Power & infrastructure sectors may benefit from the budget

Equity markets are volatile these days and all eyes are on the budget, which could very well become a trigger in deciding which direction the markets will move.Announcements such as speeding up of disinvestment process, lowering of fiscal deficit, slashing subsidies on food, petroleum products & fertilisers, slow withdrawal of the stimulus package and focusing on economic growth will be positives from the stock market point of view. But if the budget fails to address critical issues and compromises on growth, it would depress sentiment on the equity markets. If the expectations about abolition of Securities transaction tax (STT), lowering of dividend distribution tax and short-term capital gains tax and raising of exemption limit for income-tax are met, the equity markets will get a boost. Insurance industry is expecting raising of FDI limit in the industry from 24% to 49% and extension of tax breaks on the premium paid for home insurance. The latter can particularly prove to be beneficial for the industry as less than 1% of homes in India are insured. Mutual fund industry, on the other hand, wants that the Sebi demand of doing away with tax benefits to corporates investing in mutual funds is not conceded; otherwise, corporates' tax outgo will increase, thus having a negative impact on the industry.The budget, with expected focus on rural economy, infrastructure, health and education is likely to benefit stocks of FMCG, power, infrastructure and capital goods sector, while the expected 2% excise hike can act as a near-term depressant for sectors like automobiles & cement, which may fail to pass cost hike to customers. Pankaj Pandey, head of equity research, ICICIdirect, said, "Social and infrastructure schemes like NREGA, JNNURM and PMGSY are likely to get emphasis in the budget, which will benefit stocks from the FMCG and infrastructure sectors. Further, lowering of individual tax rates could also increase the propensity to consume and spend."