NEW DELHI: The India Budget 2009-10 has minimal impact on most of the commodity sectors according to an analysis by CRISIL Research.
The budget proposals will have neutral impact on most of the sectors quoted in the report including autocomponents and tyres, banking and finance, cement, fertilizers, housing, non-ferrous metals, steel, ports, power, textiles, roads while marginally positive impact would be felt in construction, oil and gas and household appliances.
CRISIL points out that budget announcements will have no major impact on commodities except for two-wheeler demand which might rise due to continued focus on rural development. Tractor sales might rise on increase in allocation for irrigation.
The banking sector profitability might be affected with the continuation of the interest subvention scheme and consolidate their origination systems for farm credit.
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No major impact is expected in cements and its prices will not be affected as customs duty for cement and clinker has been left untouched. Infrastructure spending will have some impact on demand for cement.
Cement
Infrastructure
The increased outlay on roads, railways, irrigation and urban infrastructure announced in the Union Budget 2009-10 has a marginally positive impact for the industry and will aid the construction expenditure/growth in infrastructure segment (18 per cent in 2009-10.) The additional funding support for PPP infrastructure projects through refinancing of up to 60 per cent through IIFCL will ease funding pressures on construction companies and attract more participation, especially for BOT projects. Removal of excise duty on prefabricated concrete blocks will result in minor improvement in margins of construction players.
Fertiliser
Fertiliser subsidies will go from product-based to nutrient based while fertiliser subsidy has been reduced from Rs 759 bn to Rs 502 bn. However, greater thrust on farm credit and irrigation might boost fertiliser prospects in the medium to long term.
Ferrous metals
Prices of ferrous metals will continue to be the same as no changes were made in customs and Central value added tax duties. With increased allocation for accelerated power development and rural electrification scheme, aluminium might get a boost as 40% of the demand comes from this sector.
Oil and Gas
The extension of tax holiday under Section 80-IB on natural gas production with retrospective effect is expected to lead to better response to future NELP rounds. Although the MAT credit period has been extended from 7 years to 10 years, the increase in MAT rate from 10 per cent to 15 per cent is expected to lead to higher initial tax outflow. Given the expected increase in oil and gas production, the allowance of 100 per cent deduction for all capital expenditure on pipelines operating on a common carrier principle (both oil and gas), will ensure a better reach for distribution of the same. Further, the government has reiterated its commitment of creating a National Gas Grid, CRISIL noted in its report.
The excise duty on naphtha has been reduced from 16 per cent to 14 per cent. This is expected to have a marginally positive effect on margins of naphtha-based crackers. But the overall impact of Union Budget 2009-10 on the domestic petrochemical industry is neutral with no changes announced in the excise and customs duties,the report added.
Steel
There is no major impact on steel industry expected from the budget although rise in infrastructure spend will have positive impact in the long run.
Sugar
The impact of budget will be nuetral for this sector. The elimination of the commodities transaction tax will not impact the sugar sector in the near future as trading in sugar futures is banned till December 2009. CRISIL Research expects the margins of sugar companies to remain unaffected by the change.
Textiles
Interest costs for exporters will decline by 1 per cent due to the extension of 2 per cent interest subvention on pre and post shipment export credit till March 31, 2010. Excise duty on cotton textiles beyond the fibre stage which had been reduced to zero in the stimulus package has been restored to a 4 per cent optional duty. Excise dutyon man-made fibres and yarns has been raised to 8 per cent from earlier levels of 4 per cent. Whilethis will increase polyester prices by Rs 2.5 per kg, it will not affect demand, as polyester continues to be cheaper than cotton and substitution will continue, CRISIL Research notes in its report.
Source : Commodityonline