Search Now


Tuesday, February 28, 2006

Budget 2006 - Update

Feel the FM has done well with Budget as he has not fingered with ant of the tax proposals. Increase in MAT by 2.5% could be considered negative in the short run for companies like Bharati but in my opinion nothing should be read as negative because these companies though may have to cough up 2.5% across the board, will get tax credit in the year in which they actually make profits and the period of such credit has been raised from 5 to 7 years. In any case, if the so called co is not likely to make real profits then there is no fun investing in such companies even if MAT is 0. Therefore the issue of MAT is inconsequential as far as Budget is concerned. Other negative is raising 2% service tax which I feel is more taxing but for industry it is sacrifice at the cost of growth of the country.

Positive ones are reduction in excise duty, custom duty, no fingering with capital gains and above all sticking with fiscal responsibility act for maintaining 3.8% fiscal deficit which is loved by FII across the board and will help bring more FDI. In fact, revised fiscal deficit for 05-06 from 4.3 to 4.1% was a real surprise from the FM. In order to maintain 3.8% fiscal deficit more and more revenue generation was must and FM has projected 30% rise in corporation tax and 16% hike in income tax and 48% from service tax which in my opinion is much achievable figures in comparison to previous year where doubts were cast on the sustainability of 4.3% fiscal deficit due to dynamic expectations. This one analysis is more than sufficient to keep FII interest alive in the Indian market.

Even the short term borrowing of the Govt has been reduced by Rs 8636 crs which is really heartening and welcome sign. Deficit financing is an indicator of weak economy. The Budget overall is oriented in the right direction and going forward in next three years practically everything will be net based and the speed at which efforts are being made are laudable and place in India ahead of US. This will re-rate all internet based companies in India and take them to new sky. Hardly a genuine internet company is listed on the exchange except India Ltd. Rediff and Sify the two leaders in the industry are listed on Nasdaq. Indiabulls and Indiainfoline are having different modules and cashing on franchise valuations which are not a real capitalisation method.

We maintain our initial target of 10800 before deciding the further trend. From tomorrow B gr shares will find takes as all fence sitters will jump into the band wagon.