8.5-9%).

Key beneficiaries are ITC (no hike in excise on cigarettes), Autos (no rollback in excise), Financials (lower borrowing plan) and BHEL (level playing field on expansions).

Key adversely impacted sectors were Iron-ore (higher export duty), SEZ developers and units operating in SEZs (MAT applicability), Cement (hike in excise duty) and Retail (no mention of FDI increase).

The important catalyst for equities will be the execution of key reforms proposed. Post-budget, we believe the focus of markets will shift back to global oil prices and inflationary trends. Our earnings estimates for the Sensex universe indicates an 19.7% EPS growth in FY12, which has remained unchanged post 3QFY11 results season. Post a ~14% correction in CY11YTD, Indian equities trade at P/E of 14x FY12 EPS, in-line with long-term averages.

Source : Equity Bulls

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