Copyright Aditya Birla Nuvo Limited 2008 Key Budget Highlights Gross Tax Receipts are estimated at Rs 7,46,651 Crs Non Tax Revenue Receipts are estimated at Rs 1,48,118 Crs The Plan and Non Plan expenditures in BE 2010-11 are estimated at Rs 3,73,092 Crs and Rs 7,35,657 Crs respectively. While there is 15 per cent increase in Plan expenditure, the increase in Non Plan expenditure is only 6 per cent over the BE of previous year. Fiscal deficit for FY11 is projected to be 5.5% of GDP, however this is mainly on account of only 6% increase projected in non-plan expenditure. CAGR of non-plan expenditure from FY04 to FY10 is 12.5%, thus there could be chances of slippage on this account. The rolling targets for fiscal deficit are pegged at 4.8 per cent and 4.1 per cent for FY12e and FY13e, respectively. Net borrowing for FY11e is projected at Rs 3,45,000 Crs which is lower than Rs 3,98,000 for FY10. However in the absence of support from RBI and MSS de- sequestering, net supply to the market would be higher by around Rs 82,000 Crs 3
Copyright Aditya Birla Nuvo Limited 2008 Direct Tax Highlights Personal Income Tax Major tax savings of up to Rs 50,000 for individuals by introduction New Slabs for Personal Income Tax Additional Deduction of Rs 20,000 for investments in Infrastructure bonds under section 80C. Corporate Tax Reduction in surcharge paid by the domestic companies from 10% to 7.5% Increase in MAT rate from 15% to 18% 4 New SlabOld SlabTax rateTax Savings over last year Up to Rs 1.6 Lakhs Nil Rs 1.6 Lakhs - Rs 5 LakhsRs 1.6 Lakhs –Rs 3 Lakhs10%Rs 20,000 Rs 5 Lakhs - Rs 8 LakhsRs 3 Lakhs- Rs 5 Lakhs20%Rs 30,000 Above Rs 8 LakhsAbove Rs 5 Lakhs30%
Copyright Aditya Birla Nuvo Limited 2008 FUND HOUSE OUTLOOK/STRATEGY 5
Copyright Aditya Birla Nuvo Limited 2008 Fixed Income: Portfolio Positioning & Strategy Ultra Short term Funds: – 60% of the portfolio matures in 30 days, average maturity of liquid plus (65 days) and Cash Plus (30days) – Short Term Rates to move up further – Strategy: Buy 6m-9m Cd’s in the run up to march, current high levels reflect seasonal tightness. – Budget Impact for money market rates: Marginally positive since DDT on debt funds has remained same.
Copyright Aditya Birla Nuvo Limited 2008 Dynamic Bond: – Reduced duration to around 0.7 yeaRs – To buy 1 year CD’s in the run up to march, will add duration when 10- year Gsec touches 8.40%. – Budget Impact for 1-3 year bonds: Neutral Gilt & Income Funds: – 1-2.5 year Duration in Income. Will go overweight on money market instruments in March. Will add duration risk in May. – Gilt fund running 1day-2 years maturity. Will add duration risk in May. – Expect credit markets to get worse, spreads should have bottomed out – Budget impact- Neutral, but we expect rates to harden in the 1QFY11. Fixed Income: Portfolio Positioning & Strategy
Copyright Aditya Birla Nuvo Limited 2008 Equity Outlook Muted pre-budget expectations and absence of any major negatives and an emphasis on fiscal consolidation saw a post budget relief rally. Although a good balancing act, the Government could have taken some concrete steps for reforms in the budget. The government has laid out a medium term plan for fiscal consolidation. This is positive for long-term portfolio flows into the country as they find comfort on the macro, in addition to the compelling India growth story. The budget also confirmed government’s commitment to tax reforms by planning to implement the nationwide GST system from April 1, 2011. As a result of personal income tax changes, more disposable income at he hands of the consumer (both urban and rural) the budget will stimulate consumption. Overall sectoral impact of the budget is 8 PositivesNeutralNegatives Auto & Ancillaries, Agri Inputs, Financials, Construction & Infrastructure Metals, Oil & Gas, power, Software, Textiles, FMCG, Pharma Cement, Real Estate and Telecom
Copyright Aditya Birla Nuvo Limited 2008 Equity Outlook In the near term market focus would again shift to factors like ; –Global markets which are still jittery on the back of the shaky recovery and increased risk aversion following the European crisis. –Domestic inflation : the budgetary actions by way of increase in excise and customs duty, fuel price hike and widening of service net will lead to inflation moving up sharply in the near- term. –New equity issuances : The PSU divestment target for FY11 is higher at Rs.40,000cr. Despite some near term headwinds, we remain positive on market for medium to long-term and expect market outperformance in the second half of CY10 as inflation eases and earnings growth gathers momentum (22%+ earnings growth in FY11e) Advice investors to accumulate in the current market volatility and any market weakness. Long-term investment themes continue to be : Domestic Consumption and Infrastructure led growth. 9
Copyright Aditya Birla Nuvo Limited 2008 25 16 June 2008 Disclaimer The information contained in this article is not a complete presentation of every material fact regarding any industry/security or the fund and is neither an offer for units nor an invitation to invest. This communication is meant for use by the recipient and not for circulation/reproduction without prior approval. Risk Factors: Mutual Fund investments are subject to market risks and the NAVs of the schemes may go up or down depending upon the factors and forces affecting the securities market. Past performance of the schemes managed by Birla Mutual Fund is not necessarily indicative of future performance of the schemes. Please refer to the offer document before investing.